Author Topic: New mechanism to handle bad debt (black swan)  (Read 1149 times)

0 Members and 1 Guest are viewing this topic.

Offline abit

  • Committee member
  • Hero Member
  • *
  • Posts: 3428
    • View Profile
    • Steemit Blog
  • BitShares: abit
  • GitHub: abitmore
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
BTS account: abit
BTS committee member: abit
BTS witness: in.abit

Offline Customminer

  • Hero Member
  • *****
  • Posts: 524
  • Bitshares FTW!
    • View Profile
    • Gridcoin.US
  • GitHub: grctest
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 »
Hertz, Beyond Bitshares, Gridcoin!

Offline abit

  • Committee member
  • Hero Member
  • *
  • Posts: 3428
    • View Profile
    • Steemit Blog
  • BitShares: abit
  • GitHub: abitmore
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.
BTS account: abit
BTS committee member: abit
BTS witness: in.abit

Offline Customminer

  • Hero Member
  • *****
  • Posts: 524
  • Bitshares FTW!
    • View Profile
    • Gridcoin.US
  • GitHub: grctest
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 »
Hertz, Beyond Bitshares, Gridcoin!

Offline abit

  • Committee member
  • Hero Member
  • *
  • Posts: 3428
    • View Profile
    • Steemit Blog
  • BitShares: abit
  • GitHub: abitmore
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.
BTS account: abit
BTS committee member: abit
BTS witness: in.abit

Offline Customminer

  • Hero Member
  • *****
  • Posts: 524
  • Bitshares FTW!
    • View Profile
    • Gridcoin.US
  • GitHub: grctest
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.
Hertz, Beyond Bitshares, Gridcoin!

Offline pc

  • Hero Member
  • *****
  • Posts: 1397
    • View Profile
    • Bitcoin - Perspektive oder Risiko?
  • BitShares: cyrano
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.
Bitcoin - Perspektive oder Risiko? ISBN 978-3-8442-6568-2 http://bitcoin.quisquis.de

Offline abit

  • Committee member
  • Hero Member
  • *
  • Posts: 3428
    • View Profile
    • Steemit Blog
  • BitShares: abit
  • GitHub: abitmore
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.
BTS account: abit
BTS committee member: abit
BTS witness: in.abit

Offline xeroc

  • Board Moderator
  • Hero Member
  • *****
  • Posts: 12694
  • ChainSquad GmbH
    • View Profile
    • ChainSquad GmbH
  • BitShares: xeroc
  • GitHub: xeroc
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%.
Give BitShares a try! Use the http://testnet.bitshares.eu provided by http://bitshares.eu powered by ChainSquad GmbH

Offline abit

  • Committee member
  • Hero Member
  • *
  • Posts: 3428
    • View Profile
    • Steemit Blog
  • BitShares: abit
  • GitHub: abitmore
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.
BTS account: abit
BTS committee member: abit
BTS witness: in.abit

Offline xeroc

  • Board Moderator
  • Hero Member
  • *****
  • Posts: 12694
  • ChainSquad GmbH
    • View Profile
    • ChainSquad GmbH
  • BitShares: xeroc
  • GitHub: xeroc
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!
Give BitShares a try! Use the http://testnet.bitshares.eu provided by http://bitshares.eu powered by ChainSquad GmbH

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.
Injustice anywhere is a threat to justice everywhere - MLK |  Verbaltech2 Witness Reports: https://bitsharestalk.org/index.php/topic,23902.0.html