Author Topic: BitUSD Market Maker - Proposal for Discussion  (Read 17702 times)

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Offline yiminh

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #60 on: August 29, 2014, 09:44:11 pm »
have you ever played blackjack? when bets are down, cards are dealt, dealer can't say: OOps, there is a slight rule change, 22 beats 21:)

They are not changing the the rules...

https://bitsharestalk.org/index.php?topic=7231.0

Quote
Bottom line, we are going with the most market-based solution first and have fall backs to feed based solutions if they prove necessary

Keeping the peg is the aim, not the rules, the rules are hardcoded into the market engine.

Offline Empirical1

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #61 on: August 29, 2014, 09:51:24 pm »
have you ever played blackjack? when bets are down, cards are dealt, dealer can't say: OOps, there is a slight rule change, 22 beats 21:)

They are not changing the the rules...

https://bitsharestalk.org/index.php?topic=7231.0

Quote
Bottom line, we are going with the most market-based solution first and have fall backs to feed based solutions if they prove necessary

Keeping the peg is the aim, not the rules, the rules are hardcoded into the market engine.

I agree - 'keeping the peg is the aim, not the rules' - therefore if we can make the peg better with different rules, then the rules will be adjusted to help the peg.

You should trade with the expectation we will get very close to the peg imo.

(Edit: Because those were 'the rules' that the initial rules could be changed because keeping the peg is the ultimate outcome.)
« Last Edit: August 29, 2014, 09:54:50 pm by Empirical1 »

Offline Agent86

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #62 on: August 29, 2014, 09:54:19 pm »
There is no such thing as a decentralized feed... the data fed to the "decentralized" feeds are from centralized sources, and there is a smallish group of people that publish the said "decentralized" feeds. There are two weak links in that chain and it is not decentralized... call is pseudo-decentralized if you must, but it is not ideal and not decentralized in the sense of the true meaning of the word.

On top of there being not enough market depth and liquidity, bitUSD has another underlying factor that is stopping it from reaching parity, and changing the way the decentralized exchange functions will not fix it. That underlying issue is that there is simply not much demand for bitUSD. I would venture to say that a deflationary asset (gold/bitcoin?) with the exact same market system as bitUSD would be closer to its actual value, because then people have more of a reason to want to purchase it rather than hold onto their BTSX.

I think we as a community need to get together and organize projects that will increase the utility of bitUSD, because at the moment you can only buy or sell it and nothing else. I think most people in the Bitshares ecosystem are bullish on BitsharesX, so the demand is just not there. We need to get organized, brainstorm about the best use cases for bitUSD, and then raise funds and build those uses for it. I think things like gateways which would allow bitUSD to be spent anywhere Bitcoin is accepted is a good start, perhaps a multi-pool that pays out in bitUSD, things like this will increase the demand and thus keep bitUSD closer to its real life counterpart.

It is not the market system that is broken, the demand is just not there right now. We need to work on that as a community.
I respectfully disagree... maybe it doesn't feel ideal to you right now or doesn't seem "decentralized enough."  But at the end of the day I think it's the right way to do it and I think people will trust it.

I think it will make the peg really work and that is what makes bitAssets useful.  I also think the bond market I recently proposed could be a big deal for utility of bitAssets.
« Last Edit: August 29, 2014, 10:19:56 pm by Agent86 »

Offline Empirical1

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #63 on: August 29, 2014, 09:59:49 pm »
There is no such thing as a decentralized feed... the data fed to the "decentralized" feeds are from centralized sources, and there is a smallish group of people that publish the said "decentralized" feeds. There are two weak links in that chain and it is not decentralized... call is pseudo-decentralized if you must, but it is not ideal and not decentralized in the sense of the true meaning of the word.

On top of there being not enough market depth and liquidity, bitUSD has another underlying factor that is stopping it from reaching parity, and changing the way the decentralized exchange functions will not fix it. That underlying issue is that there is simply not much demand for bitUSD. I would venture to say that a deflationary asset (gold/bitcoin?) with the exact same market system as bitUSD would be closer to its actual value, because then people have more of a reason to want to purchase it rather than hold onto their BTSX.

I think we as a community need to get together and organize projects that will increase the utility of bitUSD, because at the moment you can only buy or sell it and nothing else. I think most people in the Bitshares ecosystem are bullish on BitsharesX, so the demand is just not there. We need to get organized, brainstorm about the best use cases for bitUSD, and then raise funds and build those uses for it. I think things like gateways which would allow bitUSD to be spent anywhere Bitcoin is accepted is a good start, perhaps a multi-pool that pays out in bitUSD, things like this will increase the demand and thus keep bitUSD closer to its real life counterpart.

It is not the market system that is broken, the demand is just not there right now. We need to work on that as a community.
I respectfully disagree... maybe it doesn't feel ideal to you right now or doesn't seem "decentralized enough."  But at the end of the day I think it's the right way to do it and I think people will trust it.

I think it will make the peg really work and that is what makes bitAssets useful.  I also think the bond market I recently proposed could be a big deal for bitAssets.

I like the separate bond market, I think this what I was trying earlier to explain (badly) here https://bitsharestalk.org/index.php?topic=7208.msg96447#msg96447 without the bond market that options trading is being done by shorting below the peg, inadvertently damaging the peg and as a result BTSX.

Offline GaltReport

Re: BitUSD Market Maker - Proposal for Discussion
« Reply #64 on: August 29, 2014, 10:24:43 pm »
The primary utility for BitUSD within our community is hedging against bubbles.
The secondary utility (longer term) is as a means of payment.

So, this may be the answer I've been looking for.  We need to make work internally before we can realistically expect to get it to work as a payment system.  I guess it makes sense.  Has to work for BitShares ecosystem first.

Offline CoinHoarder

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #65 on: August 29, 2014, 10:42:00 pm »
The primary utility for BitUSD within our community is hedging against bubbles.
The secondary utility (longer term) is as a means of payment.

I agree, but I think there are more bulls than bears which creates a bit of an issue in regards to providing buy support for bitUSD.

Still even with that in mind, I think the market peg could hold given the proper variables. I don't think we can judge the experiment as failed until bitUSD has utility as payment, as we only have half of the empirical evidence of the experiment. Even worse, the half of the empirical evidence that we do have is flawed in that the past couple days since the update a lot of people haven't had access to their BTSX. I have been trying all day long for 2 days to get my balance from 0 to what it was before.. there is something really messed up this update with syncing and/or connecting. I think a lot of these people that don't have access to their BTSX would have been buying bitUSD the past couple days as the price was falling. I know I would have myself if I could of got access to it.

Half of the empirical evidence is flawed and half of it is non-existent (and likely will be for some time.) I think it is too early to tell if the original market functions work or not. If you want to make temporary changes to reach market parity, then I guess I am OK with that, but the original formula should still be tested when we are able to have more fair of a test. I believe the original plan for bitassets and how the market should function will work when all the variables that are needed fall into place. It is unfortunately at this point a flawed experiment that was setup to fail because the evidence is flawed and impartial.

I guess now I am just repeating myself (even within this post haha). That is just my opinion, I trust BM and co to do whatever is good for Bitshares, so whatever you decide I will support it.
« Last Edit: August 29, 2014, 10:58:49 pm by CoinHoarder »
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Offline GaltReport

Re: BitUSD Market Maker - Proposal for Discussion
« Reply #66 on: August 29, 2014, 11:56:08 pm »
The primary utility for BitUSD within our community is hedging against bubbles.
The secondary utility (longer term) is as a means of payment.

I agree, but I think there are more bulls than bears which creates a bit of an issue in regards to providing buy support for bitUSD.

Still even with that in mind, I think the market peg could hold given the proper variables. I don't think we can judge the experiment as failed until bitUSD has utility as payment, as we only have half of the empirical evidence of the experiment. Even worse, the half of the empirical evidence that we do have is flawed in that the past couple days since the update a lot of people haven't had access to their BTSX. I have been trying all day long for 2 days to get my balance from 0 to what it was before.. there is something really messed up this update with syncing and/or connecting. I think a lot of these people that don't have access to their BTSX would have been buying bitUSD the past couple days as the price was falling. I know I would have myself if I could of got access to it.

Half of the empirical evidence is flawed and half of it is non-existent (and likely will be for some time.) I think it is too early to tell if the original market functions work or not. If you want to make temporary changes to reach market parity, then I guess I am OK with that, but the original formula should still be tested when we are able to have more fair of a test. I believe the original plan for bitassets and how the market should function will work when all the variables that are needed fall into place. It is unfortunately at this point a flawed experiment that was setup to fail because the evidence is flawed and impartial.

I guess now I am just repeating myself (even within this post haha). That is just my opinion, I trust BM and co to do whatever is good for Bitshares, so whatever you decide I will support it.

I want to echo that sentiment.  As many others have mentioned, BM sometimes seems to have the patience of Job in explaining everything, sometimes over and over and he is often the first one to chime in when someone thinks they lost their wallet/password/funds.  I have no doubt the guy would spends days, weeks and probably months trying to help someone recover any funds lost inadvertently.   :)

« Last Edit: August 29, 2014, 11:59:20 pm by GaltReport »

Offline milkmeat

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #67 on: August 30, 2014, 12:12:19 am »

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.

Offline mas

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #68 on: August 30, 2014, 12:22:31 am »
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 liondani

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #69 on: August 30, 2014, 01:10:11 am »
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.

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

Offline bytemaster

Re: BitUSD Market Maker - Proposal for Discussion
« Reply #70 on: August 30, 2014, 01:16:09 am »
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 NewMine

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #71 on: August 30, 2014, 01:28:30 am »
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 szert

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #72 on: August 30, 2014, 01:34:35 am »
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 theoretical

Re: BitUSD Market Maker - Proposal for Discussion
« Reply #73 on: August 30, 2014, 01:37:53 am »
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 calvin

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #74 on: August 30, 2014, 01:51:39 am »
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 »