Author Topic: Support BitUSD Price by Forced Covering at a Profit  (Read 6195 times)

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Offline mf-tzo

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Re: Support BitUSD Price by Forced Covering at a Profit
« Reply #15 on: August 31, 2014, 09:08:50 pm »
It is not good arbitrage to exist for a long time, only in the beginning! This means inefficient and iliquid market, no serious investor will ever invest huge amounts of money and a bank run might happen and make all the bitassets move completely away from the peg and make them worthless

Crypto's can make huge profits but the reason bitcoin will eventually fail as well as all others altcoins is because it is a speculative bubble. BitsharesX should become the decentralized bank that brings stability to the cryptos and the same time one can use bitusd, biteur etc and have the cryptocurencies benefits by holding the stability of the dollar.

Offline puvar

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Re: Support BitUSD Price by Forced Covering at a Profit
« Reply #16 on: August 31, 2014, 09:17:35 pm »
My first impression is this is totally unnecessary.  Bob knows he has to buy back that dollar sometime, and there will be a lot of Bobs.  Alice knows if bob runs out of collateral he is forced to buy it back at fair price.

It also gives too much power to the price feed.  I wouldn't use the price feed for anything other than eliminating new shorts below the feed price.

I think the idea is that in Alice's mind she would be absolutely secure that she can sell at 90%, at all times. Just like the system bot proposal but without a bot.

That's nice an all for Alice. But Bob is screwed, going short is all about risk reward, and now we're cutting the reward for bob.

I agree. Suppose the market has equal chances to go in both directions (you don't really assume that it will always grow, do you?;). Bob bets on BTSX, Alice bets on BitUSD. If BTSX goes down, nobody is forcing Alice to sell her BitUSD, so she gets more profit on average.

Also, don't forget about Bob, he can get into the same situation, suppose he wants to exit his short immediately, but there are no BitUSD sellers (or other shorters).

So it looks like a double punishment for shorters. The imminent consequence of this is fewer people willing to short, and as a result slower growth of BitUSD supply.

Offline tonyk

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Re: Support BitUSD Price by Forced Covering at a Profit
« Reply #17 on: August 31, 2014, 09:29:25 pm »
This idea has been discussed in other threads, but the more I think about it the more critical I think it will be.  To describe what I am talking about lets start out with a simple example.

Alice and Bob decide to take opposite bets and one ends up with BitUSD the other is Short BitUSD. 
Immediately after this trade occurs Alice decides she wants out of her position, but Bob doesn't.
Alice has to shop around looking for someone else to take her BitUSD position... no takers.
Alice drops the price to 95%, 90%, 50% of the dollar .... still no takers. 

The value of the dollar hasn't changed during this time, there is just no BitUSD liquidity.  Bob hasn't actually made any money, he is just refusing to give up his position. 

So we have a situation where people are looking to exit their BitUSD position and they are willing to pay a fee to do so.   If the network knows the price then it is easy to implement this.  We simply change the terms of the short "contract".

Bob agrees that Alice has the option to exit her position at  $.90 per BitUSD at any time.  Bob makes money even though the dollar did not fall against BTSX and Alice is assured some liquidity should she need it.   

If we are going to rely on a price feed we can force covering any time the highest offer to buy BitUSD is less than 90% of the feed price.

Does this punish shorts?  I don't think it does.  I think it supports the peg by adding liquidity without adding any risk to the shorts. 

I think this added liquidity should come form which ever shorts are least collateralized.  This way the shorts which don't want to be forced into providing liquidity pre-maturely can avoid it by having a large surplus of collateral and thus making the entire network more secure. 

Under this system BitUSD is always worth at least $0.90 and the market makers / market will likely drive that to near $0.99- $1.01.

To expand on your simplified negotiation...  In addition to selling Alice the one bitUSD that Bob wanted to short, Bob must also place additional short/sell orders at slightly above the price feed (proposed rule is can't be below feed).  This is to stop Alice from just posting it for sale at a real high price and triggering Bob's margin call.  Alice then posts the dollar for sale just below the price feed.

Now all Alice has to do is wait and Bob will buy it back for $1...  This is because due to price movement one of two things will happen:

1) bitUSD rises and bob gets a margin call giving alice $1 worth of BTSX...
2) BTSX rises to the point that Alice's measly dollar is tying up a huge amount of valuable BTSX that Bob now can't use until he closes the position and he isn't getting enough leverage to be worth not closing.  So he will buy it back for $1.

-notice how the rule "no short selling below feed" immediately makes the market center around feed price.

A86, this does not explain how Alice gets $0.90, 10 seconds after she purchased the dollar.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline Empirical1

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Re: Support BitUSD Price by Forced Covering at a Profit
« Reply #18 on: August 31, 2014, 09:32:54 pm »
Quote
Now all Alice has to do is wait and Bob will buy it back for $1...  This is because due to price movement one of two things will happen:

But what if she doesn't want to wait and what if she has a large volume that the market can't support in times of low liquidity. We want those kind of buyers to enter the market no?

So it looks like a double punishment for shorters. The imminent consequence of this is fewer people willing to short, and as a result slower growth of BitUSD supply.

There seem to be long queues of people willing to short. The growth of BitAssets in the short to medium term seems like it will be determined  by how appealing it is to the people going long BitAssets.
« Last Edit: August 31, 2014, 09:37:18 pm by Empirical1 »

Offline Agent86

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Re: Support BitUSD Price by Forced Covering at a Profit
« Reply #19 on: August 31, 2014, 09:37:32 pm »
A86, this does not explain how Alice gets $0.90, 10 seconds after she purchased the dollar.
Well, I think it shows that the token she holds will fetch the holder $1 given some time.  If she offers it at a discount ($0.90) I believe there will be other people willing to scoop it up knowing that they will eventually get $1 for it, assuming Bob doesn't take the opportunity.

Maybe Alice shouldn't be buying things that she doesn't want.  All in all, I think with enough people participating my belief is that this problem does not exist and is purely academic.

Offline puvar

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Re: Support BitUSD Price by Forced Covering at a Profit
« Reply #20 on: August 31, 2014, 09:40:49 pm »
This idea has been discussed in other threads, but the more I think about it the more critical I think it will be.  To describe what I am talking about lets start out with a simple example.

Alice and Bob decide to take opposite bets and one ends up with BitUSD the other is Short BitUSD. 
Immediately after this trade occurs Alice decides she wants out of her position, but Bob doesn't.
Alice has to shop around looking for someone else to take her BitUSD position... no takers.
Alice drops the price to 95%, 90%, 50% of the dollar .... still no takers. 

The value of the dollar hasn't changed during this time, there is just no BitUSD liquidity.  Bob hasn't actually made any money, he is just refusing to give up his position. 

So we have a situation where people are looking to exit their BitUSD position and they are willing to pay a fee to do so.   If the network knows the price then it is easy to implement this.  We simply change the terms of the short "contract".

Bob agrees that Alice has the option to exit her position at  $.90 per BitUSD at any time.  Bob makes money even though the dollar did not fall against BTSX and Alice is assured some liquidity should she need it.   

If we are going to rely on a price feed we can force covering any time the highest offer to buy BitUSD is less than 90% of the feed price.

Does this punish shorts?  I don't think it does.  I think it supports the peg by adding liquidity without adding any risk to the shorts. 

I think this added liquidity should come form which ever shorts are least collateralized.  This way the shorts which don't want to be forced into providing liquidity pre-maturely can avoid it by having a large surplus of collateral and thus making the entire network more secure. 

Under this system BitUSD is always worth at least $0.90 and the market makers / market will likely drive that to near $0.99- $1.01.

I think the problem of overshorting comes from the fact that market is asymmetrical: everybody can sell BitUSD (either by shorting or selling), but only BTSX owners can buy BitUSD.

It would be more natural to make it symmetrical: allow BitUSD owners to short BTSX (effectively create extra BitUSD buy pressure). In this case Alice will have a chance to sell her BitUSD to a pessimist who bought BitUSD, and is so strong about his position that is willing to short BTSX with BitUSD collateral.

Offline cygnify

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Re: Support BitUSD Price by Forced Covering at a Profit
« Reply #21 on: August 31, 2014, 09:42:10 pm »
 
Well, I think it shows that the token she holds will fetch the holder $1 given some time.  If she offers it at a discount ($0.90) I believe there will be other people willing to scoop it up knowing that they will eventually get $1 for it, assuming Bob doesn't take the opportunity.

Maybe Alice shouldn't be buying things that she doesn't want.  All in all, I think with enough people participating my belief is that this problem does not exist and is purely academic.

That's right. All markets will move to equilibrium (price parity) given enough time and liquidity.

The only reasons the peg is slightly off presently is the wallet software (could be more stable and also needs to help the user know when opportunities arise), not enough traders and few abritage opportunities at the moment.
« Last Edit: August 31, 2014, 09:43:41 pm by cygnify »

Offline tonyk

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Re: Support BitUSD Price by Forced Covering at a Profit
« Reply #22 on: August 31, 2014, 09:45:55 pm »
A86, this does not explain how Alice gets $0.90, 10 seconds after she purchased the dollar.
Well, I think it shows that the token she holds will fetch the holder $1 given some time.  If she offers it at a discount ($0.90) I believe there will be other people willing to scoop it up knowing that they will eventually get $1 for it, assuming Bob doesn't take the opportunity.

Maybe Alice shouldn't be buying things that she doesn't want.  All in all, I think with enough people participating my belief is that this problem does not exist and is purely academic.

It is actually not Alice that wants to buy them, it is us  wanting her to buy them  :)
My response stays the same, regarding the not-bold text:

I think the idea is that in Alice's mind she would be absolutely secure that she can sell at 90%, at all times. Just like the system bot proposal but without a bot.
« Last Edit: August 31, 2014, 09:47:29 pm by TheOnion »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline bytemaster

Re: Support BitUSD Price by Forced Covering at a Profit
« Reply #23 on: August 31, 2014, 09:47:09 pm »
On the whole the network is stronger with fewer shorts and more guarantees for BitUSD holders.   
On the whole the network is stronger with fewer rules and more free market action.

Allowing someone to Short BTSX backed by BitUSD would be an interesting experiment for a future chain.  It would certainly create buying pressure on cheap BitUSD. 

Price feeds are something I would prefer to avoid all together.   Average prices are something I would prefer to remove all together.

So this discussion is mostly focused on "how do we make a peg work in a thin market".

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Offline tonyk

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Re: Support BitUSD Price by Forced Covering at a Profit
« Reply #24 on: August 31, 2014, 09:49:59 pm »

Allowing someone to Short BTSX backed by BitUSD would be an interesting experiment for a future chain.  It would certainly create buying pressure on cheap BitUSD. 


... is something I was thinking about 2 nights ago, even in my sleep.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline Agent86

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Re: Support BitUSD Price by Forced Covering at a Profit
« Reply #25 on: August 31, 2014, 09:57:24 pm »
On the whole the network is stronger with fewer shorts and more guarantees for BitUSD holders.   
On the whole the network is stronger with fewer rules and more free market action.

Allowing someone to Short BTSX backed by BitUSD would be an interesting experiment for a future chain.  It would certainly create buying pressure on cheap BitUSD. 

Price feeds are something I would prefer to avoid all together.   Average prices are something I would prefer to remove all together.

So this discussion is mostly focused on "how do we make a peg work in a thin market".
It doesn't work in a thin market without feed, or any market for that matter IMO...  I think we will be happy with the feed.

Offline James212

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Re: Support BitUSD Price by Forced Covering at a Profit
« Reply #26 on: August 31, 2014, 10:04:49 pm »
On the whole the network is stronger with fewer shorts and more guarantees for BitUSD holders.   
On the whole the network is stronger with fewer rules and more free market action.

Allowing someone to Short BTSX backed by BitUSD would be an interesting experiment for a future chain.  It would certainly create buying pressure on cheap BitUSD. 

Price feeds are something I would prefer to avoid all together.   Average prices are something I would prefer to remove all together.

So this discussion is mostly focused on "how do we make a peg work in a thin market".


I am no expert on financial markets, but I think that the big benefit of BITUSD is that is closely mimics US Dollars (which is not exactly a totally free market instrument)   on the block chain and thus allows big players.....(corporations and the like) to have the option to leave funds (profits) in the system without risk.  This avoids them rushing to cash out as in the current process using Bitpay.  That being the case,  whatever the solution,  it should allow for a very tight correlation to the US Dollar.   I think a 90% guarantee is still too much of a variance assuming we are talking about hundreds of thousands/ millions of USD in value.    I don't know, but maybe separate assets should be created to achive the various objectives of BitUSD(?)

Just my 2 cents.
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Offline puvar

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Re: Support BitUSD Price by Forced Covering at a Profit
« Reply #27 on: August 31, 2014, 10:16:50 pm »
So this discussion is mostly focused on "how do we make a peg work in a thin market".

...without thinning the market more :-)

Offline bitcoinerS

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Re: Support BitUSD Price by Forced Covering at a Profit
« Reply #28 on: August 31, 2014, 10:39:11 pm »
Better not to increase reliance on feeds, but work to eliminate them..
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Offline liondani

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Re: Support BitUSD Price by Forced Covering at a Profit
« Reply #29 on: August 31, 2014, 10:53:47 pm »



Allowing someone to Short BTSX backed by BitUSD would be an interesting experiment for a future chain.  It would certainly create buying pressure on cheap BitUSD. 


... is something I was thinking about 2 nights ago, even in my sleep.

why future chain?