New BSIP：GS protection via core code

[bitProfessor]

I don't support disabling global settlement on committee owned bitassets, I'd far rather see them globally settle than operate a fractional reserve where none of the debtors face consequences.

Good thing that anyone can create a new bitasset to compete against manipulated bitassets though, eh? The market can decide which will survive - I've got a feeling it might be the stable one not the manipulated one.

good idea.but other bitxxx has no liquidity.(bitcny)

[R]

I don't support disabling global settlement on committee owned bitassets, I'd far rather see them globally settle than operate a fractional reserve where none of the debtors face consequences.

Good thing that anyone can create a new bitasset to compete against manipulated bitassets though, eh? The market can decide which will survive - I've got a feeling it might be the stable one not the manipulated one.

[sschiessl]

https://github.com/bitshares/bsips/pull/224

This is not a statement of my personal or any others opinion, merely a proposed technical specification.

[sschiessl]

Should this be adjusted to accomodate the current notion of having a "floor price" while still allowing witnesses to feed actual external price?

EDIT: Just saw https://github.com/bitshares/bsips/issues/179#issuecomment-536170317

[Sapiens]

I just saw this!

Sure man, this is al open source!

BTW, I had to check about 10 reCAPCHATs to be able to post this. Quite suspicious.

[abit]

Can I quote your messages in Telegram group to this post? E.G.

* "Suppose that A borrows BitUSD ..."

* "On a similar note, if a wallet ..."

I'm glad that you noticed the issues.


UPDATE:
Here are the messages:

"Suppose that A borrows BitUSD from the DEX and uses it to buy BitCNY from B. An additional player, C, decides to sell a bunch of his BTS to B in exchange for that BitUSD and hold it to avoid volatility. C's sell brings BTS price down and makes A fall into a margin call. Suppose also that there are no more players in this market. It seems to me that, even if A wanted, he could not close his position because all the existing BitUSD is in the power of C, which is decided to hold it. So, in order to prevent the call, the only alternative for A is to sell his CNY for BTS and increase his collateral, being left with less available money than what he started with, crippled, unknowingly, by C. A has himself labeled as a bad debtor without any possible solution. "

"On a similar note, if a wallet with lot's of BitUSD becomes inaccessible due to lost keys or his owner having a heart attack, because that BitUSD is backed by someone's collateral, someone's debt becomes impossible to pay, and his collateral impossible to recover. "

[Sapiens]

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.

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

[Peryn]

And you are friends, no matter how you sit down, All the musicians are not fit.
I do not see the insurance market for debts in Bitshares.

[bitProfessor]

It's time to act.

[bitcrab]

the draft BSIP is updated. https://github.com/bitshares/bsips/issues/179

please comment if you have any further thoughts.

if no big update is needed, I hope the BSIP can be soon finished and put on poll voting.

[bitcrab]

blockchain taking over bad debt have no essential help, as it can do nothing but wait for the BTS price to go up.

So just talk about this.

Assuming we never GS.

If the blockchain takes over bad debt positions,
1. debt position holders (borrowers) will have a bit more pressure to keep their CR a bit higher, otherwise they'll always lose the whole collateral when devaluation occurs;
2. if we fund the pool somehow, E.G. putting a part of market fee into the pool, CR of the pool can be higher than the other debt positions, so "wait for price to go up" is not the only way

If blockchain don't take over bad debt positions,
1. the bad debt positions can lose their collateral if someone buy into margin calls or force-settle, but if nobody buys into margin calls nor force-settle, they will keep the collateral;
2. the borrowers have the option to increase CR of their positions (although perhaps they won't do)

Think about how game theory works.

By the way, just saying, there are a lot of voices from the community which want to "punish the bad borrowers", one way to punish is taking over the debt positions when some conditions are met.

in most of the cases, whether the bad debt position owner want to handle bad debt depend on whether they are able to, not whether they will, in extreme bear market, almost everyone are in serious shortage of fund, how can you demand them to handle each bad debt?

I don't think the "punish the bad borrower" way will work, it can only lead to less borrowing. and, should borrower be responsible for going down of BTS price?

there also have been a lot of voices from the community for higher MSSR, but now, don't you agree that MSSR should be low enough?

whether the bad debt position are kept by borrower or system is not a problem, market fee can be used to fund the pool, it can also be used to force settle the bad debt positions.

there's one important reason why I prefer the "active smartcoin devaluation" way, it minimize the impact to the market, as we have seen in several days ago, bad debt appeared in USD market but the GS protection worked, the common users were even not aware that the bad debt had appeared, if bad debt lead to debt position taking over, possibly it will have much bigger market impact.

we have seen many facts that the risk itself is not serious, however the way to handle the risk lead to much bigger risk, 10% MSSR is one example, GS is another example, we need to try to avoid this in bad debt handling.

[Digital Lucifer]

Agree on that "manipulation" part from Abit.

And lets clear it up once and for all.

We have "bad debt" situation. In real life, if i wanna lend someone cash he needs to provide security (car, house, depends on the cash). If he fails to return the debt per agreement, he loses his security and debt is "cleared".

Why it's such a problem here to recreate same event ?

Simplified definition by me:
MANIPULATION would be something done for personal/selfish/unfair interests of individual or certain group, while here it would be MANAGEMENT for the safety of entire population.

You can all google up both terms for better and more refined definition, but facts are facts.

Lets do simple test:

- Block producers are being manipulated in order to keep their job ->> Block producers are being managed in order to keep their job.
- CNY market is manipulated by Chinese. ->> CNY market is managed by Chinese.
- Price feeds are manipulated by BTS Holders through block producers. ->> Price feeds are managed through block producers by BTS Holders.

Back to point from Abit:

IF IT DOES THE JOB AND SAVE THE DAY WHO THE F**K CARES WHAT TERM YOU WILL USE AS EXCUSE FOR THIS OR ANYTHING ELSE ?

This is not science anymore, it's turning into bullshit and endless drama.

Bad debts are the problem, core needs mechanics to deal with them more efficiently.

Remove the bad debts and we will get liquidity back to bitUSD as well.

End of discussion from my perspective.

Chee®s

[abit]

bitSILVER, bitGOLD and bitBTC always had 10% MSSR and never applied BSIP42 but GSed long ago. This fact doesn't support the assumption that a higher MSSR will prevent undercollateralization from happening.

It takes more than MSSR. At least a combo of MSSR and MCR. But The weaker the bitAsset the higher they need to be; as en example bitCNY can have lower settings and still function properly. If you don't have liquid market on butAssets GS will happen no matter the MSSR and MCR if the right conditions are met.

You got the point: liquidity.

You think why bitCNY got better liquidity?

How to attract people to provide liquidity?
The answer:
1. find more people
2. give people what they want.

Who are them?
The borrowers (bitAsset creators) and the holders. Need a balance between the 2 parties.

What's the most important thing do they want?
Actually this is a hard question.
In Economics and project management practices, there are terms "effective demand" and "ineffective demand". People may keep saying they want something, but actually they want something else which they didn't say but is more important. One solution is to list all the demands/requirements, and sort them by priority, see discussions in https://github.com/bitshares/bsips/issues/179.

If we can find a proper way to incentivize the involved parties, we'll solve the problem.

No matter the incentive, there will be always someone (maybe someone that no longer pays attention to his debt) that will let it ride. If we don't come up with a way to automatically close the debt the GS will always be there.

Actually, "someone that no longer pays attention to his debt" will be margin called or force-settled if there are other people willing to and have the funds and desire to provide liquidity. Theoretically there are ways to avoid undercollateralization/devaluation, E.G. have a strong fund to keep BTS price stable (some people may say it's price manipulation, but if it works and benefits, who cares what it is).

I will give everyone another option to think about on the GS issue:
When collateral reaches 1:1 simply force settle that debt based on percentages. If there are 1000 smart coins issued, 10 is being force settled; each holder would see 1% of their smart coin force settled by the blockchain. This avoids GS alltogether and good debt stays in the system.

This is also an option if our only goal is to avoid undercollateralization (btw technically 1% is not guaranteed that all undercollateralized positions will be settled, also technically we can increase the percentage when it's the case).

IMHO this option does more harm than good, because we have other goals which IMHO are more important, one of them is to give debt asset holders as much freedom as possible to decide by themselves, because we assume they're risk haters. On the other hand, debt position holders are risk lovers, so it's fine to have more aggressive rules on them, e.g. margin calls and force settlements. Please see discussions in https://github.com/bitshares/bsips/issues/179.

Also it would be a crisis for businesses built on top of BitAssets because they have no easy way to convert the collateral back to BitAsset when collateral price bounced back up. Imagine that if someone deposit bitUSD to an exchange but later can only withdraw some BTS and some BitUSD. In short, don't remove coins from users' balance, otherwise users will leave.

Alternatively, perhaps we should give asset holders an option on whether *automatically* settle a part of their holdings when feed price is closed to GS price, which may slightly improve the situation, but is not that hard.

bitAsset is not a currency or not even a coin, it's a contract between 2 parties that agree that particular asset will have a value equivalent to that asset in real life and will be backed by BTS. If anyone (exchanges) are running their business on that asset they should be able to adjust their holding (and users) to bitAsset+BTS. They already do it for some forks, air drops etc. This would not be any different and would always avoid GS. And I think that's the goal to have liquid market where the bitAsset is equal to it's RL counterpart ie: 1 bitUSD = 1 USD
Auto settling bad debt on a bit asset holder would be somewhat like force settlement on the debt holder. A risk on both sides.

You think the most important thing is to avoid undercollateralization/devaluation, which is even more important than the freedom of asset holders.

I have to disagree with this. I think freedom is more important.

People hold 1 bitUSD, it will always be 1 bitUSD. Nobody will forcefully get some bitUSD from them although give back some BTS to them. This is the freedom.
As a result, the 1 bitUSD they hold can devalue under certain circumstances.
Actually, currently GS is working in this way. GS protection is in this way too.

[abit]

blockchain taking over bad debt have no essential help, as it can do nothing but wait for the BTS price to go up.

So just talk about this.

Assuming we never GS.

If the blockchain takes over bad debt positions,
1. debt position holders (borrowers) will have a bit more pressure to keep their CR a bit higher, otherwise they'll always lose the whole collateral when devaluation occurs;
2. if we fund the pool somehow, E.G. putting a part of market fee into the pool, CR of the pool can be higher than the other debt positions, so "wait for price to go up" is not the only way

If blockchain don't take over bad debt positions,
1. the bad debt positions can lose their collateral if someone buy into margin calls or force-settle, but if nobody buys into margin calls nor force-settle, they will keep the collateral;
2. the borrowers have the option to increase CR of their positions (although perhaps they won't do)

Think about how game theory works.

By the way, just saying, there are a lot of voices from the community which want to "punish the bad borrowers", one way to punish is taking over the debt positions when some conditions are met.

[bitcrab]

The purpose of implementing GS protection into core is, no matter witnesses feed what price, force settlements and margin calls will execute at the protected price. So it's clearer for traders to know what's the feed price (produced by witnesses) and what's the settlement price (decided by the blockchain). Actually it's a UI issue, so we don't need to argue here. UI can even should a third price: what will be the settlement price and margin call price if GS protection is disabled.

On the other hand, if GS protection is implemented into core, witnesses will no longer need to and should not publish adjusted price feeds which was criticized as price manipulation.

IMHO, whether the blockchain should take over the bad debt is the main thing to debate.

yes, in my view one principle should always be followed either bad debt appears or not:

borrowing, margin call, force settlement should always refer to the same price.

so it seems necessary to introduce one new parameter which is called settlement price as margin trading reference to replace feed price.

settlement price = max(feed price, GS Protection Price)

feed price should always be the real time market price.

borrowing, margin call, force settlement will always refer to settlement price, CR is calculated based on settlement price, margin call order price = settlement price/MSSR, force settlement price = settlement price*(1+force settlement offset)

normally, settlement price = feed price.

while bad debt appear, settlement price will be GS Protection Price, in financial sense it means, the system recognize and accept the fact that the smartcoin is in devaluation.

however, margin call order filling, debt position adjustment, force settlement can all reduce GS Protection Price and lessen the devaluation, until finally bad debt disappear.

and GS will be disabled for ever.

and I feel a new name is needed to replace "GS protection", maybe "active devaluation of smartcoin".

blockchain taking over bad debt have no essential help, as it can do nothing but wait for the BTS price to go up.

updated BSIP: https://github.com/bitshares/bsips/issues/179