Announcement on BSIP42 relevant actions

[Thom]

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.

Thank you JohnR, for understanding of the dangers of under-collateralization. It's a point that can't be over emphasized and shouldn't be ignored IMHO, and requires a longer term view and respect for the ecosystem than most traders appear to have. Why this isn't obvious to everyone here given the numerous failures of centralized economic control is baffling.

[yury]

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.

I have brought the idea in another branch, but would like to raise it one more time in this discussion. Although I'm not fond of the way BSIP42 was pushed, I agree that smart coins shall be enhanced to foster mass adoption. IMO there should be more incentive for people to borrow an MPA.
How about adding one more incentive to those who takes the risk? MPA generally 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.
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.

[pc]

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.

There are several problems here.

First, this does not prevent yield harvesting. A shorter can sell the asset to himself (i. e. to his sock puppet account) through the market, thus avoiding all risk associated with being either long or short.

Second, this is unfair on users who not only trade in the asset but who also want to use it as a fiat replacement. If they short without selling, or (presumably) buy the asset without repaying their debt, they are punished by being excluded from the market fee share.

[abit]

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.

I have brought the idea in another branch, but would like to raise it one more time in this discussion. Although I'm not fond of the way BSIP42 was pushed, I agree that smart coins shall be enhanced to foster mass adoption. IMO there should be more incentive for people to borrow an MPA.
How about adding one more incentive to those who takes the risk? MPA generally 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.
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.

This proposal sounds interesting, but actually hard to implement to avoid being gamed.
* Liquidity in the DEX is not only MPA:collateral asset market but all markets, e.g. bitUSD:OPEN.BTC need liquidity as well, and perhaps need more liquidity than bitUSD:BTS;
* people who borrowed MPA and sold to others already provided liquidity, they have nothing more to sell, how can they place another order in the market?
* people who borrowed MPA and sold to their sock puppets would earn the cut from the revenue (yield harvesting)
* Orders placed far away from current trading price are useless. With bots it's easy to maintain an order in the market (and perhaps harvest the yield).

The most significant incentive for borrowers to borrow (and perhaps buy the collateral asset again) is there is something (e.g. the collateral asset) to buy and the price will raise after he bought and he can profit by selling the bought asset later, but this is unable to be guaranteed nor incentivized. The risk is he can get margin called if price of the collateral asset drops.

[Peryn]

I will add to my post above.
I wanted to say that you are putting an end to bitcoin (providing bts) which is better than the dollar and fiat money by a margin rate of> 1 (current 1.75)
it's a dead end

[JohnR]

This OP on bsip42 has veered wildly off the original subject.  Nice to see the creativity, althought there are some misconceptions floating. I would like to know people's opinion on the following.

1) Do you support an experimental MSSR of 0 as an incentive to keep shorts in the game and not penalize future bts collateral holders?

2) Is a dynamic MCR feasible?  What parameters would you like to see for this?
2a) for the skeptics out there remember bitUSD is not quantitatively more sound by having 1.75x vs 2.8x collateral in the pool.  The key metric is a collateralization >= 1 x smartasset denomination.  If an asset can have a slightly lower collateralization (with sufficient safeguards) it may increase supply and robustness of the trading market.  This may lead to second order benefits and harden the economy/strength of bitUSD.

IMO the conversation surrounding bsip42 is an indication of the synthetic price setting mechanism overpowering the natural market price setting mechanism.  It is totally understandable that in a prolonged bear market fewer trading activity will happen and irrational spreads will occur.  Rather than solving this synthetically with price feeds perhaps the ecosystem would be better off focusing on driving fundamental growth and trading activity around smartassets.  Let us what the market thinks of bitUSD when we get more unique users. 

I think between the two options in Jerry's OP, a slight modification to MCR (done responsibly and transparently) is in better keeping with the implicit social contract that bitCNY/USD holders/shorters made when they engaged the platform.

[bitcrab]

1) Do you support an experimental MSSR of 0 as an incentive to keep shorts in the game and not penalize future bts collateral holders?

now I feel to reduce MSSR make sense even after the implementation of BSIP42, and I don't think setting MSSR=100% means the penalization is cancelled, forcing one user to sell it's collateral in market price is still one kind of penalization.

there is another BSIP for setting MSSR to 105% for bitCNY, https://github.com/bitshares/bsips/issues/97, however it is not moved forward when BSIP42 is on the way.

[pc]

1) Do you support an experimental MSSR of 0 as an incentive to keep shorts in the game and not penalize future bts collateral holders?

Yes. The current price feed modification is interfering with the MSSR in a bad way that renders the intended penalty moot and leads to a price feed that is further away from the real price than necessary.

We cannot aim for a tight peg *and* force margin calls to buy above the market price, at least not without a hard fork.

[xeroc]

1) Do you support an experimental MSSR of 0 as an incentive to keep shorts in the game and not penalize future bts collateral holders?

Yes. The current price feed modification is interfering with the MSSR in a bad way that renders the intended penalty moot and leads to a price feed that is further away from the real price than necessary.

We cannot aim for a tight peg *and* force margin calls to buy above the market price, at least not without a hard fork.

This!

[JohnR]

1) Do you support an experimental MSSR of 0 as an incentive to keep shorts in the game and not penalize future bts collateral holders?

now I feel to reduce MSSR make sense even after the implementation of BSIP42, and I don't think setting MSSR=100% means the penalization is cancelled, forcing one user to sell it's collateral in market price is still one kind of penalization.

there is another BSIP for setting MSSR to 105% for bitCNY, https://github.com/bitshares/bsips/issues/97, however it is not moved forward when BSIP42 is on the way.

It may be true that collateral holders are 'penalized' in the sense they are forced to sell at what may be an opportune time.  At least this is a qualitative and not a quantitative disruption so far as price goes.  Forced margin calls are a feature of many well-functioning markets with credit risk.

1) Do you support an experimental MSSR of 0 as an incentive to keep shorts in the game and not penalize future bts collateral holders?

Yes. The current price feed modification is interfering with the MSSR in a bad way that renders the intended penalty moot and leads to a price feed that is further away from the real price than necessary.

We cannot aim for a tight peg *and* force margin calls to buy above the market price, at least not without a hard fork.

Thank you for expressing this very simply! 

*Note, in the first question I believe I meant to say 'an MSSR of 1' and not 0.

[binggo]

I think "Forced margin calls" is not very necessary for the MPA, because we have another feather "Forced settlement".

Could we use a "Quick Forced settlement with BSIP38 for the collateral<175%" to instead of  “Forced margin calls“ or together？

[xeroc]

I think "Forced margin calls" is not very necessary for the MPA, because we have another feather "Forced settlement".

Could we use a "Quick Forced settlement with BSIP38 for the collateral<175%" to instead of  “Forced margin calls“ or together？

Force settlement is for longs (users having bitCNY)
Margin Calls are for shorts (those providing collateral to borrow and sell bitCNY)

You cannot force settle a long position because a short position screwed up.

An option would be to remove margin calls but also remove the collateral from users that run into ratio of less than 130%, but that ultimately requires someone else to provide collateral for the call who would need to buy it up from market and we are back to square one similar to keeping margin calls.

[abit]

I think "Forced margin calls" is not very necessary for the MPA, because we have another feather "Forced settlement".

Could we use a "Quick Forced settlement with BSIP38 for the collateral<175%" to instead of  “Forced margin calls“ or together？

On the opposite I think force settlement should be removed and we'd better make more use of margin calls, as described here: https://bitsharestalk.org/index.php?topic=27170.msg322381#msg322381

Again, you're only saying what you want but not why you want it, so it makes little sense.

[JohnR]

Disabling forced settlement seems like a strong response.  The value proposition of bitCNY/USD is that they are collateralized with assets.  If the user can only get the underlying collateral through margin call (which only happens in periods of stress/when the collateral is at its lowest value) what does that say about the original value proposition?

[abit]

Disabling forced settlement seems like a strong response.  The value proposition of bitCNY/USD is that they are collateralized with assets.  If the user can only get the underlying collateral through margin call (which only happens in periods of stress/when the collateral is at its lowest value) what does that say about the original value proposition?

Looks like you either didn't read my analysis linked above or didn't understand it.

* A trader who really wants to convert his bitUSD to BTS doesn't care where he will get the BTS,
  1) the BTS can come from other traders who are selling BTS for bitUSD
  2) the BTS can come from bitUSD debt positions who has less than required collateral ratio (margin calls)
  3) the BTS can come from bitUSD debt positions who has least collateral ratio in the system (force settlements)

The key is liquidity, aka how much BTS are available in the market. Among these options, 1) is organic liquidity, 2) and 3) are "synthetic" liquidity.

BSIP42 or another MCR-based approach aims to provide as much as possible liquidity via 2), while the original design aims to provide liquidity via 3).

Your comment "margin call (which only happens in periods of stress/when the collateral is at its lowest value" is wrong, because, with BSIP42 or another MCR-based approach, margin calls can happen at any time as long as there is more demand of selling bitUSD for BTS than buying bitUSD with BTS.