Author Topic: New mechanism to handle bad debt (black swan)  (Read 4371 times)

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Offline Thom

Re: New mechanism to handle bad debt (black swan)
« Reply #30 on: July 17, 2019, 06:13:52 pm »
Sounds like a good thing to try @Bangzi. I don't see a downside, unless it's too complex or difficult to implement. I applaud you recognizing the concern of under-collateralization.

I do suspect however that the problem with this approach will be in identifying only the under-collateralized accounts in a workable fashion, but let's see what the devs say about it.

If it were easy to identify those accounts, I would love to see them published. Perhaps public shaming might be an adequate disincentive to minimize the behavior.
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Re: New mechanism to handle bad debt (black swan)
« Reply #31 on: July 17, 2019, 10:02:31 pm »
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Re: New mechanism to handle bad debt (black swan)
« Reply #32 on: July 17, 2019, 10:08:43 pm »
The debt holders concern about global settlement and BitAsset Holders concern about under collateralized, there is solution available for both parties but need some changes on BSIP18 - Revive BitAsset through buying Settlement Pool.

Propose Solution:
1. Rather than force close all margin positions and move to settlement pool, the new solution is force close MCR <1 Margin Positions only and move to settlement pool, this will solve debt holders concern about global settlement.
2. Same as BSIP18, everyone can Use BTS to bid for those debts in settlement pool but we need to give them incentive to do so because investors will prefer to create new margin position rather than use MCR 1.6 to revive those debt.
3. Asset Owner set a new parameter call Minimum ReCollateral Ratio (MRR) eg. MRR 1.1
4. With MRR 1.1, investors can use 0.1 BTS to obtain 1 BTS Debt, this is a huge incentive for investors to keep BitAsset fully collateralized, this will solve BitAsset Holders concern about under collateralized.
I think bidding doesn't solve the issue that bitcrab described.

Bidding only happens when price recovered. But we need to encourage people to add collateral or reduce debt when price is low.

Before the higher collateralized positions get margin called or force-settled, the position owned by the pool (which should have lower CR) should be matched and filled first. That said, competing on eating margin calls is much more efficient than bidding.
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Offline biophil

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Re: New mechanism to handle bad debt (black swan)
« Reply #33 on: July 18, 2019, 09:49:03 pm »
The debt holders concern about global settlement and BitAsset Holders concern about under collateralized, there is solution available for both parties but need some changes on BSIP18 - Revive BitAsset through buying Settlement Pool.

Propose Solution:
1. Rather than force close all margin positions and move to settlement pool, the new solution is force close MCR <1 Margin Positions only and move to settlement pool, this will solve debt holders concern about global settlement.
2. Same as BSIP18, everyone can Use BTS to bid for those debts in settlement pool but we need to give them incentive to do so because investors will prefer to create new margin position rather than use MCR 1.6 to revive those debt.
3. Asset Owner set a new parameter call Minimum ReCollateral Ratio (MRR) eg. MRR 1.1
4. With MRR 1.1, investors can use 0.1 BTS to obtain 1 BTS Debt, this is a huge incentive for investors to keep BitAsset fully collateralized, this will solve BitAsset Holders concern about under collateralized.

I've been thinking of something vaguely similar, but I think there are some significant issues.

Here is one concern with this proposal: (I'll use BitUSD as an example.) What if BTS continues to fall after one of these force-settle events happens? Then you'll effectively have two "different" BitUSDs -- the stuff that's fully-collateralized, and the stuff that is collateralized only by the little bit of BTS in its own settlement pool. Even with your low MRR, BTS doesn't have to drop all that much for it to be very expensive for someone to bail out the settlement pool, so it could conceivably sit there for a very long time.

In a really nasty market, there could easily be millions of BitUSD sitting undercollateralized in settlement pools. If things get bad enough, you could have so much BitUSD in the settlement pools that BitUSD is, overall, undercollateralized -- even though the usual mechanism is still operational.

This question is one of the core ones I'll be dealing with if my research worker is approved.
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Re: New mechanism to handle bad debt (black swan)
« Reply #34 on: July 23, 2019, 03:22:53 am »
The debt holders concern about global settlement and BitAsset Holders concern about under collateralized, there is solution available for both parties but need some changes on BSIP18 - Revive BitAsset through buying Settlement Pool.

Propose Solution:
1. Rather than force close all margin positions and move to settlement pool, the new solution is force close MCR <1 Margin Positions only and move to settlement pool, this will solve debt holders concern about global settlement.
2. Same as BSIP18, everyone can Use BTS to bid for those debts in settlement pool but we need to give them incentive to do so because investors will prefer to create new margin position rather than use MCR 1.6 to revive those debt.
3. Asset Owner set a new parameter call Minimum ReCollateral Ratio (MRR) eg. MRR 1.1
4. With MRR 1.1, investors can use 0.1 BTS to obtain 1 BTS Debt, this is a huge incentive for investors to keep BitAsset fully collateralized, this will solve BitAsset Holders concern about under collateralized.

I've been thinking of something vaguely similar, but I think there are some significant issues.

Here is one concern with this proposal: (I'll use BitUSD as an example.) What if BTS continues to fall after one of these force-settle events happens? Then you'll effectively have two "different" BitUSDs -- the stuff that's fully-collateralized, and the stuff that is collateralized only by the little bit of BTS in its own settlement pool. Even with your low MRR, BTS doesn't have to drop all that much for it to be very expensive for someone to bail out the settlement pool, so it could conceivably sit there for a very long time.

In a really nasty market, there could easily be millions of BitUSD sitting undercollateralized in settlement pools. If things get bad enough, you could have so much BitUSD in the settlement pools that BitUSD is, overall, undercollateralized -- even though the usual mechanism is still operational.

This question is one of the core ones I'll be dealing with if my research worker is approved.

yes and theres no way to solve it at this point.
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Offline Sapiens

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Re: New mechanism to handle bad debt (black swan)
« Reply #35 on: August 05, 2019, 08:12:26 pm »
Hey guys, I wrote the following analysis regarding the issue. GS is only the manifestation of some more profound structural flaws in the Bitshares protocol. Given all that this community has build during the last years, I am fairly convinced that correcting this flaws will take us to the next level.

It's a pretty long read but, nonetheless worth the time.

Quote
Abstract


Eliminating the negative impact of Global Settlement events (GS) is certainly a priority for the Bitshares ecosystem. Currently, GS is widely regarded by the Bitshares community as a natural consequence of harsh market conditions, bad debtors and poor marketing strategy. Contrary to this perspective, I maintain here, that GS might be the consequence of some other more fundamental factors in the dynamics of the whole Bitshares protocol. I postulate that if these factors are modified, the probability of a GS or a similar event is drastically reduced almost immediately and may even tend to disappear in the long term. These factors include, but may not be limited to, two feedback loops currently present in the dynamics of workers’ financing and Margin calls. This work attempts to elucidate the architectural nature of the problem, out of which GS is only an inevitable result. Also, a new mechanism is proposed.   

Here is the link:

https://steemit.com/bitshares/@aguerrido/feedback-loops-and-analysis-of-bitshares-architecture-in-relation-to-smart-assets-sustainability

Offline Sapiens

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Re: New mechanism to handle bad debt (black swan)
« Reply #36 on: August 05, 2019, 08:26:08 pm »
The debt holders concern about global settlement and BitAsset Holders concern about under collateralized, there is solution available for both parties but need some changes on BSIP18 - Revive BitAsset through buying Settlement Pool.

Propose Solution:
1. Rather than force close all margin positions and move to settlement pool, the new solution is force close MCR <1 Margin Positions only and move to settlement pool, this will solve debt holders concern about global settlement.
2. Same as BSIP18, everyone can Use BTS to bid for those debts in settlement pool but we need to give them incentive to do so because investors will prefer to create new margin position rather than use MCR 1.6 to revive those debt.
3. Asset Owner set a new parameter call Minimum ReCollateral Ratio (MRR) eg. MRR 1.1
4. With MRR 1.1, investors can use 0.1 BTS to obtain 1 BTS Debt, this is a huge incentive for investors to keep BitAsset fully collateralized, this will solve BitAsset Holders concern about under collateralized.

Thanks for your contribution Bangzi,

The apparent problem of this approach is that, if people can get BTS at a premium price, they will not buy in the market, that would simply create a downward pressure on price. Also, the deeper structural causes of GS wouldn't be attacked.

I invite everyone to please read the following document, so that a bigger picture of whole issue emerges:

https://steemit.com/bitshares/@aguerrido/feedback-loops-and-analysis-of-bitshares-architecture-in-relation-to-smart-assets-sustainability