Author Topic: Proposed modification of the whole margin system for Smart Assets  (Read 748 times)

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Offline Sapiens

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I posted this in BitShares DAC telegram group about liquidity pools, and I will post it here again:
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Also, liqudity pools are set up by individuals, not the blockchain. Why would someone want to set up a pool for profit, then have that profit taken from them to keep people who chose to use margin afloat?
Also, profit should not be spread to the debtors, they did nothing to earn the profit from a debt arbitrage done by a smart contract. If a smart contract is to be implemented to deal with bad debt, those holding debt are not entitled to that, but the blockchain due to the smart contract.

Hey Brendan! Good to hear from you!

Point (4) of the proposal doesn't imply that fees collected by the pool are to be given to the debtors. Far from it, It suggest that a bot buys the smart asset from any of the available pools (thus generates profit for that pool holders) and sells it to the margin wall generated whenever a debt position with CR < MSSR appears. This single operation helps to reduce the probability of GS.

Now, during that very specific single operation, a small profit may be obtained, that profit may be given to the debt holders. Point (4) also makes clear that such bots may already be running by individuals so, the whole point is optional and may be unnecessary.

My line of reasoning along the whole proposal is that debtors are incurring in a risk that, weather they notice or not, is higher than the probable reward obtained under the current protocol. So, there is need to further incentivize debtors to keep appearing, even during harsh bear markets, and so reduce the probability of GS.





« Last Edit: May 29, 2021, 06:51:39 pm by Sapiens »

Offline iamredbar

I posted this in BitShares DAC telegram group about liquidity pools, and I will post it here again:
Quote
Also, liqudity pools are set up by individuals, not the blockchain. Why would someone want to set up a pool for profit, then have that profit taken from them to keep people who chose to use margin afloat?
Also, profit should not be spread to the debtors, they did nothing to earn the profit from a debt arbitrage done by a smart contract. If a smart contract is to be implemented to deal with bad debt, those holding debt are not entitled to that, but the blockchain due to the smart contract.

Offline Sapiens

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It means the debtors who have maintained their positions better will be forced to buy the bad debts. I don't think it's desirable by those people.

Under the current protocol the strongest positions are closed because of the weakest ones. And they are forced to sell at the worse possible price. Let them decide what's desirable for them!

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As long as a debtor has collateral above MCR, he will never be force-settled.
Debt asset holders will be unhappy to see this.

The conclusion "peg is maintained" is not proven.

They are much more unhappy now, given that in BitEuro, for example, they cannot force-settle more than 10 Euros each hour.

Now, regarding the peg, it will always be maintained unless the last, strongest position breaks. This is much better than current situation when peg is broken when the weakest position defaults which, naturally, happens much more frequently.


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What LP? Who deposited to the LPs so that there are sufficient debt token to be used to buy or force settle the margin wall?
To be honest, I think it's just wishful wish. Simply speaking, when the market is in a bear trend, the debt assets are being hoarded, there is no liquidity in the market nor in liquidity pools, no supply to be used to close debt positions nor to buy into the margin wall.

Every LP that has the corresponding smart-Asset. And they don't have to have enough of it. Reducing the size of the margin wall is already an accomplishment. Please keep in mind that this is not a proposal to eliminate global settlement, but to drastically reduce the probability of it happening. Anyway, as the initial post says, this point is optional. Other players, not necessarily at core level, can do this arbitrage.

Best for all!

Sapiens

Offline abit

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In order to allow debtors to exit their positions when they simply are not willing to hold them any longer, an auction system for those positions is created, So, any debtor can sell his position at any time. Also, a system in which any member of the community can offer to buy any debt position is implemented.

Being able to sell debt positions is an interesting idea. But if look into the details, I think it's quite complicated.

I think BSIP62 (https://github.com/bitshares/bsips/blob/master/bsip-0062.md) is a simplified version of it, even that, it's still complicated.
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Offline abit

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Just for the information, this post is related to the discussion on Github: https://github.com/bitshares/bsips/issues/179

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... some positions could have negative CR. To prevent this, those positions are simply deleted once they reach CR<1 and their debt and collateral is transferred to the remaining, better collateralized positions.
It means the debtors who have maintained their positions better will be forced to buy the bad debts. I don't think it's desirable by those people.

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As long as a debtor has collateral above MCR, he will never be force-settled.
Debt asset holders will be unhappy to see this.

The conclusion "peg is maintained" is not proven.

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... creates an incentive for those who are willing to open new positions with fresh collateral and so, push BTS price upward.
Doubtful.

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Whenever any position has CR < MSSR, an automatic operation (or a bot) is activated that takes the smart Asset from LPs and either buys the corresponding margin wall or force settles that low collateral position
What LP? Who deposited to the LPs so that there are sufficient debt token to be used to buy or force settle the margin wall?
To be honest, I think it's just wishful wish. Simply speaking, when the market is in a bear trend, the debt assets are being hoarded, there is no liquidity in the market nor in liquidity pools, no supply to be used to close debt positions nor to buy into the margin wall.
« Last Edit: May 25, 2021, 11:01:09 pm by abit »
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Offline Sapiens

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Dear Bitshares community,

Much has been said and suffered regarding the debt system currently operating the smart asset creation on the bitshares platform. The following proposed mechanism of this margin call system has the following advantages over the current system:

  • As long as a debtor has collateral above MSSR, he will never be margin called nor fall victim of Global Settlement, independently of the state of other debtors.
  • As long as a debtor has collateral above MCR, he will never be force-settled.
  • If implemented before, the proposed mechanism would have avoided most, if not all, of previous Global Settlements .
  • With the new protocol, debtors are incentivized to adjust their positions for the benefit of the community. This is much better than the current mechanism which punishes them whenever harsh conditions appear. 
  • Holders of smart assets are protected and the peg is maintained until the very last possible moment.
  • Dex's liquidity and liquidity pools usage is increased.
  • A new, innovative market of debt positions is created and with it, a new source of income for the DAC appears.
  • Committee is released from the urgency to randomly adjust parameters in order to prevent GS, thus creating better stability for the whole ecosystem and avoiding much of the recent drama

The proposed new mechanism operates as follows:
  • GS is not activated whenever CR of the least collateralized position falls below 1 but when (total collateral in existence) < (total debt in existence)x(MSSR). This way, GS would not happen as a consequence of the state of the weakest debtor but from the behavior of all debtors as a whole.   
  • The above alone implies that some positions could have negative CR. To prevent this, those positions are simply deleted once they reach CR<1 and their debt and collateral is transferred to the remaining, better collateralized positions. This would reduce the CR of those better positions, but it also increases their total debt and total collateral. So, if those positions (which are most likely held by more experienced traders) manage to keep themselves open during sharp declines in bts price, their reward will be much more bigger. 
  • Whenever (2) happens, in order to alleviate the burden on the remaining, active positions, all fees for the corresponding market are distributed among them.This way, those positions get compensated for taking on the collateral and debt of the deleted positions. Also, this creates an incentive for those who are willing to open new positions with fresh collateral and so, push BTS price upward.
  • Whenever any position has CR < MSSR, an automatic operation (or a bot) is activated that takes the smart Asset from LPs and either buys the corresponding margin wall or force settles that low collateral position, which, at that moment should be at a premium price. Probably there are already some bots doing similar arbitrage. So, this point is optional. In case of implemented, profits from this operation can also be distributed among the remaining debtors.
  • Processes (3) and (4) are run until CR > MCR for all existing positions.
  • Force settling positions whose collateral is above MCR constitutes unfair and terrible customer service to the users that lend themselves to the hustle of creating smart assets. However, force-settling cannot be totally eliminated because it is a competitive advantage over other platforms that don't have it and, if we don't have a plus over them, then people won't see a need to switch to us. So, force settling is allowed only upto the debt of those positions with CR < MCR. That new condition would required that, If someone wants to get rid of his smart assets and there is no such low CR positions, he must use the markets or the LPs. This has the additional benefit of increasing activity in the DEX.
  • In order to allow debtors to exit their positions when they simply are not willing to hold them any longer, an auction system for those positions is created, So, any debtor can sell his position at any time. Also, a system in which any member of the community can offer to buy any debt position is implemented.
  • Finally, if under the most super extreme conditions, all positions, one by one, are deleted, and after having all debt and collateral being transferred to the last, most stronger debtor, and after receiving help from fees and bots, he also falls below CR=1, then GS happens and bidding for collateral is allowed. Manipulating feed producers in order to prevent collateral bidding is also terrible costumer service, in my opinion.

Of the above points, the most controversial is (2), in which positions whose CR falls below 1 are deleted and both collateral and debt are transferred to the remaining, more collateralized positions. Despite this, (3) and (4) are thought to alleviate the burden of this transfer for the remaining higher-collateral positions and increase their possible reward. Overall, the proposed new protocol is way better than the current one. It has better treatment for both holders and debtors of the smart asset and also stronger incentives and better guarantees for all the involved players.

Expecting the best of you all,

Sapiens.