Author Topic: ETF on BitShares  (Read 889 times)

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Offline ElMosso

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ETF on BitShares
« on: April 05, 2018, 01:11:12 pm »
Hello everyone,

Currently i am investigating the posibility of an AEX-ETF as smartcoin on BitShares. For the research i have some questions that are still unclear and i hope that you can help me with it.

-What are the pros and cons of an ETF on BitShares instead of current ETF from a bank?
-Which steps has to be done for creating an ETF on BitShares?(how can the token be created)
-If the value of the AEX changes, the new price of the ETF has to be published through witness or Authorized account. How can this be done?


Thanks in advance

Offline abit

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Re: ETF on BitShares
« Reply #1 on: April 05, 2018, 07:40:37 pm »
There was a link about ETF: https://bitsharestalk.org/index.php?topic=25994.0, Please contact the author of that post.
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Offline zapata42

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Re: ETF on BitShares
« Reply #2 on: April 05, 2018, 07:43:02 pm »
Hello everyone,

Currently i am investigating the posibility of an AEX-ETF as smartcoin on BitShares. For the research i have some questions that are still unclear and i hope that you can help me with it.

Hello again,

-What are the pros and cons of an ETF on BitShares instead of current ETF from a bank?

The naive pitch is on slide 8 on the presentation.

Since my presentation I had the opportunity to speak with many poeple on the topic, so let me try to summarize it here for an open discussion with everyone:

An ETF on Bitshares is similar to a Fully funded synthetic ETF.
Generally there is pro/cons versus physical ones, but interestingly doing it the Bitshares MPA way keeps all the pros and fixes most of the cons: transparancy, liquidity and counterparty risks.

This means:

Pros:
   - all the benefits of a Fully funded synthetic ETF: better index tracking, possible on less liquid underlyings
   - all the benefits of crypto/blockchain/digitial assets: fast settlement, audit, no third party custodian, ...
   - all the benefits of the decentralized exchanges: multiple gateways, by default can be traded against all other assets (but still can have whitelisted/blacklisted assets), ...
   - faster time to market (from idea to listing) for the issuer, everything could be done through the Bitshares UI.
   - cheap (Bitshares fees to create an asset are ridiculous compared to fees to list on an organized exchanges).
   - issuer is autonomous (organized exchanges won't let you create an ETF if it won't bring enough liquidity as it's too costly for them)
   - automated and transparent distributions of fees to the issuer thanks to the market fees attribute on the Smart Coin and Bitshares cashflow mecanisms;
   - as an investor, you have no counterparty risk as the blockchain guaranty you that the collateral is always there and you can exit whenever you want thanks to the force settlement feature (even if there is no sellers)
   - potentially more liquidity as anyone can issue shares by putting collateral (contrary to usual ETF where only Authorized Participants/banks can), this brings also more market making/arbitrage opportunities (primary + secondary market).

Cons:
  - regulation is currently undefined (some will argue it's a pro...)
  - overcollaterization (so additional costs for the borrower)
  - currently all collateral/transactions/balances/order book are public (this also could be argued as a pro...)
  - physical management is easier than synthethic (additional risk on borrower side)
  - the collateral is a crypto token (BTS or BitXXX), which might have no value for the ETF buyer.

Note that you can do a traditional physical ETF using an IOU token, it will have many of the above benefits and none of the cons.

Did I miss something?

-Which steps has to be done for creating an ETF on BitShares?(how can the token be created)

1. Create the Smart Coin (see http://docs.bitshares.org/bitshares/tutorials/uia-create-gui.html)
   You can get the values from an existing ETF like https://wallet.bitshares.org/#/asset/TWENTIX
2. Whitelist a known account as price publisher
3. Schedule a batch that will regularly publish a price on the blockchain from that account (see http://docs.bitshares.org/bitshares/tutorials/publish-feed.html)

If you want to have independant price publishers, you will need to publish the composition of your ETF on the blockchain, so anyone can read the composition and publish a price.
See for example bittwenty.feed.
And the sample code here.





-If the value of the AEX changes, the new price of the ETF has to be published through witness or Authorized account. How can this be done?

As explained above, you need to schedule a price feed that will send the price regularly on the blockchain.


Thanks in advance

Hope this will help you, and anyone else to start their ETF business on Bitshares!

Anyway my thought on the topic:
  - There is a HUGE business oppurtunity
  - It requires skilled professionnal traders
  - Regulation / legal aspects on the topic should be investigated
  - This could have a major impact on the value of BTS token

Offline zapata42

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Re: ETF on BitShares
« Reply #3 on: April 05, 2018, 07:50:57 pm »
There was a link about ETF: https://bitsharestalk.org/index.php?topic=25994.0, Please contact the author of that post.

Sorry I was too slow to answer ;)

Offline abit

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Re: ETF on BitShares
« Reply #4 on: April 06, 2018, 01:19:20 pm »
There was a link about ETF: https://bitsharestalk.org/index.php?topic=25994.0, Please contact the author of that post.

Sorry I was too slow to answer ;)
Thank you for the long answer :)
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Offline ElMosso

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Re: ETF on BitShares
« Reply #5 on: April 08, 2018, 06:05:46 pm »
Hi,

-What about paying dividends?
-Do you have to own the shares in the index for setting up an synthetic ETF?

Offline zapata42

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Re: ETF on BitShares
« Reply #6 on: April 08, 2018, 09:01:51 pm »

-What about paying dividends?

There is no build in feature in Bitshares for that.
You should:
  - Retrieve the list of holders of the ETF
  - Send them an amount of BTS/bitUSD that represent their dividends.
This could be either done manually through the UI, or (better) scripted.

Another option is to do a Total Return ETF, this means the dividends are automatically reinvested, you only have to impact the ETF price accordingly in your price feed script.


-Do you have to own the shares in the index for setting up an synthetic ETF?

No you only need to put the digital asset that has been defined by the issuer as collateral on Bitshares.


Offline ElMosso

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Re: ETF on BitShares
« Reply #7 on: April 09, 2018, 11:11:56 am »
When and how do i have to whitelist some accounts for publishing the price feed?

Does anyone have knowledge about published the price feed?
-How do you sent the price feed?
-how can you make a price feed?

Offline zapata42

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Re: ETF on BitShares
« Reply #8 on: April 09, 2018, 02:22:12 pm »
When and how do i have to whitelist some accounts for publishing the price feed?

You can do it from the UI after you create the Smart Asset.
When you are the issuer in the asset page you have a feed producer tab, where you can grant some accounts the right to publish feeds.

Does anyone have knowledge about published the price feed?
-How do you sent the price feed?
-how can you make a price feed?

http://docs.bitshares.org/bitshares/tutorials/publish-feed.html

Offline ElMosso

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Re: ETF on BitShares
« Reply #9 on: April 10, 2018, 01:41:55 pm »
For the reliability of the ETF I want that the witnesses publish the price feed. When my script is finished i have to publish it somewhere to make it public. But how do i know that a witness is gonna publish the price feed? Furthermore, what are the costs for the fact that the witness publish the price feed?

Offline zapata42

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Re: ETF on BitShares
« Reply #10 on: April 10, 2018, 02:31:02 pm »
For the reliability of the ETF I want that the witnesses publish the price feed. When my script is finished i have to publish it somewhere to make it public. But how do i know that a witness is gonna publish the price feed? Furthermore, what are the costs for the fact that the witness publish the price feed?

Yes you need to publish a reference implementation. Witness will use it or update their own.

You have an example with HERTZ: https://bitsharestalk.org/index.php?topic=24161.0

You can have a look to another similar situation: https://bitsharestalk.org/index.php?topic=26068.0

Reaching witness and having them publish your feed can take some time. This forum is the best place to reach them (search for their witness threads and/or send them a MP).

About the cost, the witness might do it for free, as it might get them some additional votes to be active (and get the pay from the Bitshares DAC itself).
If there is not enougth competition between witness on votes, you might have to pay additionally to get more incentive, (or pay for someone to  update their pricefeed script).
In any case a feedback to the BTS shareholders on how the process went is appreciated, so we can update our votes accordingly.

Offline ElMosso

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Re: ETF on BitShares
« Reply #11 on: April 11, 2018, 03:25:49 pm »
What are your thoughts about the permission: disable force settling?

Offline ElMosso

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Re: ETF on BitShares
« Reply #12 on: April 11, 2018, 09:45:12 pm »
Furthermore, i have looked to some MPA  on bitshares and there is also a settlement price. What does the settlement price exactly mean and how is it calculated?

Offline zapata42

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Re: ETF on BitShares
« Reply #13 on: April 12, 2018, 01:09:34 pm »
What are your thoughts about the permission: disable force settling?

You should allow force settling, this will give the opportunity to an ETF share owner to exit and get the colllateral even if there is no sellers.
If there high liquidity and market makers, force settling should not be usefull, but better to keep it as a safety net.

Offline zapata42

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Re: ETF on BitShares
« Reply #14 on: April 12, 2018, 01:48:52 pm »
Furthermore, i have looked to some MPA  on bitshares and there is also a settlement price. What does the settlement price exactly mean and how is it calculated?

To publish a feed you have to provide:
    - settlement_price: the rate ETF / USD (or EUR or BTS or whatever base asset you use)
    - core_exchange_rate: the exchange rate to pays DEX fees using your asset (see fee pool mecanism)
    - maximum_short_squeeze_ratio: collateral ratio that triggers a force settlement
    - maintenance_collateral_ratio: minimum Collateral ratio required to borrow a share of the ETF

I would recommand you to read all the documentation on the topic:
   - http://docs.bitshares.org/bitshares/user/dex-short.html
   - http://docs.bitshares.org/bitshares/user/dex-margin-mechanics.html