Author Topic: Announcement on BSIP42 relevant actions  (Read 3846 times)

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Offline Thom

Re: Announcement on BSIP42 relevant actions
« Reply #45 on: October 09, 2018, 05:07:41 am »
Define "hurt"? Debt positions are attached with responsibilities, we can't deny it.
<exactly Abit - Thom comment>

when the debt position is in sufficient collateral, a smartcoin holder can forcibly buy the collateral, this is definitely hurting.

Define "sufficient collateral"? Almost all the time all debt positions have more collateral than debt, from this perspective, they should never be "hurt" in terms of margin calls or forced settlements? Apparently this is not our rule.
Agreed, don't see the hurt either. Not sure why you say "Apparently this is not our rule."

If you mean 175% is sufficient, I disagree. 175% perhaps is sufficient sometimes, however, when a smartcoin is oversupplied, IMHO that means 175% is NOT sufficient; when under-supplied, I'd say 175% is too high.

So, if we adjust MCR dynamically and keep feed price unchanged, for debt position holders, it's not always "safe" to keep their positions if they have only 175% collateral ratio or even 200%.
Also exactly right.

This what is called "responsibility" of debt position owners according to the initial design of BTS

Maintaining & balancing the collateral ratio in relation to the market volatility and risk tolerance of the investor, THAT is the responsibility inherent in the design.  Thus it is up to each investor what level of risk of being margin s/he is willing to take. EACH trader is in full control of the level of risk they will take.

You do raise a valid point tho when you say there is little capital to increase collateral with in a bear trend. I agree, but that's not an argument against the need to maintain at least 100% collateral at all times to stay truly "safe". Safety is a myth in a highly volatile market. I also believe it's a bad practice to subsidize poor trades, unless you want more of them.

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Re: Announcement on BSIP42 relevant actions
« Reply #46 on: October 09, 2018, 08:49:45 am »
So, let me summarize my understanding. We basically have three parameters available that we can use
towards fulfilling our optimization criteria:

* settlement price (price feed) - This is the price that is used for margin calls as well as force settlements.
* MSSR - the max premium a shorter needs to pay (from market) in case of margin call
* MCR - The minimum collateral necessary for call positions, if lower -> margin call

Essentially, we can apply a "feedback loop" on all of them, either by "derailing the price feed", tuning MSSR or MCR.
The main motivation for "detailing the price feed" is because the MSSR as well as the MCR are lower bounded by 100.1%
and thus cannot go lower. A "tuning" of the price feed could lead to reduction of the premium beyond what could be
possible by tuning MSSR or MCR.

Now, the question (at least to me) is, where is the "premium" and how can we lower it, best?

I would like to see how well this approach would work:

* Feed: price feed with a fixed 1% offset from the "fair price" (fixed tuning) - this way, we allow bitasset buyers to outcompete margin calls and have margin calls provide liquidity at 1% 'discount'
* MSSR: at 100% if premium >=0%, else (100-premium*penalty)% if premium <0 (feedback) - this way, we cause margin calls to raise the price in case there is a discount - "penalty" would cause the margin call to pay a premium
* MCR: dynamic MCR at     max(130, 170 - 40 * (premium/5%))% (feedback) - this way, we have a MCR of 170% in case of 0% premium which groes if the premium is <0% and shrinks towards 130% (linearily) in case of premium >0%

The only thing that I am not sure about is if this approach may not lead to more and more margin calls piling up at the settlement
price with not incentive provided to sell into them - unless the external "premium" is negative ...

Thoughts?
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Offline armin

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Re: Announcement on BSIP42 relevant actions
« Reply #47 on: October 09, 2018, 11:20:23 am »

* MSSR: at 100% if premium >=0%, else (100-premium*penalty)% if premium <0 (feedback) - this way, we cause margin calls to raise the price in case there is a discount - "penalty" would cause the margin call to pay a premium

(100-premium*penalty)% means < 100% MSSR if premium < 0? How's that possible

Offline clockwork

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Re: Announcement on BSIP42 relevant actions
« Reply #48 on: October 09, 2018, 11:53:32 am »

* MSSR: at 100% if premium >=0%, else (100-premium*penalty)% if premium <0 (feedback) - this way, we cause margin calls to raise the price in case there is a discount - "penalty" would cause the margin call to pay a premium

(100-premium*penalty)% means < 100% MSSR if premium < 0? How's that possible

100 - (-1) = 100+1

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Re: Announcement on BSIP42 relevant actions
« Reply #49 on: October 09, 2018, 12:03:56 pm »
* settlement price (price feed) - This is the price that is used for margin calls as well as force settlements.
* MSSR - the max premium a shorter needs to pay (from market) in case of margin call
* MCR - The minimum collateral necessary for call positions, if lower -> margin call

You missed the settlement offset.
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Re: Announcement on BSIP42 relevant actions
« Reply #50 on: October 09, 2018, 12:25:48 pm »
* settlement price (price feed) - This is the price that is used for margin calls as well as force settlements.
* MSSR - the max premium a shorter needs to pay (from market) in case of margin call
* MCR - The minimum collateral necessary for call positions, if lower -> margin call

You missed the settlement offset.

1. I don't think debt positions are "hurt" by forced settlement, because settlement happens at the fair price. (But that's an old argument.)

2. It should be possible to keep a balance using smartcoin parameters. E. g. with the settlement offset the debt position receives a reward for being settled.


Settlement offset is a committee-controlled parameter right now, it responses much slower so unable to be used for fine-tuning.
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Offline abit

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Re: Announcement on BSIP42 relevant actions
« Reply #51 on: October 09, 2018, 12:29:44 pm »
Define "hurt"? Debt positions are attached with responsibilities, we can't deny it.
<exactly Abit - Thom comment>

when the debt position is in sufficient collateral, a smartcoin holder can forcibly buy the collateral, this is definitely hurting.

Define "sufficient collateral"? Almost all the time all debt positions have more collateral than debt, from this perspective, they should never be "hurt" in terms of margin calls or forced settlements? Apparently this is not our rule.
Agreed, don't see the hurt either. Not sure why you say "Apparently this is not our rule."
"Our rule" is there is a "maintenance collateral ratio" which is more than 100% so far, that means the positions will be margin called even if they have more than 100% (aka "sufficient" to some extent) collateral.

Quote

If you mean 175% is sufficient, I disagree. 175% perhaps is sufficient sometimes, however, when a smartcoin is oversupplied, IMHO that means 175% is NOT sufficient; when under-supplied, I'd say 175% is too high.

So, if we adjust MCR dynamically and keep feed price unchanged, for debt position holders, it's not always "safe" to keep their positions if they have only 175% collateral ratio or even 200%.
Also exactly right.

This what is called "responsibility" of debt position owners according to the initial design of BTS

Maintaining & balancing the collateral ratio in relation to the market volatility and risk tolerance of the investor, THAT is the responsibility inherent in the design.  Thus it is up to each investor what level of risk of being margin s/he is willing to take. EACH trader is in full control of the level of risk they will take.

You do raise a valid point tho when you say there is little capital to increase collateral with in a bear trend. I agree, but that's not an argument against the need to maintain at least 100% collateral at all times to stay truly "safe". Safety is a myth in a highly volatile market. I also believe it's a bad practice to subsidize poor trades, unless you want more of them.
If you understood the impossible trinity, you'll see why we need to allow <100% collateral if we always want a tight peg.
« Last Edit: October 09, 2018, 12:52:29 pm by abit »
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Re: Announcement on BSIP42 relevant actions
« Reply #52 on: October 09, 2018, 12:50:08 pm »
<100% collateral is a bad idea.

impossible trinity has no any relation with <100% collateral.

What we need is how to deal with the <110% collateral as opposed to allow the <100% collateral happening.

You want a MPA, so <100% collateral is not allowed.

if <100% collateral is allowed, so the coin is not a MPA.

Offline bitcrab

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Re: Announcement on BSIP42 relevant actions
« Reply #53 on: October 09, 2018, 01:16:14 pm »
So, let me summarize my understanding. We basically have three parameters available that we can use
towards fulfilling our optimization criteria:

* settlement price (price feed) - This is the price that is used for margin calls as well as force settlements.
* MSSR - the max premium a shorter needs to pay (from market) in case of margin call
* MCR - The minimum collateral necessary for call positions, if lower -> margin call

Essentially, we can apply a "feedback loop" on all of them, either by "derailing the price feed", tuning MSSR or MCR.
The main motivation for "detailing the price feed" is because the MSSR as well as the MCR are lower bounded by 100.1%
and thus cannot go lower. A "tuning" of the price feed could lead to reduction of the premium beyond what could be
possible by tuning MSSR or MCR.

Now, the question (at least to me) is, where is the "premium" and how can we lower it, best?

I would like to see how well this approach would work:

* Feed: price feed with a fixed 1% offset from the "fair price" (fixed tuning) - this way, we allow bitasset buyers to outcompete margin calls and have margin calls provide liquidity at 1% 'discount'
* MSSR: at 100% if premium >=0%, else (100-premium*penalty)% if premium <0 (feedback) - this way, we cause margin calls to raise the price in case there is a discount - "penalty" would cause the margin call to pay a premium
* MCR: dynamic MCR at     max(130, 170 - 40 * (premium/5%))% (feedback) - this way, we have a MCR of 170% in case of 0% premium which groes if the premium is <0% and shrinks towards 130% (linearily) in case of premium >0%

The only thing that I am not sure about is if this approach may not lead to more and more margin calls piling up at the settlement
price with not incentive provided to sell into them - unless the external "premium" is negative ...

Thoughts?

in my view, although there are 3 parameters, we do not to make each one dynamic. adjusting all 3 will make things very complex.

feed price: let it return to just reflect the "real market price". it also do good for information.

MSSR: I feel it's OK to set it to a fixed value, either 10% or 5%.

MCR: is 130% low enough as a limit? is say 110% better as a limit? is it possible to set 100% as the limit? as we all agree that we should allow independent margin call orders with ratio<100%
« Last Edit: October 09, 2018, 01:19:10 pm by bitcrab »

Offline abit

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Re: Announcement on BSIP42 relevant actions
« Reply #54 on: October 09, 2018, 01:25:02 pm »
So, let me summarize my understanding. We basically have three parameters available that we can use
towards fulfilling our optimization criteria:

* settlement price (price feed) - This is the price that is used for margin calls as well as force settlements.
* MSSR - the max premium a shorter needs to pay (from market) in case of margin call
* MCR - The minimum collateral necessary for call positions, if lower -> margin call

Essentially, we can apply a "feedback loop" on all of them, either by "derailing the price feed", tuning MSSR or MCR.
The main motivation for "detailing the price feed" is because the MSSR as well as the MCR are lower bounded by 100.1%
and thus cannot go lower. A "tuning" of the price feed could lead to reduction of the premium beyond what could be
possible by tuning MSSR or MCR.

Now, the question (at least to me) is, where is the "premium" and how can we lower it, best?

I would like to see how well this approach would work:

* Feed: price feed with a fixed 1% offset from the "fair price" (fixed tuning) - this way, we allow bitasset buyers to outcompete margin calls and have margin calls provide liquidity at 1% 'discount'
* MSSR: at 100% if premium >=0%, else (100-premium*penalty)% if premium <0 (feedback) - this way, we cause margin calls to raise the price in case there is a discount - "penalty" would cause the margin call to pay a premium
* MCR: dynamic MCR at     max(130, 170 - 40 * (premium/5%))% (feedback) - this way, we have a MCR of 170% in case of 0% premium which groes if the premium is <0% and shrinks towards 130% (linearily) in case of premium >0%

I'd say your understanding about feedback is wrong.

1. `170 - 40 * (premium/5%)` is a fixed formula but not a feedback-based formula. "Fixed formulas won't work" is proven during current experiment. We don't predict how much to tune in order to maintain a tight peg, we let the algorithm tune dynamically according to current situation (premium or discount).

2. any limitation put in a feedback-based formula will be an obstacle for maintaining the peg at some point. It's proven as well during the experiment. Here I'm talking about the 130.

By the way, tuning more than 1 parameter at a time is hard than tuning only 1 parameter, the former can lead to unexpected behavior, see the 3rd and later comments in this issue for an example: https://github.com/bitshares/bitshares-core/issues/1270#issuecomment-421273567

Quote

The only thing that I am not sure about is if this approach may not lead to more and more margin calls piling up at the settlement
price with not incentive provided to sell into them - unless the external "premium" is negative ...

Thoughts?

In order to have less margin calls piling up, we can start to increase MSSR earlier.

Your proposal was to increase MSSR only when MCR reached 170% or higher.

BSIP42's effective MSSR is greater than 100% when effective MCR is 165% (or so) or higher.
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Offline abit

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Re: Announcement on BSIP42 relevant actions
« Reply #55 on: October 09, 2018, 01:27:21 pm »
<100% collateral is a bad idea.

impossible trinity has no any relation with <100% collateral.

What we need is how to deal with the <110% collateral as opposed to allow the <100% collateral happening.

You want a MPA, so <100% collateral is not allowed.

if <100% collateral is allowed, so the coin is not a MPA.
You didn't prove your conclusion, thus not a good argument.
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Re: Announcement on BSIP42 relevant actions
« Reply #56 on: October 09, 2018, 01:38:11 pm »
<100% collateral is a bad idea.

impossible trinity has no any relation with <100% collateral.

What we need is how to deal with the <110% collateral as opposed to allow the <100% collateral happening.

You want a MPA, so <100% collateral is not allowed.

if <100% collateral is allowed, so the coin is not a MPA.
You didn't prove your conclusion, thus not a good argument.

these were not a argument, and don't need to prove.

if someone's collateral have 51% percentage of the total collateral and his collateral <100%,what will happen?

Offline Thom

Re: Announcement on BSIP42 relevant actions
« Reply #57 on: October 09, 2018, 02:39:42 pm »
If you understood the impossible trinity, you'll see why we need to allow <100% collateral if we always want a tight peg.

My understanding of "impossible trinity" is that the 3 variables can never be in harmony, at least 1 will oppose the other 2 so all 3 are not useful as feedback to maintain the peg. That's why bitcrab says it would be complicated.

If the tradeoff is between allowing collateral to drop below 100% and a tight peg (not proven yet) it's better (safer for system integrity) to allow peg to be less tight. The systemic problem of unstable markets is made worse when collateral drops below 100%, and the problem can cascade when under collateralized assets are used to invest with leverage in other assets. Under collateralized derivatives are the primary reason mainstream financial markets are a "house of cards" waiting to fall.

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Re: Announcement on BSIP42 relevant actions
« Reply #58 on: October 09, 2018, 03:27:42 pm »
If you understood the impossible trinity, you'll see why we need to allow <100% collateral if we always want a tight peg.

My understanding of "impossible trinity" is that the 3 variables can never be in harmony, at least 1 will oppose the other 2 so all 3 are not useful as feedback to maintain the peg. That's why bitcrab says it would be complicated.

Your understanding is obviously wrong.

Impossible trinity is about the whole design, not the 3 parameters in price feed. One of the 3 in the trinity is the peg. That means if we want 100% peg and 100% free capital flow, we can't have independent monetary policy aka limiting how much bitasset we can create aka a limitation on minimum collateral ratio.



Quote
If the tradeoff is between allowing collateral to drop below 100% and a tight peg (not proven yet) it's better (safer for system integrity) to allow peg to be less tight. The systemic problem of unstable markets is made worse when collateral drops below 100%, and the problem can cascade when under collateralized assets are used to invest with leverage in other assets. Under collateralized derivatives are the primary reason mainstream financial markets are a "house of cards" waiting to fall.

Impossible trinity means when external money (fiat USD or fiat CNY or BTC or others) flows into bitUSD (placing orders with higher-than-par-value price to buy bitUSD in DEX and/or CEXs that listed bitUSD) thus pushes up bitUSD price, (to maintain a tight peg) we need to create more bitUSD regardless of how much a BTS token is (although BTS price could be indirectly pushed up). The more money flows in, the more bitUSD we need to create. If want to always have more than 100% collateral (assuming BTS price hasn't been pushed high enough), it's unable to maintain the peg when the money flowed in is too much; so in order to maintain a tight peg, either the market pushes BTS price to high enough, or we allow <100% collateral ratio.

For reference, price of Steem Dollar has ever been pushed to 13 USD when money flowed in while the supply was limited (https://coinmarketcap.com/currencies/steem-dollars/). IMHO it's not only "less tight" but actually broken.

On the other hand, when money flows out from bitUSD, we need to reduce bitUSD supply, so we adjust parameters to trigger more margin calls. The process is a bit complicated since the margin calls won't fill in the beginning, and the bitUSD buying BTS would temporarily push BTS price up. Actually it's very hard to maintain a tight peg in this scenario if BTS price is not high enough (aka if collateral ratio is below 100%), filling margin calls at par value means a black swan; if we trigger a global settlement then all will be gone; if we allow bitUSD be traded at a discount and keep the borrow functionality active, eventually trading price will return to par value when enough bitUSD holders exited with a loss.
« Last Edit: October 10, 2018, 01:26:49 am by abit »
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Offline JohnR

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Re: Announcement on BSIP42 relevant actions
« Reply #59 on: October 10, 2018, 04:17:02 am »
I think we should definitely try a MSSR of 0.  The orthodoxy around here seems to be that a high MSSR is good because it will incentivize people to buy up debt as BTS is falling.  This is flawed reasoning.  Once the secondary buyer takes on the previously undercollateralized debt position he is then in a position of facing adverse forced selling at the same penalty % if BTS continues to fall.  Best case scenario this will net to zero.  But psychologically it may discourage people from jumping into the breach as BTS falls.  The optimal strategy to employ with a MSSR above 0 is to wait for BTS to stop falling then buy up the distressed debt.  Apply that across a market and you have everyone waiting around and BTS languishes.

While I don't totally understand how a dynamic MCR would work technically, if we can pull it off I think it's great.  bitUSD/CNY face chronic shortages partially because it is expensive to hold the .75 x of surplus collateral.  Widgets that are expensive get supplied in lower quantity.  If we have the technology to implement a dynamic MCR we should absolutely proceed with it.  In my opinion, there is far more upside than downside.  It can still remain overcollateralized, so that bitCNY/USD don't become a 'house of cards' like other synthetic/fractional reserve systems.

So, let me summarize my understanding. We basically have three parameters available that we can use
towards fulfilling our optimization criteria:

* settlement price (price feed) - This is the price that is used for margin calls as well as force settlements.
* MSSR - the max premium a shorter needs to pay (from market) in case of margin call
* MCR - The minimum collateral necessary for call positions, if lower -> margin call

Essentially, we can apply a "feedback loop" on all of them, either by "derailing the price feed", tuning MSSR or MCR.
The main motivation for "detailing the price feed" is because the MSSR as well as the MCR are lower bounded by 100.1%
and thus cannot go lower. A "tuning" of the price feed could lead to reduction of the premium beyond what could be
possible by tuning MSSR or MCR.

Now, the question (at least to me) is, where is the "premium" and how can we lower it, best?

I would like to see how well this approach would work:

* Feed: price feed with a fixed 1% offset from the "fair price" (fixed tuning) - this way, we allow bitasset buyers to outcompete margin calls and have margin calls provide liquidity at 1% 'discount'
* MSSR: at 100% if premium >=0%, else (100-premium*penalty)% if premium <0 (feedback) - this way, we cause margin calls to raise the price in case there is a discount - "penalty" would cause the margin call to pay a premium
* MCR: dynamic MCR at     max(130, 170 - 40 * (premium/5%))% (feedback) - this way, we have a MCR of 170% in case of 0% premium which groes if the premium is <0% and shrinks towards 130% (linearily) in case of premium >0%

The only thing that I am not sure about is if this approach may not lead to more and more margin calls piling up at the settlement
price with not incentive provided to sell into them - unless the external "premium" is negative ...

Thoughts?