Author Topic: BitUSD Market Maker - Proposal for Discussion  (Read 17704 times)

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Offline starspirit

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #120 on: September 02, 2014, 02:18:40 am »
Kind of. Apart from standard volatility, failure risk needs to be considered. Every BitAsset shares the risk of BTSX failing, but BTSX can still survive if any particular BitAsset fails because of the value in the platform. A BitAsset is more likely to fail because there is no underlying value or redeem-ability that can be called upon should the consensus fail to hold the peg. Therefore any BitAsset will likely bear a discount relative to its peg price to compensate.

If the BitAsset peg provably succeeds in the long run, then failure risk disappears, and holding either BitAsset or BTSX will both have volatility risks commensurate with their respective return potentials.

Offline maqifrnswa

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #121 on: September 02, 2014, 02:46:07 pm »
thanks tonyk starspirit MeTHoDx. BitSharesX is so different than anything out there, I'm trying to find the "easy" way of explaining some of these fundamentals.

BTSX = represents stake in infrastructure, does not rely on a working peg. The DAC pays dividends based on the usage of the infrastructure.
BitAssets = cryptocurrency representing the value of the representative asset. It depends on an accurate peg to a real world asset in units of BTSX.

Since BitAssets cannot be redeemed for the representative currency, then theoretically BitAsset value must be guaranteed by the system to be the equivalent value of BTSX. So the value of the BitAsset is leveraging the real-world profit that BTSX can generate in order to ensure the value. User must have confidenec in the BTSX-BitAsset system to enforce pegging.

I am very much a free-market person, but I think that in order for the BTSX market/exchange to be a free market, the system MUST have have rules to enforce pegging. For now, the feeds are a direct way by which people who can exchange BitUSD for real currency off chain (via exchanges) will have a value such that 1 BitUSD ~ 1 USD.

If you assume BitUSD is not a speculative currency but instead a 1:1 mapping of the underlying asset value (or at least bterUSD/exchangeUSD) - there should be no such thing as a USD BitUSD market. Once you take that assumption, then BTSX and the need for market pegging becomes a little clearer.

However, when you do not take that assumption that bitUSD:exchangeUSD=1:1, there are legitimate economic reasons why BitUSD might trade higher OR lower than USD (if BitUSD is seen as more/less convenient store of value than in USD due to lack of liquidity or potential for system failure loss). For now the liquidity and market makes BitUSD less convenient, and people want to leverage as much as they can.

FUNNY THOUGHT: Just popped in my head, so silly I never saw this... BTSX will either succeed like crazy or go out in a bang. If it goes out like a bang, no matter how many BTSX I have, I get 0. If it takes off like crazy, I get money proportional to my holdings. In this game, I should leverage EVERYTHING I have as much as possible to get as many BTSX on margin as possible. If it goes up, i make a lot more than if I didn't leverage. If it goes down, I loss the exact same as if I did not leverage. The optimal move is to leverage and max out no matter what the BTSX-USD exchange rate.

For this reason there MUST be a market peg enforced externally for the indefinite future!
« Last Edit: September 02, 2014, 02:52:44 pm by maqifrnswa »
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Offline kisa

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #122 on: September 02, 2014, 03:39:26 pm »

FUNNY THOUGHT: Just popped in my head, so silly I never saw this... BTSX will either succeed like crazy or go out in a bang. If it goes out like a bang, no matter how many BTSX I have, I get 0. If it takes off like crazy, I get money proportional to my holdings. In this game, I should leverage EVERYTHING I have as much as possible to get as many BTSX on margin as possible. If it goes up, i make a lot more than if I didn't leverage. If it goes down, I loss the exact same as if I did not leverage. The optimal move is to leverage and max out no matter what the BTSX-USD exchange rate.


who would give you a loan for buying BTSX "on margin"? unless the creditor believes nearly 100% in BTSX, in which case they are better off investing themselves ;) margin trading is usually available as long as margin not exceeded, e.g. for comparatively low volatility assets...
« Last Edit: September 02, 2014, 03:41:49 pm by kisa0145 »

Offline maqifrnswa

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #123 on: September 02, 2014, 04:10:38 pm »

FUNNY THOUGHT: Just popped in my head, so silly I never saw this... BTSX will either succeed like crazy or go out in a bang. If it goes out like a bang, no matter how many BTSX I have, I get 0. If it takes off like crazy, I get money proportional to my holdings. In this game, I should leverage EVERYTHING I have as much as possible to get as many BTSX on margin as possible. If it goes up, i make a lot more than if I didn't leverage. If it goes down, I loss the exact same as if I did not leverage. The optimal move is to leverage and max out no matter what the BTSX-USD exchange rate.


who would give you a loan for buying BTSX "on margin"? unless the creditor believes nearly 100% in BTSX, in which case they are better off investing themselves ;) margin trading is usually available as long as margin not exceeded, e.g. for comparatively low volatility assets...

that's exactly my point: very few people will let you buy on margin, that's why bitUSD was trading so low (you had to pay a premium). And people didn't care they were paying a premium since if BTSX collapsed, they would get nothing either way.
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Offline santaclause102

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #124 on: September 04, 2014, 09:58:43 am »
I didnt really participate in this discussion so it might be redundant.

But what if shorts can be executed at any price but all other trades are fixed to the price feed? Also the short trade redeems his collateral at the ratio of bitusd/btsx he actually shorted at. All other trades would be converting bitusd into btsx (which is how a merchant measures the value of a bitusd), what else?

Would there be an immediate arbitrate possibility? If so what about making it like fututre contracts that need a certain amount of time to be able to be converted back into btsx again? 
« Last Edit: September 04, 2014, 10:01:20 am by delulo »

Offline kisa

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #125 on: September 04, 2014, 11:53:11 am »

FUNNY THOUGHT: Just popped in my head, so silly I never saw this... BTSX will either succeed like crazy or go out in a bang. If it goes out like a bang, no matter how many BTSX I have, I get 0. If it takes off like crazy, I get money proportional to my holdings. In this game, I should leverage EVERYTHING I have as much as possible to get as many BTSX on margin as possible. If it goes up, i make a lot more than if I didn't leverage. If it goes down, I loss the exact same as if I did not leverage. The optimal move is to leverage and max out no matter what the BTSX-USD exchange rate.


who would give you a loan for buying BTSX "on margin"? unless the creditor believes nearly 100% in BTSX, in which case they are better off investing themselves ;) margin trading is usually available as long as margin not exceeded, e.g. for comparatively low volatility assets...

that's exactly my point: very few people will let you buy on margin, that's why bitUSD was trading so low (you had to pay a premium). And people didn't care they were paying a premium since if BTSX collapsed, they would get nothing either way.

agree this strategy would make sense in a binary one-period scenario. however, the reality is probably far from one-period binary. e.g. people pursuing that strategy would risk losing some bitshares, if BTSX went down somewhat to trigger margin calls, and then recovered. hasn't that happened already?

Offline bytemaster

Re: BitUSD Market Maker - Proposal for Discussion
« Reply #126 on: September 04, 2014, 12:23:43 pm »
Many people have lost money due to margin calls from the $100M to $40M fall in BTSX value.    Volatility is the risk that shorts must be concerned about. 
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