Author Topic: New mechanism to handle bad debt (black swan)  (Read 1147 times)

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Offline abit

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New mechanism to handle bad debt (black swan)
« on: October 16, 2018, 11:29:00 pm »
A bad debt means value of a debt position's collateral is less than value of its debt.

Currently, when a bad debt appears in the system, no matter how small the debt is, global settlement will be triggered and ALL debt positions will be forced closed. IMHO this mechanism is flawed.

Here I propose a new mechanism to handle bad debt, the core ideas are:

1. set up a special account "bad-debt-holder" in the system, with an impossible authority like null-account, so nobody can control it
2. when a new bad debt appears, don't trigger global settlement, instead, convert that debt position to a sell order which will never expire, sells its remaining collateral for its remaining debt, under the "bad-debt-holder" account
3. if the order get filled or partially filled, destroy the (debt) asset received.

In comparison to current mechanism, this new mechanism is much "softer" and more flexible. All state will be on the order book and easy to participate for all traders.

Thoughts?


Update (2018-10-21):

1. There is an edge case which slightly affect the implementation: according to BSIP35, when a limit order is too small, it will be cancelled, otherwise will lead to "something-for-nothing" scenario which usually messes up UI. If the limit order is owned by the bad-debt-holder account, we don't like it to be cancelled, instead, we treat it like a debt position (which will overpay when filling the last Satoshi of collateral).

2. In case when the bad-debt-holder owns several bad debt limit orders for a same asset, is it better to combine the orders into one limit order and average out the selling price? I tend to say "yes", because a) it frees memory, and b) it increases the chance that all bad debts get filled, although it may lead to a larger order hanging in the market which may add psychological pressure to traders.

Do you not think that global settlement as it's currently implemented should trigger if a majority of a bitasset's supply have defaulted on their loans though? Or should the proposed mechanism operate for the full 100% of supply?

IMHO we should operate the new mechanism for the full supply (don't trigger global settlement at all). However, perhaps we can have an option for asset owners to choose when there is no supply: which mechanism she would adopt when a black swan event occurs.

I think a penalty for such undercollateralized debt position holders will help keep them more attentive to their collateral and dis-incentivize traders from operating with too little backing.

Because bad debt appears when: collateral / (feed_price*MSSR) <= debt
So if MSSR is above 1 then there will be a penalty.

Perhaps we can another parameter here to replace MSSR though.
« Last Edit: October 24, 2018, 11:01:24 am by abit »
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Offline Thom

Re: New mechanism to handle bad debt (black swan)
« Reply #1 on: October 17, 2018, 12:44:57 am »
I like it!

Not sure you've fully covered the effects if item 3 is only partially filled tho.

Where do proceeds from sale of undercollateralized debt positions go? Are they returned to the debtor or go to reserve fund or elsewhere?

I think a penalty for such undercollateralized debt position holders will help keep them more attentive to their collateral and dis-incentivize traders from operating with too little backing.

Although I feel strongly that we need to maintain at least 100% backing of MPA assets at all times, I feel it would be quite safe if collateral requirements were reduced while market is bullish, and committee could set a global collateral ratio. If that occurred about as infrequently as witness pay is adjusted (ofc that depends on the market), coinciding with a sustained bull market trend, it might work. Question for the committee is how long does "sustained" need to be? That's why I compared with how committee decides to maintain or change witness pay. Point being the CR level would only change with longer spanning trends, and not with every rise and fall of chart candles.
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Offline abit

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Re: New mechanism to handle bad debt (black swan)
« Reply #2 on: October 17, 2018, 12:57:38 am »
I like it!

Not sure you've fully covered the effects if item 3 is only partially filled tho.

Where do proceeds from sale of undercollateralized debt positions go? Are they returned to the debtor or go to reserve fund or elsewhere?

Collateral will go to the one who bought it. Debt will go to "bad-debt-holder" then immediately be destroyed as described in OP.

Quote

I think a penalty for such undercollateralized debt position holders will help keep them more attentive to their collateral and dis-incentivize traders from operating with too little backing.

The penalty is MSSR.

Bad debt appears when: collateral / (feed_price*MSSR) <= debt

Quote
Although I feel strongly that we need to maintain at least 100% backing of MPA assets at all times, I feel it would be quite safe if collateral requirements were reduced while market is bullish, and committee could set a global collateral ratio. If that occurred about as infrequently as witness pay is adjusted (ofc that depends on the market), coinciding with a sustained bull market trend, it might work. Question for the committee is how long does "sustained" need to be? That's why I compared with how committee decides to maintain or change witness pay. Point being the CR level would only change with longer spanning trends, and not with every rise and fall of chart candles.

> "collateral requirements were reduced while market is bullish"

IMHO, in % sense, collateral requirements should be increased while market is bullish; then when market turns to bearish, there will be more spaces to release risks.
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Offline clockwork

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Re: New mechanism to handle bad debt (black swan)
« Reply #3 on: October 17, 2018, 08:05:58 am »
I like it too.

Of course specifics would have to be thought out very carefully but eliminating that mechanism which I think we all agree is very very flawed is a huge incentive to do this right.

On a side-note, can we call the account: collection-agency :D :D :D ?

Offline armin

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Re: New mechanism to handle bad debt (black swan)
« Reply #4 on: October 17, 2018, 04:33:34 pm »
Wait this doesn't make sense. If a debt position is < 100% CR, lets say 80% CR, then this new account will take the 80% CR BTS and buy the bitasset and burn it? But the problem is that an extra 20% of the bitassets was issued by the blockchain. Effectively, the blockchain is "printing bitassets" out of thin air?


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Re: New mechanism to handle bad debt (black swan)
« Reply #5 on: October 17, 2018, 04:57:17 pm »
Wait this doesn't make sense. If a debt position is < 100% CR, lets say 80% CR, then this new account will take the 80% CR BTS and buy the bitasset and burn it? But the problem is that an extra 20% of the bitassets was issued by the blockchain. Effectively, the blockchain is "printing bitassets" out of thin air?

No, the new account will try to buy the 100% debt for the available 80% CR. This is probably to far away from the market price, so the order will stay on the book. As soon as the price recovers, the order will be filled and the full debt will be repaid.

(In reality, with MSSR > 0, the account will try to buy 100% debt for 110% CR. For large positions this will result in the same premium that we have had with the old margin call rule, at least temporarily until the feed price adjusts.)
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Offline armin

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Re: New mechanism to handle bad debt (black swan)
« Reply #6 on: October 17, 2018, 05:30:09 pm »
Wait this doesn't make sense. If a debt position is < 100% CR, lets say 80% CR, then this new account will take the 80% CR BTS and buy the bitasset and burn it? But the problem is that an extra 20% of the bitassets was issued by the blockchain. Effectively, the blockchain is "printing bitassets" out of thin air?

No, the new account will try to buy the 100% debt for the available 80% CR. This is probably to far away from the market price, so the order will stay on the book. As soon as the price recovers, the order will be filled and the full debt will be repaid.

(In reality, with MSSR > 0, the account will try to buy 100% debt for 110% CR. For large positions this will result in the same premium that we have had with the old margin call rule, at least temporarily until the feed price adjusts.)

The problem here is that the price is not guaranteed to recover. With BSIP18 at least the bitasset is "guaranteed" to be de-pegged. And it doesn't seem like you can de-peg a small percentage of the outlying bitasset...

Offline armin

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Re: New mechanism to handle bad debt (black swan)
« Reply #7 on: October 17, 2018, 05:33:50 pm »
Actually, thinking about it more, this solution will cause a number of major problems:

1. As the price moves down sharply, there will be more and more "stuck" orders on the order book (accumulation)
2. The next time a bull market is in swing, the stuck orders will prevent the price from going to new highs

This solution is actually "shorting a bull market", meaning it creates a debt in a bear market (accumulated orders) that needs to be repaid when a bull market is in swing.

Thoughts?

Offline pc

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Re: New mechanism to handle bad debt (black swan)
« Reply #8 on: October 17, 2018, 06:33:07 pm »
BSIP-18 doesn't guarantee recovery either. If BTS continues to go down, neither solution will help.

@abit 's suggestion is better than BSIP-18 because it limits the damage to only the undercollateralized positions, while leaving the rest of the market intact.
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Offline Thom

Re: New mechanism to handle bad debt (black swan)
« Reply #9 on: October 17, 2018, 10:32:41 pm »
BSIP-18 doesn't guarantee recovery either. If BTS continues to go down, neither solution will help.

@abit 's suggestion is better than BSIP-18 because it limits the damage to only the undercollateralized positions, while leaving the rest of the market intact.

Exactly, that's why I like it.

Quote from: abit
IMHO, in % sense, collateral requirements should be increased while market is bullish; then when market turns to bearish, there will be more spaces to release risks.
Interesting, I understand that logic, but am surprised to see you say it, since doing so would dis-incentivize trading and shorting in particular. Wasn't it you that said 175% collateral was too much in bullish conditions?

I know I've seen bitcrab and others talk favorably about allowing CR to go < 100% and "not to penalize debt holders", but I believe we should use the carrot and the stick to keep them trading by the rules, which help to keep the ecosystem safe and fair for all.
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Offline bitcrab

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Re: New mechanism to handle bad debt (black swan)
« Reply #10 on: October 18, 2018, 09:10:07 am »
BSIP-18 doesn't guarantee recovery either. If BTS continues to go down, neither solution will help.

@abit 's suggestion is better than BSIP-18 because it limits the damage to only the undercollateralized positions, while leaving the rest of the market intact.

Exactly, that's why I like it.

Quote from: abit
IMHO, in % sense, collateral requirements should be increased while market is bullish; then when market turns to bearish, there will be more spaces to release risks.
Interesting, I understand that logic, but am surprised to see you say it, since doing so would dis-incentivize trading and shorting in particular. Wasn't it you that said 175% collateral was too much in bullish conditions?

I know I've seen bitcrab and others talk favorably about allowing CR to go < 100% and "not to penalize debt holders", but I believe we should use the carrot and the stick to keep them trading by the rules, which help to keep the ecosystem safe and fair for all.

I believe abit means that in bull market 175% may be low and need to increase

exactly speaking, now I just do not want the independent <100% ratio debt position trigger global settlement, abit's suggestion here seems good.
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Re: New mechanism to handle bad debt (black swan)
« Reply #11 on: October 19, 2018, 01:24:04 pm »
I like the idea of not performing a global settlement if a very small amount is under-collateralized, maintaining the normal function of the bitasset, but it does feel like the individual debt holder in said position is getting off lightly given that they defaulted on their loan.

It'd be great if their account was partially nerfed until their under-collateralized position is bought off the market, like temp-disabling LTM (inflating their BTS DEX fees), perhaps disabling borrowing the same bitasset or even highlighting their account as a known "bad debt holder" within in the BTS DEX UI (similar to known-scammer account warnings)?

Do you not think that global settlement as it's currently implemented should trigger if a majority of a bitasset's supply have defaulted on their loans though? Or should the proposed mechanism operate for the full 100% of supply?
« Last Edit: October 19, 2018, 01:25:51 pm by Customminer »
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Offline bench

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Re: New mechanism to handle bad debt (black swan)
« Reply #12 on: October 19, 2018, 02:40:32 pm »
The account with collateral under 1 gets a negative entry for BTS and will be balanced to 0, when price of BTS is high enough again?

Isolating the problem is the best way dealing with this problem, but we need to make the barrier as high as needed to not get a black swan.
This fits better in a different topic:
https://bitsharestalk.org/index.php?topic=27315.0
« Last Edit: October 19, 2018, 02:42:41 pm by bench »

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Re: New mechanism to handle bad debt (black swan)
« Reply #13 on: October 21, 2018, 08:11:03 am »
OP updated:
Update (2018-10-21):

1. There is an edge case which slightly affect the implementation: according to BSIP35, when a limit order is too small, it will be cancelled, otherwise will lead to "something-for-nothing" scenario which usually messes up UI. If the limit order is owned by the bad-debt-holder account, we don't like it to be cancelled, instead, we treat it like a debt position (which will overpay when filling the last Satoshi of collateral).

2. In case when the bad-debt-holder owns several bad debt limit orders for a same asset, is it better to combine the orders into one limit order and average out the selling price? I tend to say "yes", because a) it frees memory, and b) it increases the chance that all bad debts get filled, although it may lead to a larger order hanging in the market which may add psychological pressure to traders.
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Offline abit

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Re: New mechanism to handle bad debt (black swan)
« Reply #14 on: October 21, 2018, 08:46:12 am »
It'd be great if their account was partially nerfed until their under-collateralized position is bought off the market, like temp-disabling LTM (inflating their BTS DEX fees), perhaps disabling borrowing the same bitasset or even highlighting their account as a known "bad debt holder" within in the BTS DEX UI (similar to known-scammer account warnings)?

I think we'll gain little by doing so, because a) not like transfers, traders don't care who're trading with them in the market (which is the most efficient), and b) it can be easily get around with sock puppets.

Quote
Do you not think that global settlement as it's currently implemented should trigger if a majority of a bitasset's supply have defaulted on their loans though? Or should the proposed mechanism operate for the full 100% of supply?

IMHO we should operate the new mechanism for the full supply (don't trigger global settlement at all). However, perhaps we can have an option for asset owners to choose when there is no supply: which mechanism she would adopt when a black swan event occurs.
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Offline abit

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Re: New mechanism to handle bad debt (black swan)
« Reply #15 on: October 21, 2018, 10:31:48 am »
The account with collateral under 1 gets a negative entry for BTS and will be balanced to 0, when price of BTS is high enough again?

Isolating the problem is the best way dealing with this problem, but we need to make the barrier as high as needed to not get a black swan.
This fits better in a different topic:
https://bitsharestalk.org/index.php?topic=27315.0
IMHO bad debt (black swan) is unavoidable. Beating a dead horse is useless. Finding people who are willing to and can afford to buy out the bad debts is better.

By the way I prefer keeping similar discussions in one thread, so replying your comments in another thread here:

In this topic I want to discuss different ideas to prevent bad debt.

One idea was to handle margin positions depending on the collateral ratio.

Creating three groups for different ratios:
- 1.75>x>1.5: normal call price
- 1.5>x>1.25: reduced call price
- 1.25>x>1.00: sell to highest call order and reduce liquidity

What do you think ?

If I've understood correctly, you mean to force the owner of the debt position with highest collateral ratio to buy the position with lowest collateral ratio. It's an interesting idea, however I don't think it's ideal.
* forcing irrelevant parties to accept something is not good;
* if there is only one debt position, it can't buy itself, so a bad debt would appear anyway;
* if the position with lowest collateral ratio is much larger than the position with highest collateral ratio (which is very likely), the latter will face same situation quite soon
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Offline Customminer

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Re: New mechanism to handle bad debt (black swan)
« Reply #16 on: October 21, 2018, 07:31:54 pm »
It'd be great if their account was partially nerfed until their under-collateralized position is bought off the market, like temp-disabling LTM (inflating their BTS DEX fees), perhaps disabling borrowing the same bitasset or even highlighting their account as a known "bad debt holder" within in the BTS DEX UI (similar to known-scammer account warnings)?

I think we'll gain little by doing so, because a) not like transfers, traders don't care who're trading with them in the market (which is the most efficient), and b) it can be easily get around with sock puppets.

True, you don't get any 'scammer' warnings within the market and nobody cares if they trade with scammers via the market (as long as the token you're buying isn't fake/fraudulent), but you may think twice about manually interacting with an entity which has 'bad debt holder' tagged against their BTS account.

Sock puppets could certainly get around the proposed 'punishment', but if they temporarily lost their LTM then they would begin paying larger fees across the entire DEX and they'd lose out on referral rewards - you can't transfer the 'registrar' once registered so this couldn't be evaded using sock puppets, unless you were defaulting on loans using sub-accounts instead of your main account..

Somewhat similar to a credit rating, it could help deter users from voting for said user's workers/committee/witness roles, who wants a defaulter to be in a position of power?  :o
« Last Edit: October 21, 2018, 07:48:20 pm by Customminer »
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Offline abit

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Re: New mechanism to handle bad debt (black swan)
« Reply #17 on: October 21, 2018, 11:23:09 pm »
It'd be great if their account was partially nerfed until their under-collateralized position is bought off the market, like temp-disabling LTM (inflating their BTS DEX fees), perhaps disabling borrowing the same bitasset or even highlighting their account as a known "bad debt holder" within in the BTS DEX UI (similar to known-scammer account warnings)?

I think we'll gain little by doing so, because a) not like transfers, traders don't care who're trading with them in the market (which is the most efficient), and b) it can be easily get around with sock puppets.

True, you don't get any 'scammer' warnings within the market and nobody cares if they trade with scammers via the market (as long as the token you're buying isn't fake/fraudulent), but you may think twice about manually interacting with an entity which has 'bad debt holder' tagged against their BTS account.

Sock puppets could certainly get around the proposed 'punishment', but if they temporarily lost their LTM then they would begin paying larger fees across the entire DEX and they'd lose out on referral rewards - you can't transfer the 'registrar' once registered so this couldn't be evaded using sock puppets, unless you were defaulting on loans using sub-accounts instead of your main account..

Somewhat similar to a credit rating, it could help deter users from voting for said user's workers/committee/witness roles, who wants a defaulter to be in a position of power?  :o
Just saying, we should avoid labeling people. A person in poverty or has difficulties to manage his own financial status so unable to pay his bill or debt occasionally doesn't mean he is a scammer or not qualified for contributing as a worker or a witness.
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Re: New mechanism to handle bad debt (black swan)
« Reply #18 on: October 22, 2018, 10:00:07 am »
It'd be great if their account was partially nerfed until their under-collateralized position is bought off the market, like temp-disabling LTM (inflating their BTS DEX fees), perhaps disabling borrowing the same bitasset or even highlighting their account as a known "bad debt holder" within in the BTS DEX UI (similar to known-scammer account warnings)?

I think we'll gain little by doing so, because a) not like transfers, traders don't care who're trading with them in the market (which is the most efficient), and b) it can be easily get around with sock puppets.

True, you don't get any 'scammer' warnings within the market and nobody cares if they trade with scammers via the market (as long as the token you're buying isn't fake/fraudulent), but you may think twice about manually interacting with an entity which has 'bad debt holder' tagged against their BTS account.

Sock puppets could certainly get around the proposed 'punishment', but if they temporarily lost their LTM then they would begin paying larger fees across the entire DEX and they'd lose out on referral rewards - you can't transfer the 'registrar' once registered so this couldn't be evaded using sock puppets, unless you were defaulting on loans using sub-accounts instead of your main account..

Somewhat similar to a credit rating, it could help deter users from voting for said user's workers/committee/witness roles, who wants a defaulter to be in a position of power?  :o
Just saying, we should avoid labeling people. A person in poverty or has difficulties to manage his own financial status so unable to pay his bill or debt occasionally doesn't mean he is a scammer or not qualified for contributing as a worker or a witness.

Operating a fractional reserve is not what bitUSD was meant to do, so during this temporary bad debt sell-off they aught to be labelled as fractional reservists or bad debt holders.

Bad gamblers don't deserve much sympathy, they aught to be highlighted as irresponsible parties on the DEX whom you should be cautious to interact with (not as bad as warning not at all to interact with, like known scammer labeling). Fair enough it shouldn't disqualify them from WP/Witness/Committee but their negative actions have direct negative consequences on the bitasset/BTS holders (potentially damaging the reputation of the BTS DEX) & that's something people will probably take into account when voting.

What do you think about preventing bad debt holders from borrowing new bitasset (same asset) until they re-collateralize their old position?
« Last Edit: October 22, 2018, 01:34:17 pm by Customminer »
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Offline abit

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Re: New mechanism to handle bad debt (black swan)
« Reply #19 on: October 22, 2018, 03:00:37 pm »
It'd be great if their account was partially nerfed until their under-collateralized position is bought off the market, like temp-disabling LTM (inflating their BTS DEX fees), perhaps disabling borrowing the same bitasset or even highlighting their account as a known "bad debt holder" within in the BTS DEX UI (similar to known-scammer account warnings)?

I think we'll gain little by doing so, because a) not like transfers, traders don't care who're trading with them in the market (which is the most efficient), and b) it can be easily get around with sock puppets.

True, you don't get any 'scammer' warnings within the market and nobody cares if they trade with scammers via the market (as long as the token you're buying isn't fake/fraudulent), but you may think twice about manually interacting with an entity which has 'bad debt holder' tagged against their BTS account.

Sock puppets could certainly get around the proposed 'punishment', but if they temporarily lost their LTM then they would begin paying larger fees across the entire DEX and they'd lose out on referral rewards - you can't transfer the 'registrar' once registered so this couldn't be evaded using sock puppets, unless you were defaulting on loans using sub-accounts instead of your main account..

Somewhat similar to a credit rating, it could help deter users from voting for said user's workers/committee/witness roles, who wants a defaulter to be in a position of power?  :o
Just saying, we should avoid labeling people. A person in poverty or has difficulties to manage his own financial status so unable to pay his bill or debt occasionally doesn't mean he is a scammer or not qualified for contributing as a worker or a witness.

Operating a fractional reserve is not what bitUSD was meant to do, so during this temporary bad debt sell-off they aught to be labelled as fractional reservists or bad debt holders.

Bad gamblers don't deserve much sympathy, they aught to be highlighted as irresponsible parties on the DEX whom you should be cautious to interact with (not as bad as warning not at all to interact with, like known scammer labeling). Fair enough it shouldn't disqualify them from WP/Witness/Committee but their negative actions have direct negative consequences on the bitasset/BTS holders (potentially damaging the reputation of the BTS DEX) & that's something people will probably take into account when voting.

What do you think about preventing bad debt holders from borrowing new bitasset (same asset) until they re-collateralize their old position?
Anything within the established rule IS legit.

If a community is not inclusive enough it can't grow big. From this perspective, I don't think your suggestion is good for the community.

You have the right to propose changes anyway.
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Re: New mechanism to handle bad debt (black swan)
« Reply #20 on: October 22, 2018, 06:17:42 pm »
Operating a fractional reserve is not what bitUSD was meant to do, so during this temporary bad debt sell-off they aught to be labelled as fractional reservists or bad debt holders.

Bad gamblers don't deserve much sympathy, they aught to be highlighted as irresponsible parties on the DEX whom you should be cautious to interact with (not as bad as warning not at all to interact with, like known scammer labeling). Fair enough it shouldn't disqualify them from WP/Witness/Committee but their negative actions have direct negative consequences on the bitasset/BTS holders (potentially damaging the reputation of the BTS DEX) & that's something people will probably take into account when voting.

What do you think about preventing bad debt holders from borrowing new bitasset (same asset) until they re-collateralize their old position?
Anything within the established rule IS legit.

If a community is not inclusive enough it can't grow big. From this perspective, I don't think your suggestion is good for the community.

You have the right to propose changes anyway.
Which suggestions? All of them? Please be more specific.

I wasn't arguing about the legitimacy of your proposal, rather that the current design does not advertise allowing users to operate fractional reserves to the potential detriment of the bitasset holder, however under such circumstances such accounts aught to be labelled as 'bad debt holder(s)' until the bad debt position is resolved.

In real life, if you default on a large bank loan there are serious financial and credit rating implications (for the rest of your life) regardless of your inability to pay it back; you wouldn't get the same interest-rates, size of loan nor collateral requirements in the future. If I'm not mistaken, your current proposal effectively lets defaulters entirely off the hook compared to the current situation where a single defaulter takes every debt holder down with them as a weird form of collective debt holder punishment?

Fractional reserves are far worse than being temporarily labelled as a bad debt holder and receiving economic consequences (loss of LTM idea) until the bad debt position is closed, IMO.
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Offline pc

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Re: New mechanism to handle bad debt (black swan)
« Reply #21 on: October 23, 2018, 11:48:30 am »
Punishment doesn't work on the blockchain, because we only have accounts not identifiable individuals. With your punishment suggestion, everybody would just use sockpuppet accounts for shorting (and these sockpuppets don't even require LTM).
There is also no point in flagging defaulters in any way, because traders trade against the book, not against individual accounts. You typically don't know with whom you're trading (nor do you care).

In fact I think @abit 's suggestion is worse for shorters - in a BTS downtrend, most of them (except one) are effectively bailed out by the current black swan rules.
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Re: New mechanism to handle bad debt (black swan)
« Reply #22 on: October 23, 2018, 06:11:38 pm »
In fact I think @abit 's suggestion is worse for shorters - in a BTS downtrend, most of them (except one) are effectively bailed out by the current black swan rules.
True. Also there are bag holders don't want to be bailed out.
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Re: New mechanism to handle bad debt (black swan)
« Reply #23 on: October 24, 2018, 10:11:38 am »
I like the idea in general.
What I am not clear about is the "price" at which the bad-collateral-account would buy back from market.
Do I assume right that this would be what we used to call SWAN price (100%)?

I still believe people should pay a premium if they do not monitor the collateral properly. With 100%, they pay "nothing" extra from the market and
get out of the position "for free" - the entire stash. I still like the idea of starting to punish unmaintained call positions. Either by removing the SQPR in case the ratio goes below, say 150%, or say the OPs proposal is applied already at 105%.
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Re: New mechanism to handle bad debt (black swan)
« Reply #24 on: October 24, 2018, 11:02:08 am »
I like the idea in general.
What I am not clear about is the "price" at which the bad-collateral-account would buy back from market.
Do I assume right that this would be what we used to call SWAN price (100%)?

I still believe people should pay a premium if they do not monitor the collateral properly. With 100%, they pay "nothing" extra from the market and
get out of the position "for free" - the entire stash. I still like the idea of starting to punish unmaintained call positions. Either by removing the SQPR in case the ratio goes below, say 150%, or say the OPs proposal is applied already at 105%.
OP updated. MSSR plays a role.
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Re: New mechanism to handle bad debt (black swan)
« Reply #25 on: October 26, 2018, 08:11:37 am »
OP updated. MSSR plays a role.
Thank you!
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Offline Thom

Re: New mechanism to handle bad debt (black swan)
« Reply #26 on: October 27, 2018, 06:53:57 pm »
Just saying, we should avoid labeling people. A person in poverty or has difficulties to manage his own financial status so unable to pay his bill or debt occasionally doesn't mean he is a scammer or not qualified for contributing as a worker or a witness.

True, I agree. However, lets not rely on an edge case to base our policy / decisions on. We definitely need a way to dis-incentivize traders who habitually break the rules (in this case allowing collateral to drop under 100%, or whatever minimum standard is set by committee).

Every crypto ecosystem needs to have a quality, "ungamed" reputation system. How can you argue against that when most crypto projects rely on a diverse / dispersed group of people with widely varied cultures and different levels of knowledge (about any subject, but especially economics, technology and geo-politics)? There are quite a few arguments that would end sooner and be less disruptive to communities if we had this. With that said tho rep systems are difficult to create in a way that can't be gamed or undermined in some way. Just look at how controversial flagging is on steemit as evidence.

We need to balance the needs of ALL users of BitShares, and that's not an easy task. Nobody, including traders, should get away with breaking our consensus rules without a penalty. No penalty is an incentive to break rules. IDK if a consensus to temporarily revoke LTM status can be gained or if it is the best way to do it, but I'm willing to bet if that were the penalty 2 things would happen for sure:
1 - traders and perhaps a few others will complain loudly
2 - traders would not allow their collateral to drop low enough to trigger LTM revocation, at least not twice.

IMO traders have a stronger voice here than hodlers. Not enough dedication / involvement towards longevity and utility for all longterm.

I keep hearing about the impossible trinity, what about the impossibility of this trinity:
1) Safe trading (protection from undercollaterized assets which could lead to a catastrophic cascade collapse, as we're on the verge of in mainstream / centralized / manipulated ecomomy)
2) low to zero collateral for short positions (i.e. < 100%)
3) guaranteed redemption of collateral (with some exceptions)

The only item of those 3 which does NOT currently have consensus is item #2. If tight peg is valued over items 1 or 3 then make an official proposal to  alter the rules and campaign shareholders or the few proxies in control of this ecosystem to gain consensus on it.
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