Author Topic: A thought experiment on Bitshares.  (Read 250 times)

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Offline Sapiens

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A thought experiment on Bitshares.
« on: October 01, 2019, 04:26:48 pm »
A thought experiment about bitshares:

Let's suppose 1Bts = 1 USD.

Joe has 1000 bts which represent 1000 votes to him on the Bitshares ecosystem.

Joe uses his bts to borrow 500 bitUSD at a CR=2

He then uses those 500 bitUSD to buy 500 bts. Now he has a voting power of 1500 on the ecosystem.

He now uses this 500 bts to borrow 250 BitUSD and buy more bts. His voting power now is 1750.

And so on, and so forth.

Eventually, with an investment of 1000 bts Joe duplicates his voting power.

When bts price goes down, Joe uses his newly acquired (and created out of thin air) voting power to coerce every witness into faking the price-feed and into breaking the Peg.

He also wants the MCR to be brought down to 1.1 instead of 1.6. He has found that, with such low MCR, his initial 1000USD could be converted to 10K worth of voting power.

He argues that because he IS the community, he has right to change the rules. He argues that because he IS the community, he must not keep the deals he agreed upon at the moment of opening his debt positions.

Other businesses and people that rely on BitAssests trustworthiness, are also part of the community but, of course, they are not AS important.

Bitshares brand may also be damaged by the move, but that's not AS important.

Now, with an altered price-feed, Joe can go into as much as debt as he wants. For, he will never be margin called, forever. Ever creating more and more shitty BitUSD.

Question #1: Who is Joe?
Question #2: Do you think Joe will stop here?

Answer to question #1: Joe is any weak spirit who falls prey of his greediness and the wrong set of incentives. If, according to the Bitshares protocol, voting power can be created out of thin air, at the sole expense of borrowing BitAssets into existence then, by the law of probability, somebody will exactly do as Joe.

So, what's the conclusion? The whole process of SmartAssets creation need to be re-designed. The collateral is not held by the debtor but by the blockchain as a guarantee. Thence, its voting power cannot be held by the debtor either. Also, if any given entity can increase its voting power by creating debt then, as a consequence, the decision making of the blockchain is being transferred to the most impulsive and risk avid individuals. This must not be the case, if we pretend this blockchain to grow strong.


Answer to question #2: No

Sapiens
« Last Edit: October 01, 2019, 04:43:50 pm by Sapiens »

Offline R

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Re: A thought experiment on Bitshares.
« Reply #1 on: October 01, 2019, 06:41:10 pm »
The vote weight from the 1x CR from any BTS backed bitasset should be allocated to the bitasset holder, not the debt holder.

Anything greater than the 1x CR should be allocated to the debt holder, but the 1x CR is effectively the property of the bitasset holder since the debtor sold the bitasset (and thusly the underlying BTS) to the now bitasset holder.

Interesting thought experiment, sounds familiar.. 🤔

Offline Sapiens

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Re: A thought experiment on Bitshares.
« Reply #2 on: October 02, 2019, 09:06:14 am »
The vote weight from the 1x CR from any BTS backed bitasset should be allocated to the bitasset holder, not the debt holder.

Anything greater than the 1x CR should be allocated to the debt holder, but the 1x CR is effectively the property of the bitasset holder since the debtor sold the bitasset (and thusly the underlying BTS) to the now bitasset holder.

Interesting thought experiment, sounds familiar.. 🤔

Isn't that the case already? How is this exactly programmed into the core protocol?

Joe has 1000 bts and let's suppose 1 bts = 1 USD. Voting power of Joe = 1000.

Joe borrows 500 BitUSD by using his 1000 bts as collateral at a CR=2. He keeps his 500 BitUSD, What's his voting power now? 1000 or 1500?

Now, Joe buys 500 Bts from Carol using his 500 BitUSD. Carol is left with 500 BitUSD only.  Now Joe's voting power is 1500.

Before the transaction Carol's voting power = 500. What's Carol voting power after the trade?

I think the correct way to handle this according to the following equation proposed by Clockwork:

  • Joe's voting power after the trade: Collateral above of Cr=1
  • Carol's voting power from the trade: 0
.

That is, in our example, once Joe uses his first 1000 Bts to create 500 BitUSD at a CR=2. His voting power becomes 500. Not because of the 500 BitUSD he holds now, but because the 500 Bts he has in excess collateral.

Once Joe takes those 500 BitUSD to Buy 500 Bts, his collateral is 1000 again. 500 bts from excess collateral + 500 Bts he just bought.

If Joe uses those 500 Bts to create 250 BitUsd, at a CR= 2, his voting power now becomes 500 Bts from excess collateral from the first trade + 250 Bts from excess collateral from the 2nd trade = 750.

Etc.

Sapiens
« Last Edit: October 02, 2019, 04:30:44 pm by Sapiens »

Offline clockwork

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Re: A thought experiment on Bitshares.
« Reply #3 on: October 02, 2019, 09:23:32 am »
The vote weight from the 1x CR from any BTS backed bitasset should be allocated to the bitasset holder, not the debt holder.

Bad idea....gives shitloads of power to BTS shorters..and it's much easier to drop price than raise it

I'd rather have that voting weight "lost" ....essentially the debtor's incentive is for price to go up, the holder's is for it to go down....one has put up 1x collateral, the other holds an asset worth 1x collateral with opposite incentives.

I'd say consider them as cancelling each other out and not assign that weight at all

Offline Sapiens

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Re: A thought experiment on Bitshares.
« Reply #4 on: October 02, 2019, 04:33:44 pm »
The vote weight from the 1x CR from any BTS backed bitasset should be allocated to the bitasset holder, not the debt holder.

Bad idea....gives shitloads of power to BTS shorters..and it's much easier to drop price than raise it

I'd rather have that voting weight "lost" ....essentially the debtor's incentive is for price to go up, the holder's is for it to go down....one has put up 1x collateral, the other holds an asset worth 1x collateral with opposite incentives.

I'd say consider them as cancelling each other out and not assign that weight at all

I adjusted my conclusion accordingly. The advantage of having Joe's voting power = his collateral above 1 is that he has an incentive to add collateral.

Offline R

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Re: A thought experiment on Bitshares.
« Reply #5 on: October 02, 2019, 04:50:42 pm »
The vote weight from the 1x CR from any BTS backed bitasset should be allocated to the bitasset holder, not the debt holder.

Bad idea....gives shitloads of power to BTS shorters..and it's much easier to drop price than raise it

I'd rather have that voting weight "lost" ....essentially the debtor's incentive is for price to go up, the holder's is for it to go down....one has put up 1x collateral, the other holds an asset worth 1x collateral with opposite incentives.

I'd say consider them as cancelling each other out and not assign that weight at all

OK, so up to 1x CR of bitassets with BTS backing have 0 vote weight, all CR above 1x have vote weight? Sounds good to me. 👍