Author Topic: Another idea to handle black swan: margin call execution price floor  (Read 749 times)

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Offline abit

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The Steem approach:
* witnesses publish price feed of STEEM in $ (like BTS/BitUSD);
* under normal conditions, Steem Dollar holders can convert their Steem Dollars to STEEM at median feed price with a delay (like force-settlements in BitShares);
* when median feed ($ per STEEM) is so low that total amount of existing Steem Dollar (current SBD supply) is more than 10% of the whole STEEM market cap (which is median price feed * current STEEM supply), the 10% threshold is used as conversion rate. In other words, the system breaks the peg intentionally at the time.

For bitAssets in BitShares E.G. bitUSD, it's possible to adopt similar approach:
* after a new price feed is published,
  * if the median feed price ($ per BTS) is so low that would trigger a black swan event (which means median_feed / MSSR < black swan price, aka debt/collateral of the debt position with least collateral ratio), don't execute a global settlement, instead, update the margin call execution price to the black swan price;
  * if the median feed price is higher, use the median.

In short,
1. use the black swan price as a floor when matching margin calls,
2. don't trigger global settlement.


Outcomes of this approach:

* when price of collateral asset (BTS) is too low, the peg may be effectively broken, which is same as globally settled;

* the debt positions are still in the borrowers' accounts, which IMHO is the most significant benefit to the ecosystem since decentralization (decentralized borrowing / supply creation) is kept as is, in comparison to the globally-settle approach which will close all positions to form a centralized pool;
  * the borrowers who are in margin call territory can still increase collateral or reduce debt;
  * new bitAsset supply can be created (borrowed) with sufficient collateral to eat the margin calls;

* bitAsset holders can buy into the margin calls at black swan price, which is same as globally settled;
  * if there are orders selling collateral asset (BTS) with lower price, they'll get matched before the margin calls;

* after the position with least collateral ratio got bought out (completely eaten), or the debt position owner increased collateral ratio, the bitAsset may or may not be effectively revived immediately, depends on whether the next debt position has high enough collateral ratio;
  * even if not revived immediately, new black swan price and margin call execution price might move down a bit, so the peg would be more or less tighter;

* if later a new price feed caused the median feed to be higher than current black swan price, the bitAsset is effectively revived immediately.

* the down side for debt position owners: it's possible that the positions with higher collateral ratio would sell collateral at even lower price, in comparison to the globally-settle approach that all positions will get "bailed out" at black swan price.


Other things that need to be taken into consideration:

* if force-settlement is enabled on the bitAsset, the settlement price should also has the same floor;

* ideally, effective MCR should be kept at same level when margin call matching price or settlement price is higher than the real price, so people can't borrow with effectively low collateral ratio. That said, the nominal MCR used in calculation may need to be increased.


Thoughts?


IMHO this approach is better than the bad-debt-holder approach proposed in https://bitsharestalk.org/index.php?topic=27273.0

By the way, although this requires a hard fork to implement, actually similar result can be achieved by witnesses before the hard fork: witnesses are able to feed adjusted price to prevent global settlement from being triggered.
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Offline Bangzi

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Re: Another idea to handle black swan: margin call execution price floor
« Reply #1 on: November 24, 2018, 03:51:56 pm »
The core development team have very very heavy workload. IMHO, if this can achieved by witnesses, then no point to have hard fork for this. If the feedback from community is positive, just write a BSIP for the community to approve and then witnesses will implement it.
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Offline matle85

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Re: Another idea to handle black swan: margin call execution price floor
« Reply #2 on: November 24, 2018, 08:49:48 pm »
What about changing the margin sell price so that it is 10% lower than the lesser of the feed price or the Dex price?

That would encourage buying of the margin and mean that margin sell walls are actually eaten.

That is the biggest problem we have at the minute is margins are not eaten. We need to correct that asap otherwise we will never be safe in downward movement.

Offline 天籁

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Re: Another idea to handle black swan: margin call execution price floor
« Reply #3 on: November 25, 2018, 01:32:06 am »
What about changing the margin sell price so that it is 10% lower than the lesser of the feed price or the Dex price?

That would encourage buying of the margin and mean that margin sell walls are actually eaten.

That is the biggest problem we have at the minute is margins are not eaten. We need to correct that asap otherwise we will never be safe in downward movement.


correct.

Offline clockwork

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Re: Another idea to handle black swan: margin call execution price floor
« Reply #4 on: November 25, 2018, 07:55:03 am »
steem has a terrible peg no?

Offline abit

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Re: Another idea to handle black swan: margin call execution price floor
« Reply #5 on: November 25, 2018, 11:16:42 am »
steem has a terrible peg no?
I won't expect a peg too much after reached the black swan price.
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Offline xeroc

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Re: Another idea to handle black swan: margin call execution price floor
« Reply #6 on: November 26, 2018, 02:24:01 pm »
I dont think that someone not watching their margins should keep their call orders.
Instead, there has to be somewhat of a penalty and the penalty needs to be in the
open markets, ideally in the a "counter-cause" direction - meaning that, if BTS prices
goes down, the margin call needs to cause the BTS price to go up. Obviously, "counter-cause"
has been implemented by buying up bitUSD (which indirectly causes BTS supply to go
down and maybe BTS price to go up) because it cannot use the collateral to buy up
BTS, directly :D
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Offline abit

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Re: Another idea to handle black swan: margin call execution price floor
« Reply #7 on: November 26, 2018, 02:38:59 pm »
I dont think that someone not watching their margins should keep their call orders.
Instead, there has to be somewhat of a penalty and the penalty needs to be in the
open markets, ideally in the a "counter-cause" direction - meaning that, if BTS prices
goes down, the margin call needs to cause the BTS price to go up. Obviously, "counter-cause"
has been implemented by buying up bitUSD (which indirectly causes BTS supply to go
down and maybe BTS price to go up) because it cannot use the collateral to buy up
BTS, directly :D
So what's your conclusion?

1. Since one borrower didn't watch for his position, all borrowers should be settled?

or

2. The one's position should be settled and others keep they positions?


In regards to penalty, I'd say any penalty will present as a price change in market, aka premium.
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