Author Topic: BitUSD Market Maker - Proposal for Discussion  (Read 21678 times)

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Offline liondani

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As long as this ratio is so extreme the BTSX bulls will have an enormous impact on BitAsset peg volatility. More different BitAssets will help close this gap.

The gap will close after all when BTSX has grown enough and the BULLS are not so aggressive anymore...
Or better to say when the growing "speed" reduces a little bit...  because growing will never stop after all :P

Offline liondani

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One way to absorb the short selling pressure to bitUSD is to throw more bitAssets on the market !!!
Think about it! The only way for someone to "bet" for BTSX if they don't have fresh money/BTC is to short a bitAsset....
Right now there is available only bitUSD, so all the pressure from the BTSX Bulls go there ... If we had bitCNY,bitEUR,bitBTC etc. the pressure would absorb "equally" to all...
so the market peg would be closer to parity for each of one, at least it would helped to some degree...

EXAMPLE:

bitUSD = -30% distance from parity point
bitEUR = -20% distance from parity point
bitCNY = -10% distance from parity point

so a smart BTSX BULL  that want to short a bitAsset because they think BTSX will rise 50%, will likely short bitCNY  ;D
so the end result on profits would be 50-10= 40% profit (when bitCNY gets 1:1 pegged vs CNY)
instead of 50-30= 20% profit (when bitUSD gets 1:1 pegged vs USD)

I know I have oversimplified my thought process but I wanted to give the idea...

Generalised, the current problem is that there are 50m USD worth of BTSX and 0.5m worth of BitAssets (all BitUSD). As long as this ratio is so extreme the BTSX bulls will have an enormous impact on BitAsset peg volatility. More different BitAssets will help close this gap.

Exactly! Couldn't say it better!  +5%

Offline Markus

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One way to absorb the short selling pressure to bitUSD is to throw more bitAssets on the market !!!
Think about it! The only way for someone to "bet" for BTSX if they don't have fresh money/BTC is to short a bitAsset....
Right now there is available only bitUSD, so all the pressure from the BTSX Bulls go there ... If we had bitCNY,bitEUR,bitBTC etc. the pressure would absorb "equally" to all...
so the market peg would be closer to parity for each of one, at least it would helped to some degree...

EXAMPLE:

bitUSD = -30% distance from parity point
bitEUR = -20% distance from parity point
bitCNY = -10% distance from parity point

so a smart BTSX BULL  that want to short a bitAsset because they think BTSX will rise 50%, will likely short bitCNY  ;D
so the end result on profits would be 50-10= 40% profit (when bitCNY gets 1:1 pegged vs CNY)
instead of 50-30= 20% profit (when bitUSD gets 1:1 pegged vs USD)

I know I have oversimplified my thought process but I wanted to give the idea...

Generalised, the current problem is that there are 50m USD worth of BTSX and 0.5m worth of BitAssets (all BitUSD). As long as this ratio is so extreme the BTSX bulls will have an enormous impact on BitAsset peg volatility. More different BitAssets will help close this gap.

Offline liondani

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It will enforce bitusd pegged to usd for sure, but we still have the issue that people do not have incentive to hold bitusd especially when btsx goes up on the external market. At that time, u would never have the opportunity to get cheap bitusd even if u know bitusd would go down soon, and everyone will sell bitusd to system at 90% and no one want to buy it at 100%, then the market frozen. That means the pegging mechanism can not really work, it's just enforced to work. yes, “cheap bitusd” is bad, we need to avoid it, but the better way is to  provide incentive for holding bitusd in all the situation. In summay, i believe this would work in short term but could not resolve the issue fundamentally. we need to provide incentive in mid term before the acceptance of bitusd by massive merchants will provide the incentive to hold and use bitusd in long term finally.

I thing we are making the mistake to conclude that  people will make decisions depended of BTSX market behavior...
Our target group is not only speculators (at least I hope so).
Many would have incentive to hold bitUSD on their BTSX Vault only for security/volatility reasons for example...
Others because they see an opportunity to make a profit "with no risk" buying undervalued bitUSD without to care about BTSX trend...
Other because they want to hold other bitAssets like bitGOLD etc.  ...

PS something I forgot to say before:  The BTSX platform must run without so many bugs ASAP and it must get more user friendly!!! It's crucial for mass adoption and to have the necessary liquidity ... I thing with much liquidity and with a big market cap, the market-peg for bitAssets will almost reach parity....
« Last Edit: August 30, 2014, 02:21:13 am by liondani »

Offline Markus

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My suggestion: Convert the BTC sitting in the Angel fund to BitUSD. Do this at 90%, announce it and make it trackable for everybody.

If this is an arbitrage opportunity, instead of complicating the market rules, why not just take advantage of it?

Offline yidaidaxia

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It will enforce bitusd pegged to usd for sure, but we still have the issue that people do not have incentive to hold bitusd especially when btsx goes up on the external market. At that time, u would never have the opportunity to get cheap bitusd even if u know bitusd would go down soon, and everyone will sell bitusd to system at 90% and no one want to buy it at 100%, then the market frozen. That means the pegging mechanism can not really work, it's just enforced to work. yes, “cheap bitusd” is bad, we need to avoid it, but the better way is to  provide incentive for holding bitusd in all the situation. In summay, i believe this would work in short term but could not resolve the issue fundamentally. we need to provide incentive like Gulu's proposal about market driven interest in another thread for mid term before the acceptance of bitusd by massive merchants will provide the incentive to hold and use bitusd in long term finally.
« Last Edit: August 30, 2014, 02:00:01 am by yidaidaxia »
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Offline liondani

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One way to absorb the short selling pressure to bitUSD is to throw more bitAssets on the market !!!
Think about it! The only way for someone to "bet" for BTSX if they don't have fresh money/BTC is to short a bitAsset....
Right now there is available only bitUSD, so all the pressure from the BTSX Bulls go there ... If we had bitCNY,bitEUR,bitBTC etc. the pressure would absorb "equally" to all...
so the market peg would be closer to parity for each of one, at least it would helped to some degree...

EXAMPLE:

bitUSD = -30% distance from parity point
bitEUR = -20% distance from parity point
bitCNY = -10% distance from parity point

so a smart BTSX BULL  that want to short a bitAsset because they think BTSX will rise 50%, will likely short bitCNY  ;D
so the end result on profits would be 50-10= 40% profit (when bitCNY gets 1:1 pegged vs CNY)
instead of 50-30= 20% profit (when bitUSD gets 1:1 pegged vs USD)

I know I have oversimplified my thought process but I wanted to give the idea...

Offline calvin

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Maybe loose the restrictions and make short squeeze easier will work. Market will find its balance only after brutal volatilities but not more and more rules.
« Last Edit: August 30, 2014, 01:58:36 am by calvin »

Offline theoretical

For a short position to maximize their return they should cover and re-short as often as possible.   A rule that would automatically exit their position at a profit would save them 2 transaction fees.  It isn't really a punishing the shorts.

I can think of three reasons this isn't necessarily true in the real world.

- Every time a short exits and re-enters their short position, they have to pay the bid-ask spread.
- In volatile markets, entering a short, then immediately paying a small fraction of it from your USD balance raises the margin call price and protects you from the 5% margin call penalty (especially if you can't be at the keyboard 24/7 and you don't have any scripts for automated trading)
- Higher leverage increases your variance.  You don't always want to have the maximum possible leverage.  Although I suppose you could simply re-short the same amount of BitUSD if you wanted the same amount of short exposure, this would be better because less of your BTSX is tied up in collateral.

EDIT:

- The key is "and re-enter".  The automatic exit rule wouldn't re-enter the short, and the shorter would have to have a bot watching the blockchain to manually re-enter the short position.
« Last Edit: August 30, 2014, 01:43:22 am by drltc »
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Offline szert

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I do believe that liquidity is the primary reason the BitUSD price is low... it is just too hard to take advantage of arb. opportunities this early in the experiment.

If that's the case then the solution is here:
maybe invest some btsx funds from invictus to buy bitUSD and not in BTSX.

Offline NewMine

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The primary utility for BitUSD within our community is hedging against bubbles.
The secondary utility (longer term) is as a means of payment.

Bingo. This is why you should give it time. We are in a BTSX trough when bitUSD demand is always going to be low. At its crest demand will be higher. That's just how markets work. Give it time. It may suck in the meantime. Get those whales that Stan and Brian keep talking about to get their butts in the market........

Maybe, you should try whatever you want in an open testnet. Let's see if it works. Certainly can't hurt.  Although, you guys have 30% of the delegates and control the market depth, so do whatever you want n the real thing, I guess. ;)

Offline bytemaster

For a short position to maximize their return they should cover and re-short as often as possible.   A rule that would automatically exit their position at a profit would save them 2 transaction fees.  It isn't really a punishing the shorts.
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Offline liondani

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Please do not implement rules that penalize short sellers. They are as valuable and important to price discovery as those that are buying. This rule is very dangerous, and hurtful to the market mechanics. You should not force someone out of his position against his will, as long as he has the collateral for the position.

 +5%
« Last Edit: August 30, 2014, 01:30:36 am by liondani »

Offline mas

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I think an alternative to the "market maker" which could leave the network exposed, is to force "covering at a profit" when someone wants to exit.  This adds no risk to the network.

For example, suppose we had the following situation:

Initial Price 1 USD == 1 BTSX  and  1 USD == 1 BitUSD
Someone Shorts at 1 BitUSD per BTSX.
The value of 1 BitUSD falls to .90 BTSX   (the short has a 10% profit)
Someone wants to sell 1 BitUSD at .90 and there are no takers...
The short is forced to exit their position at a profit.

How the short has 1.1 BTSX and they can "short again" at the feed price.   

The result is that liquidity is provided by the shorts who are already profitable without any risk to the network.

Please do not implement rules that penalize short sellers. They are as valuable and important to price discovery as those that are buying. This rule is very dangerous, and hurtful to the market mechanics. You should not force someone out of his position against his will, as long as he has the collateral for the position.

We all need to be patient and let the market work. Create outlets for hedging and arbitrage, and profit motives will take care of the rest. This is what is good for a market long term.
Any interference by creating market structure that is not free and open might lead to short term gains, but will be hurtful for the long term.

Free markets are the most efficient, even if we sometimes temporary don't like the current outcome.
« Last Edit: August 30, 2014, 12:27:16 am by mas »

Offline milkmeat

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To Summarize the Proposed Rules:

2) The network has a standing buy order for BitUSD at  90% of the "current price".
3) BitUSD purchased by the network are saved in a Market Account
4) If the Market Account has a non-0 balance, then no new shorts will be executed.
5) If the Market Account has a non-0 balance, then there is a standing sell order at "current price"

I generally agree with this idea.
Feel free to write a robot to create or consume short orders from the market.
But please do NOT put this in the market code. Otherwise it will break the "free market". Why it is 90% not 91%? it's not the developer to decide.
We can open source the robot code so everyone can set up a robot using their own preference.