Author Topic: BitUSD Market Maker - Proposal for Discussion  (Read 13931 times)

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Offline Method-X

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #90 on: August 30, 2014, 04:38:06 pm »
Just my two cents. The first thing that needs to be implemented is an auto update feature. This will ensure people are up to date on their version and we don't get the "Insufficient Depth" too much anymore.

 +5%

Offline Riverhead

Re: BitUSD Market Maker - Proposal for Discussion
« Reply #91 on: August 30, 2014, 05:01:06 pm »
Just my two cents. The first thing that needs to be implemented is an auto update feature. This will ensure people are up to date on their version and we don't get the "Insufficient Depth" too much anymore.

I think the insufficient depth comes from I3 pulling their BTSX off the bid/ask. They were artificially creating depth by throwing their shares in the market. This would explain how they are able to halt trading. I certainly hope there isn't a kill switch otherwise.

I think the next fork will lower the depth requirement since participation isn't as robust as they thought.
That's exactly it. There is no kill switch, just I3 with a King's ransom 8)

Offline amatoB

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #92 on: August 30, 2014, 05:03:08 pm »
There's nothing wrong with large demand for short-selling per se. That just reflects optimism about the near-term value of BTSX. (I don't believe that the demand is in any way due to the belief that BitUSD could be going to zero, not with I3's open commitment to helping the peg to hold.) In a liquid market, huge short selling should simply translate into faster price appreciation--just like large options or futures trades lead to price discovery in equities. So why did the price of BTSX go down despite large short sales? I think there were confounding events--wallet bugs, natural correction after the run-up to launch--that made some people believe that short-selling would not lead to BTSX price appreciation. Also, up to now the market rules may have been a bit too favorable and not punitive enough to short-selling. Why not make a conservative change, like increasing collateral requirements or increasing the margin call penalty, and see then if the market can achieve a good peg on its own?

It's clear that achieving a stable peg would help immensely in increasing confidence and growing the network. We all agree that getting there sooner is better than getting there later. But, to really condition traders' expectations and build confidence for long-term success, we need to prove that the peg can work without a heavy-handed restriction based on price feeds. Market participants need a chance to condition their beliefs and learn. Disallowing short sales below the median feed price would not give them this opportunity. Furthermore, such a stop-gap measure is not really a long-term solution. Even if such a measure enforced the peg for now, it would really be a crutch that would become harder and harder to remove over time. If the crutch seemed to work for now, it would prevent true price discovery, much like the blunt short-sale prohibitions for traditional equities that proved to be ill-advised. When the network size is much bigger in the future, it could be very difficult to remove the crutch without causing widespread concern about the robustness of the peg, simply because the market would not have learned on its own to achieve a viable peg. What if the crutch were dispensed at some point and the peg began to fail again? Confidence could be shattered. I believe it would be a mistake to try to bypass the steady learning and conditioning process that needs to take place for long-term robustness of the peg.

So, I say let the market work mostly on its own for a little while longer, when the costs of failure are relatively low. See if things get better. Fix bugs in the client, make it easy for more people to get on the network and participate in the internal market. Make one or two simple, conservative changes to the market rules that don't rely on price feeds. E.g., just increasing collateral requirements from 2x to 3x, decreasing the margin call price, and/or increasing the margin call penalty to 10% may be enough to restore balance between shorts and longs. If the peg can start to hold better with minimal changes, that would be a home run and far superior than using a heavy-handed approach such as restricting short sales below a median price feed.

Offline liondani

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #93 on: August 30, 2014, 05:22:24 pm »
we must give more time to the market... it's really to early for conclusions...  I like every day the original approach from bytemaster more and more...  cause the sharp correction many of us makes wrong conclusions dependent on emotions...  If we see the bigger picture bytemaster approach is long-term  better than agents86...  agents86 proposal is much better in short-term...

Offline Agent86

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #94 on: August 30, 2014, 05:58:05 pm »
There's nothing wrong with large demand for short-selling per se. That just reflects optimism about the near-term value of BTSX. (I don't believe that the demand is in any way due to the belief that BitUSD could be going to zero, not with I3's open commitment to helping the peg to hold.) In a liquid market, huge short selling should simply translate into faster price appreciation--just like large options or futures trades lead to price discovery in equities. So why did the price of BTSX go down despite large short sales? I think there were confounding events--wallet bugs, natural correction after the run-up to launch--that made some people believe that short-selling would not lead to BTSX price appreciation. Also, up to now the market rules may have been a bit too favorable and not punitive enough to short-selling. Why not make a conservative change, like increasing collateral requirements or increasing the margin call penalty, and see then if the market can achieve a good peg on its own?

It's clear that achieving a stable peg would help immensely in increasing confidence and growing the network. We all agree that getting there sooner is better than getting there later. But, to really condition traders' expectations and build confidence for long-term success, we need to prove that the peg can work without a heavy-handed restriction based on price feeds. Market participants need a chance to condition their beliefs and learn. Disallowing short sales below the median feed price would not give them this opportunity. Furthermore, such a stop-gap measure is not really a long-term solution. Even if such a measure enforced the peg for now, it would really be a crutch that would become harder and harder to remove over time. If the crutch seemed to work for now, it would prevent true price discovery, much like the blunt short-sale prohibitions for traditional equities that proved to be ill-advised. When the network size is much bigger in the future, it could be very difficult to remove the crutch without causing widespread concern about the robustness of the peg, simply because the market would not have learned on its own to achieve a viable peg. What if the crutch were dispensed at some point and the peg began to fail again? Confidence could be shattered. I believe it would be a mistake to try to bypass the steady learning and conditioning process that needs to take place for long-term robustness of the peg.

So, I say let the market work mostly on its own for a little while longer, when the costs of failure are relatively low. See if things get better. Fix bugs in the client, make it easy for more people to get on the network and participate in the internal market. Make one or two simple, conservative changes to the market rules that don't rely on price feeds. E.g., just increasing collateral requirements from 2x to 3x, decreasing the margin call price, and/or increasing the margin call penalty to 10% may be enough to restore balance between shorts and longs. If the peg can start to hold better with minimal changes, that would be a home run and far superior than using a heavy-handed approach such as restricting short sales below a median price feed.
The price feed is not a "crutch."  It is not "training wheels."  It is an inherently required part of the system that should not ever be removed.  BUT THERE IS NOTHING WRONG WITH USING A PRICE FEED.  It doesn't diminish the accomplishment or usefulness of bitUSD.

Offline tonyk

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #95 on: August 30, 2014, 06:09:15 pm »

I gave it more thought. I am kind of OK with now new shorts below the 'current price' (be it feed based or average based).

Just please consider starting bitBTC instead of bitUSD, I believe we will learn more that way.
And yes, with less crushing clients more people will participate.

0.02BTSX
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline Empirical1

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #96 on: August 31, 2014, 11:47:27 am »
The percentage of people wanting to short on average is greater than the percentage of people willing to genuinely go long.

What about instead of price feeds first trying upping the collateral required?

A certain range of collateral required could make those two percentages exist (genuine shorts vs. longs) in a better equilibrium very close to the peg without price feeds?

The more collateral required the more secure the BitAsset system is too, which will also bring in more genuine longs.

Offline liondani

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #97 on: August 31, 2014, 12:03:08 pm »
The percentage of people wanting to short on average is greater than the percentage of people willing to genuinely go long.

What about instead of price feeds first trying upping the collateral required?

A certain range of collateral required could make those two percentages exist (genuine shorts vs. longs) in a better equilibrium very close to the peg without price feeds?

The more collateral required the more secure the BitAsset system is too, which will also bring in more genuine longs.

I like this proposal... but because I am not an expert what are your thought's bytemaster regarding Empirical1 proposal?

Offline Empirical1

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #98 on: August 31, 2014, 03:18:31 pm »
The percentage of people wanting to short on average is greater than the percentage of people willing to genuinely go long.

What about instead of price feeds first trying upping the collateral required?

A certain range of collateral required could make those two percentages exist (genuine shorts vs. longs) in a better equilibrium very close to the peg without price feeds?

The more collateral required the more secure the BitAsset system is too, which will also bring in more genuine longs.

I like this proposal... but because I am not an expert what are your thought's bytemaster regarding Empirical1 proposal?

I would add that it still requires some periodic action to be taken by the delegates.

I.e. We find the collateral level (which may be very high) that makes the BitAsset mean/average within 2% of 1-1 in the next month, over time though as BitAsset demand increases the mean/average will rise and if it gets above 1-1, the collateral level could be lowered with advance warning by delegates ultimately settling on the current minimum 2x collateral.
« Last Edit: August 31, 2014, 03:23:04 pm by Empirical1 »

Offline tonyk

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #99 on: August 31, 2014, 04:22:57 pm »
The percentage of people wanting to short on average is greater than the percentage of people willing to genuinely go long.

What about instead of price feeds first trying upping the collateral required?

A certain range of collateral required could make those two percentages exist (genuine shorts vs. longs) in a better equilibrium very close to the peg without price feeds?

The more collateral required the more secure the BitAsset system is too, which will also bring in more genuine longs.

I like this proposal... but because I am not an expert what are your thought's bytemaster regarding Empirical1 proposal?

I would add that it still requires some periodic action to be taken by the delegates.

I.e. We find the collateral level (which may be very high) that makes the BitAsset mean/average within 2% of 1-1 in the next month, over time though as BitAsset demand increases the mean/average will rise and if it gets above 1-1, the collateral level could be lowered with advance warning by delegates ultimately settling on the current minimum 2x collateral.

Did you guys read p7. of the proposal/OP?
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline Empirical1

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #100 on: August 31, 2014, 04:27:12 pm »
The percentage of people wanting to short on average is greater than the percentage of people willing to genuinely go long.

What about instead of price feeds first trying upping the collateral required?

A certain range of collateral required could make those two percentages exist (genuine shorts vs. longs) in a better equilibrium very close to the peg without price feeds?

The more collateral required the more secure the BitAsset system is too, which will also bring in more genuine longs.

I like this proposal... but because I am not an expert what are your thought's bytemaster regarding Empirical1 proposal?

I would add that it still requires some periodic action to be taken by the delegates.

I.e. We find the collateral level (which may be very high) that makes the BitAsset mean/average within 2% of 1-1 in the next month, over time though as BitAsset demand increases the mean/average will rise and if it gets above 1-1, the collateral level could be lowered with advance warning by delegates ultimately settling on the current minimum 2x collateral.

Did you guys read p7. of the proposal/OP?

That proposal requires price feeds and price fixing BitUSD creation above 1-1.


Offline tonyk

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #101 on: August 31, 2014, 04:41:43 pm »

I.e. We find the collateral level (which may be very high) that makes the BitAsset mean/average within 2% of 1-1 in the next month, over time though as BitAsset demand increases the mean/average will rise and if it gets above 1-1, the collateral level could be lowered with advance warning by delegates ultimately settling on the current minimum 2x collateral.

..................

That proposal requires price feeds and price fixing BitUSD creation above 1-1.

price feeds  - Yes the proposal does require/includes those. I do not totally get what they think the price feeds will get them (positive thing that is) and personally prefer the average.


'price fixing BitUSD creation above 1-1' - In my view 'No', it merely restricts new short position to prices >= 1:1...  ;)


But you suggest market rule changes every other month, and the proposal suggests elegant market based alternative.

Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline yiminh

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #102 on: August 31, 2014, 04:55:31 pm »

I.e. We find the collateral level (which may be very high) that makes the BitAsset mean/average within 2% of 1-1 in the next month, over time though as BitAsset demand increases the mean/average will rise and if it gets above 1-1, the collateral level could be lowered with advance warning by delegates ultimately settling on the current minimum 2x collateral.

..................

That proposal requires price feeds and price fixing BitUSD creation above 1-1.

price feeds  - Yes the proposal does require/includes those. I do not totally get what they think the price feeds will get them (positive thing that is) and personally prefer the average.


'price fixing BitUSD creation above 1-1' - In my view 'No', it merely restricts new short position to prices >= 1:1...  ;)


But you suggest market rule changes every other month, and the proposal suggests elegant market based alternative.

Average is the only way to go, price feed continuously is complicated, messy and will fail eventually

Offline Empirical1

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #103 on: August 31, 2014, 04:57:30 pm »
I don't think the first proposal is bad and I will support it if we can not create a better solution, though I would prefer no market maker at first because again that introduces another layer which may not be necessary.


Quote
price feeds  - Yes the proposal does require/includes those. I do not totally get what they think the price feeds will get them (positive thing that is) and personally prefer the average.

Price feeds require a greater degree of constant trust than a collateral level which can be changed with advanced warning.
(51% of the delegates agreeing to change the collateral level has a limited short term effect, whereas if some collude to alter the feeds, they can potentially create an 'event'? I don't know.)

Quote
'price fixing BitUSD creation above 1-1' - In my view 'No', it merely restricts new short position to prices >= 1:1...  ;)

I think you are trying to make the unelegant sound elegant :) Though I am personally happy with it if it is the best solution.

Quote
But you suggest market rule changes every other month, and the proposal suggests elegant market based alternative.

Yes I think you are correct here. This could require a change as frequently as every month for the first three months but then once every 2/3 months after as it slowly scales down to the 2X collateral level.

This is still only monitoring a total of 7 decisions with advance notice from the delegates over 18 months vs. trusting them with price feeds all the time for that period.

 

Offline tonyk

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Re: BitUSD Market Maker - Proposal for Discussion
« Reply #104 on: August 31, 2014, 05:05:54 pm »
I don't think the first proposal is bad and I will support it if we can not create a better solution, though I would prefer no market maker at first because again that introduces another layer which may not be necessary.

Ohh wait, the part about the market bot buying and printing money is nothing short of TERRIBLE, I already expressed my utter and complete disagreement with it in the first thread dedicated to the subject.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.