Author Topic: FDIC for BitUSD  (Read 26220 times)

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Offline Empirical1

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Won't a small BTSX crash 25%+ cause an already extremely negative market to think a dilution event could be triggered soon? Thereby creating the flash crash you'd like to avoid as everybody rushes for the exits before a potential dilution event is triggered.

I don't think any market can offer participants 100% certainity that individual assets will be be redeemed at full value. Participants will already be evaluating the peg on risk of delegate compromise, technical bug & others things. The black swan trading event is just another risk that doesn't seem worth risking BTSX total issuance for. (Even though Bitcoin has inflation, a large part of it's value is derived from the certainity of Bitcoin issuance imo.)

You said participants can buy dilution event insurance/hedge, so I would let them buy it/offer it to them at purchase myself.

Small crash will NOT create potential for dilution because all positions will have been covered and thus all "risk" consumed.

Thanks well I'm always happy to go with BM choice anyway just trying to see a different POV.

I realise a small crash will not create the potential for dilution. However a >50% flash crash could trigger up to a ~25% dilution was my understanding.

So it would be like watching Bitcoin fall rapidly from $600 to $420 and knowing that if it hits somewhere in the  $300 range a ~25% dilution event could start kicking in that takes it to $240. (& probably more panic selling after that.) 

So while at $600 there's only a 33% flash crash risk. At $400 in a flash crash there's a 33% crash risk + huge dilution event risk (relative to that price). So there's an intelligent rush for the exits after a rapid drop from $600-$420 which actually helps create the 50-65%+ drop which otherwise would be incredibly unlikely to happen.

So it seemed that we'd now included incentives for market participants to turn a small flash crash into a big one was my concern. 

Offline bytemaster

We really hope for many small crashes that shake out weak hands.
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Offline toast

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^^ will *not* create potential for dilution
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Offline bytemaster

Won't a small BTSX crash 25%+ cause an already extremely negative market to think a dilution event could be triggered soon? Thereby creating the flash crash you'd like to avoid as everybody rushes for the exits before a potential dilution event is triggered.

I don't think any market can offer participants 100% certainity that individual assets will be be redeemed at full value. Participants will already be evaluating the peg on risk of delegate compromise, technical bug & others things. The black swan trading event is just another risk that doesn't seem worth risking BTSX total issuance for. (Even though Bitcoin has inflation, a large part of it's value is derived from the certainity of Bitcoin issuance imo.)

You said participants can buy dilution event insurance/hedge, so I would let them buy it/offer it to them at purchase myself.

Small crash will NOT create potential for dilution because all positions will have been covered and thus all "risk" consumed.   
« Last Edit: August 13, 2014, 07:24:23 pm by bytemaster »
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Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline Empirical1

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Won't a small BTSX crash 25%+ cause an already extremely negative market to think a dilution event could be triggered soon? Thereby creating the flash crash you'd like to avoid as everybody rushes for the exits before a potential dilution event is triggered.

I don't think any market can offer participants 100% certainity that individual assets will be be redeemed at full value. Participants will already be evaluating the peg on risk of delegate compromise, technical bug & others things. The black swan trading event is just another risk that doesn't seem worth risking BTSX total issuance for. (Even though Bitcoin has inflation, a large part of it's value is derived from the certainity of Bitcoin issuance imo.)

You said participants can buy dilution event insurance/hedge, so I would let them buy it/offer it to them at purchase myself. 


Offline bytemaster

What if the blockchain not only is a market maker but controls fee destruction such that within a year time it always caps to 2B BTSX supply? In order to prevent dilution.

Blockchain cannot control total fees paid.
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Offline bitmeat

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What if the blockchain not only is a market maker but controls fee destruction such that within a year time it always caps to 2B BTSX supply? In order to prevent dilution.

Offline bytemaster

Quote
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.

What? Shorting bitUSD is the same directional sentiment as BTSX rising in price. If you think the bubble is going to pop, then yes, people will not want to short bitUSD. Fortunately, nobody knows when the bubble will pop. And there will always be the people who bought in at the top. That is the nature of free markets, no one knows jack. It sounds like you think that someone is going to know the markets crests and troughs. They will only know in hindsight. I guarantee it.

Release a GUI test run with windows and apple binaries. This will be good for everyone.

Almost had a GUI out today... waiting on GUI team to fix a few last minute bugs.

I am not claiming that there won't be people shorting at the top... only that it is more likely that those selling at the top will be other USD longs rather than new USD shorts.  I am also saying that it is fine for these shorts to take a loss because it was their call, but it wouldn't be fine for the network to be the greatest fool due to algorithmic ignorance.

I hear you.

 +5% on GUI test.

Will bitUSD be the vehicle or a vehicle to enter into the other bitAssets? Or are all of the assets to be pegged to BTSX? If bitUSD is the primary gateway for the other assets, like bitGold, then you will constantly have a demand to sell bitUSD. From above the problem was that no one would want to sell bitUSD when a bubble bursts. Well if bitGold or the assets are rising, then You would need to sell bitUSD to get them, no? This is assuming that the markets of some of the assets will not move In tandem with btsx/bitUSD and will most times be inversely related to the BTSX/bitUSD fluctuations. I'm not saying all or always.

You can trade BitGold vs BitUSD directly without going through BTSX
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Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline bitmeat

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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.

Ok, my design also relies on BTC <-> BTSX conversion directly on the chain using smart oracles. So you have real valuation in BTC at all times even if feeds disappear.

As far as the feeds go the block chain ensures liquidity but still allows for trading within the spread. If feeds are shutdown that is a problem regardless of which method you choose.

The simple idea is that you will always be reimbursed in BTC the equivalent of whatever your BitUSD is worth. In other words BTSX will capture all the fluctuations, but there is also incentive to hold it, since all the trades reward the BTSX holders.

Would be even better if dividends from fees are awarded in BitUSD, BitGOLD, etc. and given to the holders of BTSX. I think for simplicity and blockchain optimization you chose to give out dividends by burning BTSX.

Ggozzo

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Quote
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.

What? Shorting bitUSD is the same directional sentiment as BTSX rising in price. If you think the bubble is going to pop, then yes, people will not want to short bitUSD. Fortunately, nobody knows when the bubble will pop. And there will always be the people who bought in at the top. That is the nature of free markets, no one knows jack. It sounds like you think that someone is going to know the markets crests and troughs. They will only know in hindsight. I guarantee it.

Release a GUI test run with windows and apple binaries. This will be good for everyone.

Almost had a GUI out today... waiting on GUI team to fix a few last minute bugs.

I am not claiming that there won't be people shorting at the top... only that it is more likely that those selling at the top will be other USD longs rather than new USD shorts.  I am also saying that it is fine for these shorts to take a loss because it was their call, but it wouldn't be fine for the network to be the greatest fool due to algorithmic ignorance.

I hear you.

 +5% on GUI test.

Will bitUSD be the vehicle or a vehicle to enter into the other bitAssets? Or are all of the assets to be pegged to BTSX? If bitUSD is the primary gateway for the other assets, like bitGold, then you will constantly have a demand to sell bitUSD. From above the problem was that no one would want to sell bitUSD when a bubble bursts. Well if bitGold or the assets are rising, then You would need to sell bitUSD to get them, no? This is assuming that the markets of some of the assets will not move In tandem with btsx/bitUSD and will most times be inversely related to the BTSX/bitUSD fluctuations. I'm not saying all or always.
« Last Edit: August 13, 2014, 04:20:32 am by skyscraperfarms »

Offline bitmeat

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If BTSX assets allowed scripting and/or ability to create/destroy supply dynamically I could use the system itself to try out a prototype of my idea, without having to reinvent the wheel. In fact having programmable financial instruments should be next top priority for BTSX. I would even argue that instead if shipping BitUSD solution, I would like to see some scripting/smart contracts which allow solutions like BitUSD to be created on the chain itself.

Offline tonyk

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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.

I do not get which BTSX (U in your example) will be destroyed to produce virtualUSD (vUSD)?
Shareholders? Or is it gonna be some asset on top of them?

In either case I have a hard time accepting that U is actually backing the vUSD. Put in other words vUSD price is controlled only by the buying/selling activity on the centralized exchange where U is traded for USD.

When you are buying vUSD with U (or selling vUSD for U) you are not sending any price signals at all! At the same time when you are buying U for USD you are  changing the price of vUSD/U directly (and in the wrong direction btw). This wrong directional change is corrected in BTSX when you sell BTSX for bitUSD. In your system no such change occurs!
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline bytemaster

Quote
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.

What? Shorting bitUSD is the same directional sentiment as BTSX rising in price. If you think the bubble is going to pop, then yes, people will not want to short bitUSD. Fortunately, nobody knows when the bubble will pop. And there will always be the people who bought in at the top. That is the nature of free markets, no one knows jack. It sounds like you think that someone is going to know the markets crests and troughs. They will only know in hindsight. I guarantee it.

Release a GUI test run with windows and apple binaries. This will be good for everyone.

Almost had a GUI out today... waiting on GUI team to fix a few last minute bugs.

I am not claiming that there won't be people shorting at the top... only that it is more likely that those selling at the top will be other USD longs rather than new USD shorts.  I am also saying that it is fine for these shorts to take a loss because it was their call, but it wouldn't be fine for the network to be the greatest fool due to algorithmic ignorance.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Ggozzo

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Quote
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.

What? Shorting bitUSD is the same directional sentiment as BTSX rising in price. If you think the bubble is going to pop, then yes, people will not want to short bitUSD. Fortunately, nobody knows when the bubble will pop. And there will always be the people who bought in at the top. That is the nature of free markets, no one knows jack. It sounds like you think that someone is going to know the markets crests and troughs. They will only know in hindsight. I guarantee it.

Release a GUI test run with windows and apple binaries. This will be good for everyone.

Offline tonyk

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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.

I do not get which BTSX (U in your example) will be destroyed to produce virtualUSD (vUSD)?
Shareholders? Or is it gonna be some asset on top of them?

In either case I have a hard time accepting that U is actually backing the vUSD. Put in other words vUSD price is controlled only by the buying/selling activity on the centralized exchange where U is traded for USD.
« Last Edit: August 13, 2014, 02:50:01 am by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.