Support BitUSD Price by Forced Covering at a Profit

[sumantso]

Frankly I understand nothing of this, so I have stayed away, but was wondering something (might be stupid).

Is one of the issues is that there are not enough longs or shorts; means at some point one look more attractive than the other and so its skewing it? In that case, can you introduce some kind of 'odds'? In betting, if you are taking less risk, you will receive  a less return; but higher risk nets higher profits.

In the same way if it feels like majority is against, say, short, but you do anyway, shouldn't there be a more incentive? Might balance up both sides this way.

[luckybit]

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.

Everyone is forgetting the key element of an information market. Information flow is a key element and we have very poor information flow. If information is like the oxygen in our blood flowing through our bloodstream then if we have poor circulation we can't survive.

BitUSD/BTSX is an information market. It's a prediction market where you're trying to guess whether BTSX is going up or down in price. Since most people have been convinced that it's going up in price not many people decided to buy BitUSD. The other problem is not many people even knew what BitUSD is or how to use it (myself among them).

So you have to consider the amount of time it takes to master the UI of Bitshares X along with figuring out all the advanced features. As expertise begins to increase, along with automation, there will be people who can capitalize quickly, if and only if information circulates.

So we need to build information feeds into the GUI so that information can flow efficiently to eyeballs. The GUI could be like the heart of the whole ecosystem where all information flows through so that everyone using Bitshares X software receives a live stream on their dashboard. This would increase situation awareness and information flow so that speculators can make rational informed decisions quickly.

Right now the Bitshares interface and bugs in the software prevent anyone from using it properly.

[luckybit]

Surely bitUSD is a safe haven for any perceived future drop in BTSX. While BTSX rises perhaps it'll be tempting not to buy bitUSD but to short it? So, between those two, you have a draw into bitUSD.

I'm not sure whether you need to control the market as much as sell the idea of it. I wonder there needs to be some ELI5 descriptions for those of us with less experience of financial markets; and those of us who've drunk too much beer :p

If ever there is a prospect of bitUSD being widely available on exchanges and used in the real world, it seems very likely it'll find its market. USD is an imposed consensus; bitUSD is a distributed consensus and as such it's not bitUSD==USD but the peg and the utility and the idea of bitXYZ acknowledging real world assets is a powerful one. Just add time.. not rules.

Quote this:

The only way BitUSD will be used as a safe haven is if information flow and market signalling is improved. People make rational decisions only when they receive timely information otherwise it's just gambling.

BitUSD is best used when you have accurate pertinent information about a market disrupting event which is about to occur. A spike in the purchasing of BitUSD may be a statistical indicator that something has happened which will result in a crash in the price. If Mt Gox gets hacked, if the Bitcoin ETF is about to open, if big whale investors are about to enter the market, all of that influences whether or not people should buy BitUSD because it's a prediction market.

Information right now doesn't flow very well. It's hidden in the forums, in the Mumble meetings, etc. This lack of information flow causes a delay in people purchasing BitUSD, and it is partially why people don't value BitUSD yet. It's going to take a dramatically more interconnected and efficient information flow to create a true information market.

[liondani]

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?

[bitcoinerS]

Better not to increase reliance on feeds, but work to eliminate them..

[puvar]

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

...without thinning the market more :-)

[James212]

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.

[Agent86]

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.

[tonyk]

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.

[bytemaster]

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".

[tonyk]

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.

[cygnify]

 

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.

[puvar]

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.

[Agent86]

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.

[Empirical1]

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.