FDIC for BitUSD

[bytemaster]

Well in my design BTSX would get destroyed when converted to BitUSD instead of used as a margin. So create/destroy all you want, but the block chain is the market maker and all the BTSX holders will gain from the conversions back and forth.

If you have a trusted source of prices and a trustable way of getting that price information into a DAC (median delegate feed) then I suppose you can get rid of the entire Bid/Ask system all together and simply have the DAC create / destroy XTS as necessary for people to convert into and out of USD.   

However, if you do not have a price source (all exchanges are shut down by government) then it becomes a bit more difficult to know the "true" price upon which to execute your automatic process.

Also by having the network automatically create/destroy XTS "on demand" for conversion to/from BitUSD you are forcing the shareholders to take the full risk of being short.

That said I really like the idea for its simplicity and clarity.   It would not have been possible prior to DPOS, but now is potentially viable.

So here is the challenge... suppose it is very clear that BTS X is in a bubble (say it goes up by 10x in a week).   At this point in time everyone converts into USD at the high price without there being any downward pressure on the price.   Then when the price corrects everyone who converted into USD gets issued more BTS X than they had before which of course causes the price to fall further due to the dilution. 

The feedback loop is very important here and is absent when you rely on feeds rather than markets to set the price. 

Bottom line is show wants to go short USD (create USD) while the BTSX network is in a bubble?  No one..... when you rely on price feeds alone you create unlimited short supply.

[bytemaster]

Well in my design BTSX would get destroyed when converted to BitUSD instead of used as a margin. So create/destroy all you want, but the block chain is the market maker and all the BTSX holders will gain from the conversions back and forth.

If you have a trusted source of prices and a trustable way of getting that price information into a DAC (median delegate feed) then I suppose you can get rid of the entire Bid/Ask system all together and simply have the DAC create / destroy XTS as necessary for people to convert into and out of USD.   

However, if you do not have a price source (all exchanges are shut down by government) then it becomes a bit more difficult to know the "true" price upon which to execute your automatic process.

Also by having the network automatically create/destroy XTS "on demand" for conversion to/from BitUSD you are forcing the shareholders to take the full risk of being short.

That said I really like the idea for its simplicity and clarity.   It would not have been possible prior to DPOS, but now is potentially viable.

[bitmeat]

Well in my design BTSX would get destroyed when converted to BitUSD instead of used as a margin. So create/destroy all you want, but the block chain is the market maker and all the BTSX holders will gain from the conversions back and forth.

[tonyk]

The key points are:
1. There should never be more than 2 billion XTS for any reason or Bitshares will be thought of as broken.
2. The loan should be an IOU which is just enough to cover the shorts or the volatility event and bring it all back into equilibrium.
3. Delegates pay a price for this in that none of them get paid as 100% of fees get burned while users also pay a price because fees are temporarily higher than usual.

This way the incentives for everyone is for this not to happen. Also include the ability to execute option 1 as a fallback mechanism.

I am very against the idea of having our shares be diluted (debasement = euphemism for dilution) based on possible market manipulation. These kinds of manipulations are not easy to "factor" for especially in these early stages when it is extremely vulnerable to attacks. I am strongly against a system where BTSX could realistically increase past the initial 2 billion distribution.

It is not gonna happen every day (hopefully will never happen).
Think of it as explained here: https://bitsharestalk.org/index.php?topic=6887.msg91457#msg91457

[Pocket Sand]

The key points are:
1. There should never be more than 2 billion XTS for any reason or Bitshares will be thought of as broken.
2. The loan should be an IOU which is just enough to cover the shorts or the volatility event and bring it all back into equilibrium.
3. Delegates pay a price for this in that none of them get paid as 100% of fees get burned while users also pay a price because fees are temporarily higher than usual.

This way the incentives for everyone is for this not to happen. Also include the ability to execute option 1 as a fallback mechanism.

I am very against the idea of having our shares be diluted (debasement = euphemism for dilution) based on possible market manipulation. These kinds of manipulations are not easy to "factor" for especially in these early stages when it is extremely vulnerable to attacks. I am strongly against a system where BTSX could realistically increase past the initial 2 billion distribution.

[donkeypong]

Wouldn't debasement happen by issuing new BTSX not bitUSD? bitUSD is defined by BTSX real world worth/value. The intrinsic value of bitUSD is BTSX. Lowering the value of a BTSX will debase bitUSD, right?

One (BitUSD) is fixed and the other (BTSX) floats. If BTSX floats lower, than its value decreases relative to the stable USD.

[Ggozzo]

Wouldn't debasement happen by issuing new BTSX not bitUSD? bitUSD is defined by BTSX real world worth/value. The intrinsic value of bitUSD is BTSX. Lowering the value of a BTSX will debase bitUSD, right?

[bytemaster]

3) Debase XTS by issuing new XTS to cover the loss.

Isnt it theoretically possible that issuing new XTS could further reduce the price of XTS, causing even more collateral to be required?

I think so. It seems on the other side that issuing bitUSD would raise the price of BTSX, right?

Someone shorting would have to factor in the effect of future debasement. 

[bytemaster]

3) Debase XTS by issuing new XTS to cover the loss.

Isnt it theoretically possible that issuing new XTS could further reduce the price of XTS, causing even more collateral to be required?

Yes, a 25% debasement will cause things to fall another 25% *after* the existing orders have been called.   

[Ggozzo]

3) Debase XTS by issuing new XTS to cover the loss.

Isnt it theoretically possible that issuing new XTS could further reduce the price of XTS, causing even more collateral to be required?

I think so. It seems on the other side that issuing bitUSD would raise the price of BTSX, right?

[speedy]

3) Debase XTS by issuing new XTS to cover the loss.

Isnt it theoretically possible that issuing new XTS could further reduce the price of XTS, causing even more collateral to be required?

[tonyk]

Aren't there market shut offs if the price moves too drastic as well?

Unfortunately, non other than the +/-33% band around the feed price, IFAIK.

[Ggozzo]

If collateral is required how is the threshold breaking down at the stop loss?

If BTSX = $.01, bitUSD =100BTSx
If collateral =3x the BTSX, BtSX could drop 67% and be covered by collateral. But you would put the triggered stop in a say 50% or less.

Aren't there market shut offs if the price moves too drastic as well?

In the example above: for every bitUSD you short, you have 2x your own collateral and the other 1x collateral from the person you sold the bitUSD. Theoretically BTSX could drop from $.01 down to $.0033 before collateral becomes insufficient. But the triggered stop goes in to effect at $.005, a full 34% above the absolute threshold of collateral and 50% below the shorting price.

What is the problem then? What am I not seeing?

[oldman]

Perhaps the most market friendly way of handling this is simply setting the margin-call fee to 100%. 

This.

[tonyk]

Can you implement both 2) and 3) depending on market conditions?

In a way they are two sides of the same coin.


If you leave say 1% of all bitUSD totally un-backed (by BTSX), the backing of the average bitUSD in existence will decrees from up to 2.00x to up to 1.98x
If you increase the amount of BTSX , so all bitUSD are backed by collateral - the average bitUSD will be backed by up to 2x BTSX, but the value of each BTSX will be less.
It seems more efficient to increase the supply of BTSX, because not every BTSX is backing a bitUSD…or maybe this logic has some flow that makes both scenarios equal.