Author Topic: BitUSD Market Maker - Proposal for Discussion  (Read 21679 times)

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Offline Empirical1

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we have longs and shorts of BitUSD in the market already established position, you should avoid changing the rules in the middle of the game, let the game plays itself out, if doesn't work, then start over, it will not be the end of the world. It's only fair.

The game has been played since the beginning with the knowledge that the goal was to peg as close to parity as possible and that other options would be implemented as needed, so this is all within market expectations and benefits shareholders imo.

I advocated strongly that BitAssets should have been marketed more clearly as 'beta' than they were at launch, not doing so has resulted in Bitassets being oversold initially relative to where the code really was, but that's a separate issue. 

Offline yiminh

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Offline kisa

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In all the readings about market pegs I read, Sally wanted to hedge her position in bitUSD.   We never found Sally.
So who wants bitUSD? Who are they?  What problem does bitUSD solve?

what's the spelling of "Sally" in Chinese, Russian, or Argentine - maybe there she lives?

Offline yiminh

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we have longs and shorts of BitUSD in the market already established position, you should avoid changing the rules in the middle of the game, let the game plays itself out, if doesn't work, then start over, it will not be the end of the world. It's only fair.

Offline Shentist

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maybe invest some btsx funds from invictus to buy bitUSD and not in BTSX.

Offline Method-X

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Any changes made should be limited to ONE VARIABLE. Make one change that you expect will result in the biggest difference and then observe what happens.

Offline bytemaster

i am a friend of kiss - but why make everything more complicated?

just leave the market the market and watch. why act after 5 DAYS with major bugs, many people coundn't buy etc. etc.
keep in mind. maybe the changes will hurt the system in the future and you need changes, after changes - this will hurt BTSX big time!

add one simple rule

1. if the short is x away from the median the margin will double, tripple etc. it should be possible to make a trade but the possibility of a margin call should be increased

I thing going short at should prioritize higher collateral but no reason to allow it at prices below parity.   We need to provide liquidity for BitUSD longs to sell. 
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Offline Empirical1

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What if there was going to be a substantial instant revaluation of the $ like there was in 1933. Those in the know would sell to BTSX market maker at 0.9 in volume and damage BTSX before the official announcement?

Quote
In 1933, through a series of gold-related acts, culminating in the Gold Reserve Act of 1934, America realized a dollar devaluation of 41% when the price of gold was adjusted from $20.67 per ounce of gold to $35 per ounce

http://www.forbes.com/2008/12/09/dollar-devaluation-gold-pf-ii-in_fb_1209soapbox_inl.html


Offline bytemaster

So far the feed back I see is this:

1) No one wants a "DAC Government"
2) Many expect the peg to resolve itself in time and are worried we are not giving it time.
3) Rules for creating arb bots are not clear.

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.

I also fully believe that if we use price feeds at all then a blockchain ARB bot will do no harm and can be removed in the future. 
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.

Offline Shentist

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i am a friend of kiss - but why make everything more complicated?

just leave the market the market and watch. why act after 5 DAYS with major bugs, many people coundn't buy etc. etc.
keep in mind. maybe the changes will hurt the system in the future and you need changes, after changes - this will hurt BTSX big time!

add one simple rule

1. if the short is x away from the median the margin will double, tripple etc. it should be possible to make a trade but the possibility of a margin call should be increased

Offline bytemaster

6) Any short orders above the "current price" are automatically canceled.

Did you mean below the "current price"?

Yes..
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.

Offline bitmarket

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I agree with Coin hoarder.

Let's face it. Who of btsx users wants to hold bitusd and miss the gains of btsx?   

IT may take time but we should be patient.   Remember it took bitcoin nearly 2 years to discover a price at all.

If I understand BM's solution, this is effectively a bailout program.  The unwise actors who sold bitUSD below parity are looking to have their investment losses covered by the "system" (read Federal Reserve) creating new btsx (read QE) and creating an artificial market for toxic investments in bitUSD (read Mortgage backed securities)

Markets that are only speculators never work.  There must be a customer base first. (regression theorem)

Said another way... In all the readings about market pegs I read, Sally wanted to hedge her position in bitUSD.   We never found Sally.

So who wants bitUSD? Who are they?  What problem does bitUSD solve?

The only customers for such a service that I can see are exclusively crypto business. Ones that do not want give up their privacy, want to remain out of fiat but have fixed costs and want to avoid the fluctuations of price.  But here is the catch.... If my business has costs at the end of the month and I have to pay those costs if I cant pay for it in bitUSD then what was the point?   I just held bitUSD for a few weeks and then had to convert to fiat anyway.  I may as well have just used bitpay from the get go and gave up my privacy upfront and skipped the bitUSD step.

So I think bitUSD's customers will most likely come from those who will sacrifice everything for privacy.  They dont even believe in crypto but are forced to use it because in their industry they must remain anonymous. 

Just like bitcoin I think the original users of bitUSD will come from the silkroad type market places.  Think Open bazaar/ Dark Market/ Silk Road 2, etc.

And just like bitcoin it may take them 1-3 years to catch on and start using it at all let alone in serious volumes.

« Last Edit: August 29, 2014, 05:55:17 pm by bitmarket »
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Offline kisa

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While it is perfectly reasonable for BitUSD to trade at a discount to attract new buyers, it confirms the suspicions of the deniers and thus could potentially end up changing the market consensus that BitUSD will go to 0.      BitUSD only works so long as the majority of the market expects it to work and that "faith" can be hard to establish early on without a large market maker willing to back it.

- IMHO a solid market maker is a good idea. Market-makers improve tradeability of most asset classes lacking stable liquidity and suifficient granularity. market makers should be backed by serious funds, just to be able to act in large volume on extreme swings, thus counteracting impulsive and exaggerated moves in their view. the danger is that, unless market maker is regulated by I3, we don't know of their true motivations, which might sometimes include benefitting from the panic. And, whereas a market maker would improve the pricing/liquidity, she is not a lender of last resort (e.g. FED, which ultimately can guarantee that lenders get their fiat money back and so inspires confidence. without the lender of last resort function, the functioning of financial markets would be severily hurt whenever emotional panic feeds on itself so that it becomes rational...). Therefore, even with market-makers, btsx might be targeted by speculative or hostile attack aiming to destroy confidence.

There is a HUGE demand to short USD and right now that demand shows up as BitUSD being massively undervalued.   I think this demand to short needs to be done via option contracts.   Someone can therefore set a price on the option contract and this price will absorb the short demand without breaking the peg.

Suppose I think XTS is going to rise by 50% in the next month.   I want an option to buy it at todays prices, so I have to find someone willing to sell me the option to buy it at todays prices within the next month.   These options will be purchased by the people who currently wanting to short who otherwise would not be able to.

BM how can the motivation of option sellers in that case be controlled? e.g. if they delta-hedge options and so continue to build up  bitUSD shorts in the system?

Disclosure: Even as I like the idea of derivatives at some point, intuitively this moment doesn't feel right for their introduction. This would create an additional complexity level in a system where most participants get yet easily lost in its current state.

thx - kisa
« Last Edit: August 29, 2014, 06:12:10 pm by kisa0145 »

Offline liondani

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Given those facts here are some additional things I have realized:
1) There is never any reason for new BitUSD to be created below the market value
This we agree on.  So, please just make the change that prevents any short that is below the median price feed from being matched.

Everything else is over complication, wasted time, and opening new attack vectors.

Any reason not to make the change?

He is convincing...




Offline GaltReport

I will support this.  More I think about it the more I agree with your analysis of shorts and the option contract.  When I short a stock, I short it at it's current price I believe.  Otherwise, I would use an option. 

I think it's fine to have a market maker type of bot to smooth things out. There are parallels to all of this in the  stock/options markets.  We should leverage good ideas...not re-invent the wheel so to speak.

I think you/we will be able to stablize this in the BitShares ecostem.  My concern is ensuring BitUSD can be used to purchase goods and services and/or be converted to Fiat in my bank account if needed.  (see Galt's Test of Value  :) )  i.e. when BitUSD escapes into the wild.

Would be interested in hearing ideas of how that is envisioned to happen. 
« Last Edit: August 29, 2014, 05:38:04 pm by GaltReport »