Author Topic: Newbie question about BitUSD peg  (Read 1795 times)

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Offline DebMarketsNow

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Thanks so much for both of these replies. Interestingly, the solution to the 'global settlement event' is exactly how BitMEX operates (you know more about this than I do, so I'm guessing you know that already). Thanks again for the overview.

Offline abit

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So I understand how BitUSD (and other pegged assets) are collateralized by BitShares. I also get that positions are liquidated if and when the BitShares held as collateral fall below the required minimum. So here is my question: what happens if the market gaps when volatility becomes extreme? Isn't there a chance that pegs such as BitUSD break in the event of a black swan? I'm not challenging the underlying BitShares technology (I think it's an amazing invention), I'm just trying to better understand the risks. The fact that the pegs have held since 2014 is pretty amazing. Cheers.
In the event of a black swan, the peg will break and a global settlement will occur, all short positions will be closed at the least collateral ratio, an amount equals to (debt*ratio) of collateral will be be moved to a settlement fund, the rest collateral (if any) will be refunded to the shorters. The asset holders can instantly settle their assets for collateral at that ratio. No more shorting is allowed before the asset is revived. For more info about how to revive, please check https://github.com/bitshares/bsips/blob/master/bsip-0018.md
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Offline pc

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So here is my question: what happens if the market gaps when volatility becomes extreme? Isn't there a chance that pegs such as BitUSD break in the event of a black swan?

A black swan *is* the situation when a bitasset becomes undercollateralized. When that happens, the settlement guarantee that defines the peg is replaced by a fixed exchange rate bitasset -> BTS, so essentially the bitasset is pegged to a fixed amount of BTS instead of its "real" counterpart.

This has already happened to some bitassets, like SEK, RUB, KRW, and more recently GOLD and SILVER. We are currently deploying a method to re-collateralize bitassets after a black swan to make them usable again.
Bitcoin - Perspektive oder Risiko? ISBN 978-3-8442-6568-2 http://bitcoin.quisquis.de

Offline DebMarketsNow

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So I understand how BitUSD (and other pegged assets) are collateralized by BitShares. I also get that positions are liquidated if and when the BitShares held as collateral fall below the required minimum. So here is my question: what happens if the market gaps when volatility becomes extreme? Isn't there a chance that pegs such as BitUSD break in the event of a black swan? I'm not challenging the underlying BitShares technology (I think it's an amazing invention), I'm just trying to better understand the risks. The fact that the pegs have held since 2014 is pretty amazing. Cheers.