Author Topic: [Committee Member] - johnr's proposal to join the BitShares Committee  (Read 3062 times)

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Offline yury

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Re: [Committee Member] - johnr's proposal to join the BitShares Committee
« Reply #45 on: September 11, 2018, 09:23:49 am »
Does the above analysis make sense to you?  We can concentrate our collective efforts on supply side solutions if so.

I would mostly agree with the analysis. To go further regarding the supply side, IMO people are not motivated enough to create (borrow) MPAs because the risk being margin called is quite high in volatile/bear market as of now.
How about adding one more incentive to those who takes the risk? As mentioned above, MPA is a good service/product, it has big demand. And therefore it can generate revenue stream (e.g. market fees). IMO it would be nice if those who take the risk and support (borrow) MPA shall have a cut from the revenue. To avoid passive yield harvesting, the borrower shall release borrowed MPA to the open market:
1. An MPA owner specifies market fee portion he would like to share with borrowers.
2. A user borrows the MPA providing the collateral (this may be BTS or any other MPA or UIA, as specified in the MPA collateral settings).
3. To receive the cut of the MPA market fees, the user has to place market sell order on MPA:Collateral asset (e.g. bitUSD:BTS) market.
4. As the MPA is being bought and sold by other users, market fee goes to the MPA's owner vesting balance, particular part of it (as specified in 1st step) is proportionally sharedropped to all borrowers who has executed step 3.
Yury Cherniawsky
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Offline bitcrab

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Re: [Committee Member] - johnr's proposal to join the BitShares Committee
« Reply #46 on: September 11, 2018, 10:31:26 am »
smartcoin premium depend highly on BTS price, we always observe that in bear market, with BTS price going down, bitCNY are squeezed out, risk and capital cost of shorts increase. but demand change slowly than that, all these lead to higher premium and vice versa.

that's one problem of smartcoin, when premium go farer from 0 there's nothing to stimulate the premium to go toward 0, and that's why we now try the negative feed back price feeding, hope that can help.

Offline pc

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Re: [Committee Member] - johnr's proposal to join the BitShares Committee
« Reply #47 on: September 11, 2018, 02:47:12 pm »
with BTS price going down, bitCNY are squeezed out, risk and capital cost of shorts increase. but demand change slowly than that, all these lead to higher premium and vice versa.

that's one problem of smartcoin, when premium go farer from 0 there's nothing to stimulate the premium to go toward 0, and that's why we now try the negative feed back price feeding, hope that can help.

Keep in mind that margin called short positions create automatic demand, and the amount of poorly collateralized bitCNY short positions is the biggest reason for the premium.

The whole theory of bitassets is based upon the premium. If bitXY trades with a premium there is an incentive for shorters to create (and sell) more bitXY, which brings the premium down. If bitXY trades below par there is an incentive for shorters to buy up cheap bitXY and close their positions. In both cases, the market price is driven towards par. Therefore it doesn't make sense to claim that nothing stimulates the premium - the premium exists to stimulate market participants.
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Offline bitcrab

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Re: [Committee Member] - johnr's proposal to join the BitShares Committee
« Reply #48 on: September 11, 2018, 03:00:58 pm »
with BTS price going down, bitCNY are squeezed out, risk and capital cost of shorts increase. but demand change slowly than that, all these lead to higher premium and vice versa.

that's one problem of smartcoin, when premium go farer from 0 there's nothing to stimulate the premium to go toward 0, and that's why we now try the negative feed back price feeding, hope that can help.

Keep in mind that margin called short positions create automatic demand, and the amount of poorly collateralized bitCNY short positions is the biggest reason for the premium.

The whole theory of bitassets is based upon the premium. If bitXY trades with a premium there is an incentive for shorters to create (and sell) more bitXY, which brings the premium down. If bitXY trades below par there is an incentive for shorters to buy up cheap bitXY and close their positions. In both cases, the market price is driven towards par. Therefore it doesn't make sense to claim that nothing stimulates the premium - the premium exists to stimulate market participants.

No, we haven't saw that the premium stimulate people to do more shorting, as high premium is always with BTS price down trend and high risk that play a much important role for a shorter to make decision.

Offline JohnR

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Re: [Committee Member] - johnr's proposal to join the BitShares Committee
« Reply #49 on: September 11, 2018, 03:11:25 pm »
Does the above analysis make sense to you?  We can concentrate our collective efforts on supply side solutions if so.

I would mostly agree with the analysis. To go further regarding the supply side, IMO people are not motivated enough to create (borrow) MPAs because the risk being margin called is quite high in volatile/bear market as of now.
How about adding one more incentive to those who takes the risk? As mentioned above, MPA is a good service/product, it has big demand. And therefore it can generate revenue stream (e.g. market fees). IMO it would be nice if those who take the risk and support (borrow) MPA shall have a cut from the revenue. To avoid passive yield harvesting, the borrower shall release borrowed MPA to the open market:
1. An MPA owner specifies market fee portion he would like to share with borrowers.
2. A user borrows the MPA providing the collateral (this may be BTS or any other MPA or UIA, as specified in the MPA collateral settings).
3. To receive the cut of the MPA market fees, the user has to place market sell order on MPA:Collateral asset (e.g. bitUSD:BTS) market.
4. As the MPA is being bought and sold by other users, market fee goes to the MPA's owner vesting balance, particular part of it (as specified in 1st step) is proportionally sharedropped to all borrowers who has executed step 3.

Yury thank you for the message and thoughtful comment.  There is a an aspect to this that is very appealing as it more appropriately aligns the risk/reward proposition between stakeholders and fee beneficiaries.  Maybe it would be prudent to explore this option first with private smart coins and see the results.  What do you think? The issue of course would be that in the bitasset/smart coin universe, committee bitassets far and away dominate in overall transaction volume.

Offline JohnR

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Re: [Committee Member] - johnr's proposal to join the BitShares Committee
« Reply #50 on: September 11, 2018, 03:41:08 pm »

No, we haven't saw that the premium stimulate people to do more shorting, as high premium is always with BTS price down trend and high risk that play a much important role for a shorter to make decision.

Jerry,

Thank you for your thoughtful comments above.  You've provided clarity into your rationale for the negative feedback price feed idea.  I support your effort for it and am eager to see what the future brings.

Clearly you are right that the premium remains, so the incentive mechanisms are not functioning as we intend.  I think what pc is missing is the interplay between the cost of capital, short squeeze ratio, and the equivalency between the premium and the risk of stakeholding. 

1) Yes it may be the case that a bitUSD trading for 1.02 should incentivize short sellers.  In reality it takes a large amount of capital in BTS to synthesize enough bitUSD to sell down to par (this is expensive and hard to justify from the traders perspective). 
2) Combine this with the additional risk placed by the short squeeze ratio which in effect creates a 'net-negative' force on the supply of bitUSD.  As margin calls accumulate with a squeeze ratio above 1 what you see is more and more bts collateralizing less bitUSD (same for any asset).  This downward spiral in outstanding bitUSD exacerbates the supply side problem.
3) The biggest problem with assuming the premium will incentivize sellers to help market reach equilibrium is that with the structural issues still in place that risk (premium) simply transfers to the new short.  True arbitrage is hard to find - and it's definitely not likely in the most liquid markets on BitShares.