Author Topic: How well have bitassets been tracking real assets to date?  (Read 5052 times)

0 Members and 1 Guest are viewing this topic.

Offline bitmeat

  • Hero Member
  • *****
  • Posts: 1116
    • View Profile
The question is wrong.

It should include liquidity. As in "How much off from USD is BitUSD when converting $1k, $10k, $20k?"

Saying "it's currently trading at x" is meaningless to someone who wants to hedge $15M.

You gotta give action to get action! Hopefully arbitrage bots will take care of providing such liquidity.

Offline Markus

  • Sr. Member
  • ****
  • Posts: 366
    • View Profile
Interesting.  I think you have the reason wrong though.  Shorters would not compete with each other to offer lower prices because the lower the price the more likely they are to lose money, and the less money they stand to gain.  Instead, I think tying minimum prices to the feed must be to prevent shorters from intentionally forcing the price down in order to cause a panic.

I think there's a multitude of reasons to short lower & lower:
-Manipulate the market (the reason you just cited)
-Being more competitive
-Lack of availability of any bids at the fair price

I remember the first time I looked at the market I wanted to short lower because nobody was buying BitUSD until way down (reason 3)

Without the shorting restrictions in place shorting lower and lower would probably have worked down to 66% of the peg.
Below that some whale would have thought its time to feed on the krill and triggered a nice short squeeze right up to the peg - and a bit beyond.

Offline speedy

  • Hero Member
  • *****
  • Posts: 1160
    • View Profile
  • BitShares: speedy
Interesting.  I think you have the reason wrong though.  Shorters would not compete with each other to offer lower prices because the lower the price the more likely they are to lose money, and the less money they stand to gain.  Instead, I think tying minimum prices to the feed must be to prevent shorters from intentionally forcing the price down in order to cause a panic.

I think there's a multitude of reasons to short lower & lower:
-Manipulate the market (the reason you just cited)
-Being more competitive
-Lack of availability of any bids at the fair price

I remember the first time I looked at the market I wanted to short lower because nobody was buying BitUSD until way down (reason 3)

Offline Riverhead

Interesting.  I think you have the reason wrong though.  Shorters would not compete with each other to offer lower prices because the lower the price the more likely they are to lose money, and the less money they stand to gain.  Instead, I think tying minimum prices to the feed must be to prevent shorters from intentionally forcing the price down in order to cause a panic.

It certainly functions to guard against outright manipulation. Search the forum for "Black Swan" for some interesting reading on market attack vectors.

Offline fussyhands

  • Full Member
  • ***
  • Posts: 109
    • View Profile
Decentralized feed is the median of 51+ feeds produced by elected delegates.

How is that price feed used?  Is there a place that I can read about it?

The price feed is used to prevent shorters from offering BitUSD for lower and lower amounts of BTSX. Without this restriction they could short BitUSD down to near zero for the sake of outcompeting other shorters. BitUSD buyers know this and so are forced to offer a fair amount of BTSX if they want to get any BitUSD.

Interesting.  I think you have the reason wrong though.  Shorters would not compete with each other to offer lower prices because the lower the price the more likely they are to lose money, and the less money they stand to gain.  Instead, I think tying minimum prices to the feed must be to prevent shorters from intentionally forcing the price down in order to cause a panic.

Offline speedy

  • Hero Member
  • *****
  • Posts: 1160
    • View Profile
  • BitShares: speedy
Decentralized feed is the median of 51+ feeds produced by elected delegates.

How is that price feed used?  Is there a place that I can read about it?

The price feed is used to prevent shorters from offering BitUSD for lower and lower amounts of BTSX. Without this restriction they could short BitUSD down to near zero for the sake of outcompeting other shorters. BitUSD buyers know this and so are forced to offer a fair amount of BTSX if they want to get any BitUSD.

If shorters did succeed in shorting BitUSD to 0 BTSX, then logically an infinite amount of BitUSD would be created, which wouldn't inspire a lot of confidence.
« Last Edit: September 24, 2014, 09:10:35 pm by trader »

Offline fussyhands

  • Full Member
  • ***
  • Posts: 109
    • View Profile
Decentralized feed is the median of 51+ feeds produced by elected delegates.

How is that price feed used?  Is there a place that I can read about it?

Offline bytemaster

Decentralized feed is the median of 51+ feeds produced by elected delegates.

Cover + Re-Short allows you to increase your leverage as your profits are now available for use as additional collateral.

Buying at $0.80 is a bet that demand for BitUSD will increase at some point in the future when you can sell it at $1.00 and that $0.20 is enough compensation/return to justify the wait. 

A short had to sell at $1.00 so can cover at a profit at $0.80..... thus heavy buying demand.
 
We have bots under development that will be Shorting at $1.00 and covering at $0.995 thus maintaining a net long/leveraged btsx position while providing liquidity at a profit.  If you view shorts as market makers rather than speculators then you will see that they have incentive to maximize the number of hops across the spread to maximize their return and thus minimize the spread.    20 hops across a .005 spread will earn more money for the short than holding out to sell at 0.90 one time.   There is probably some supply/demand curve that will drive the spread / hold out ratio to some balance. 

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 fussyhands

  • Full Member
  • ***
  • Posts: 109
    • View Profile
You are missing a couple things…. The BitUSD holders have a lot of leverage in the "negotiation."  It is much more likely that they can hold out for a fair price from the shorts than that the shorts can hold out until BitUSD holders give it away for no reason.  This is in part because bitUSD is liquid and the shorts are stuck (until they cover they can't get their bitshares and they can't sell them.)  There's no reason for bitUSD holders to sell for nothing… Myself and many others would take it off their hands before they do so; why give it away when the shorts have to buy it back sometime to get their money, they also may be forced to buy it back at a fair price due to a margin call.  The smart shorts will pick up cheap bitUSD as a good chance to cover and try to re-short rather than futilely hoping it goes to zero, and the ones hoping it crashes will just miss the best opportunities they will get to cover at good price.

OK, you are right that there is no reason for a bitUSD holder to sell for nothing, but there may be a reason to sell at a steep discount:  to cut losses.  If they see the price at 80% for a prolonged period of time, that will erode their confidence that the price will recover, rather than drop further.  They can sit around waiting for new bitUSD demand to kick the price up, but where will that demand come from when the price looks so shaky?  You can others like you might buy up some of it, but if it's a manufactured short squeeze you may run out of funds before you move the price.  If its in a downtrend long enough it's going to cause a panic and bankrun.  I'm not getting it yet.

BTW, what is the point of covering and re-shorting?  To reduce the collateral that is tied up in the position?  And how does covering and re-shorting help those who are long?  If you re-short the same number of bitUSD it exerts the same downward price pressure as if you had just held on to your original short, doesn't it?

You are also missing that shorts can't short at 80%.  We use a decentralized price feed to prevent any new shorts from executing at below the real USD/BTSX exchange rate.

Maybe this is the key element that I'm missing.  What is a decentralized price feed?  Where can I read more about that?

Offline Agent86

  • Sr. Member
  • ****
  • Posts: 471
  • BTSX: agent86
    • View Profile
How much collateral is required when shorting an asset?  100%?

Does a 10 second update mean that the asset would have to appreciate 100% in less than 10 seconds for there to be an uncovered loss?

It seems like that would virtually never happen for any widely traded asset.

The biggest risk seems like if the price drifts far enough away from the real asset to shake people's confidence.  So if BitUSD gradually drifts down to 80% value of USD, then who would go long?  At that point, people might start to think it's going to zero, and that will be a self fulfilling expectation.

It seems like some kind of instability in the system, or perceived risk could cause the initial wedge between the Bit price and the real price, and once that wedge is established, and people see the price diverging from the real price, they will no longer trust the market to correct to the value of the real asset.  Once they don't believe the market will correct, then they won't take long positions which will make it impossible for the market to correct.

You need 200% collateral.

So to short you need 100% MORE than the current value of the asset (i.e. 200% total).  So unless the asset appreciates more than 100% in 10 seconds there will not be any uncovered losses, right?

If the price starts falling that is an opportunity for shorts to cover at a profit. There is implicit demand for the bitassets in the form of the backing collateral - if nobody wants to hold BitUSD then there won't be any bitUSD because it will all have been taken out of circulation.

If the price starts falling, that is an opportunity for shorts to cover at a profit.  But suppose the shorts think the price is going to zero.  They won't want to cover at a profit at 80% because they think the market is going to collapse and they can make a much bigger profit at 0%.

Meanwhile, the people who are long have a choice.  They can exit their position at 80%, taking a 20% loss compared to the real asset, or they can hold and hope the market corrects.  If some people exit at 80% that will drive the price further down as they absorb the short sellers looking to cover.  This price decline will further erode confidence.  Now those who are long face the same choice they did a moment ago, but now can only exit at an amount lower than 80%.  A few more given in and close their positions, thinking things don't look good.  The price sinks further.  Finally you have a classic run on the bank where all the long holders have given up on the market correcting the price, and are just trying to get out with some percentage.  What am I missing?

Also, it seems like a well funded short seller could manufacture the initial price differential by simply offering to sell as much of the BitAsset at 80% the price of the real asset as long holders can absorb.  Eventually the longs will run out of buying power/enthusiasm.  Then the price will sit at 80%, people will start to realize the market is not correcting, and the panic selling I described above will start.  What am I missing?

You are missing a couple things…. The BitUSD holders have a lot of leverage in the "negotiation."  It is much more likely that they can hold out for a fair price from the shorts than that the shorts can hold out until BitUSD holders give it away for no reason.  This is in part because bitUSD is liquid and the shorts are stuck (until they cover they can't get their bitshares and they can't sell them.)  There's no reason for bitUSD holders to sell for nothing… Myself and many others would take it off their hands before they do so; why give it away when the shorts have to buy it back sometime to get their money, they also may be forced to buy it back at a fair price due to a margin call.  The smart shorts will pick up cheap bitUSD as a good chance to cover and try to re-short rather than futilely hoping it goes to zero, and the ones hoping it crashes will just miss the best opportunities they will get to cover at good price.

You are also missing that shorts can't short at 80%.  We use a decentralized price feed to prevent any new shorts from executing at below the real USD/BTSX exchange rate.

Offline fussyhands

  • Full Member
  • ***
  • Posts: 109
    • View Profile
How much collateral is required when shorting an asset?  100%?

Does a 10 second update mean that the asset would have to appreciate 100% in less than 10 seconds for there to be an uncovered loss?

It seems like that would virtually never happen for any widely traded asset.

The biggest risk seems like if the price drifts far enough away from the real asset to shake people's confidence.  So if BitUSD gradually drifts down to 80% value of USD, then who would go long?  At that point, people might start to think it's going to zero, and that will be a self fulfilling expectation.

It seems like some kind of instability in the system, or perceived risk could cause the initial wedge between the Bit price and the real price, and once that wedge is established, and people see the price diverging from the real price, they will no longer trust the market to correct to the value of the real asset.  Once they don't believe the market will correct, then they won't take long positions which will make it impossible for the market to correct.

You need 200% collateral.

So to short you need 100% MORE than the current value of the asset (i.e. 200% total).  So unless the asset appreciates more than 100% in 10 seconds there will not be any uncovered losses, right?

If the price starts falling that is an opportunity for shorts to cover at a profit. There is implicit demand for the bitassets in the form of the backing collateral - if nobody wants to hold BitUSD then there won't be any bitUSD because it will all have been taken out of circulation.

If the price starts falling, that is an opportunity for shorts to cover at a profit.  But suppose the shorts think the price is going to zero.  They won't want to cover at a profit at 80% because they think the market is going to collapse and they can make a much bigger profit at 0%.

Meanwhile, the people who are long have a choice.  They can exit their position at 80%, taking a 20% loss compared to the real asset, or they can hold and hope the market corrects.  If some people exit at 80% that will drive the price further down as they absorb the short sellers looking to cover.  This price decline will further erode confidence.  Now those who are long face the same choice they did a moment ago, but now can only exit at an amount lower than 80%.  A few more given in and close their positions, thinking things don't look good.  The price sinks further.  Finally you have a classic run on the bank where all the long holders have given up on the market correcting the price, and are just trying to get out with some percentage.  What am I missing?

Also, it seems like a well funded short seller could manufacture the initial price differential by simply offering to sell as much of the BitAsset at 80% the price of the real asset as long holders can absorb.  Eventually the longs will run out of buying power/enthusiasm.  Then the price will sit at 80%, people will start to realize the market is not correcting, and the panic selling I described above will start.  What am I missing?



Offline toast

  • Hero Member
  • *****
  • Posts: 4001
    • View Profile
  • BitShares: nikolai
How much collateral is required when shorting an asset?  100%?

Does a 10 second update mean that the asset would have to appreciate 100% in less than 10 seconds for there to be an uncovered loss?

It seems like that would virtually never happen for any widely traded asset.

The biggest risk seems like if the price drifts far enough away from the real asset to shake people's confidence.  So if BitUSD gradually drifts down to 80% value of USD, then who would go long?  At that point, people might start to think it's going to zero, and that will be a self fulfilling expectation.

It seems like some kind of instability in the system, or perceived risk could cause the initial wedge between the Bit price and the real price, and once that wedge is established, and people see the price diverging from the real price, they will no longer trust the market to correct to the value of the real asset.  Once they don't believe the market will correct, then they won't take long positions which will make it impossible for the market to correct.

You need 200% collateral.

If the price starts falling that is an opportunity for shorts to cover at a profit. There is implicit demand for the bitassets in the form of the backing collateral - if nobody wants to hold BitUSD then there won't be any bitUSD because it will all have been taken out of circulation.
Do not use this post as information for making any important decisions. The only agreements I ever make are informal and non-binding. Take the same precautions as when dealing with a compromised account, scammer, sockpuppet, etc.

Offline fussyhands

  • Full Member
  • ***
  • Posts: 109
    • View Profile
How much collateral is required when shorting an asset?  100%?

Does a 10 second update mean that the asset would have to appreciate 100% in less than 10 seconds for there to be an uncovered loss?

It seems like that would virtually never happen for any widely traded asset.

The biggest risk seems like if the price drifts far enough away from the real asset to shake people's confidence.  So if BitUSD gradually drifts down to 80% value of USD, then who would go long?  At that point, people might start to think it's going to zero, and that will be a self fulfilling expectation.

It seems like some kind of instability in the system, or perceived risk could cause the initial wedge between the Bit price and the real price, and once that wedge is established, and people see the price diverging from the real price, they will no longer trust the market to correct to the value of the real asset.  Once they don't believe the market will correct, then they won't take long positions which will make it impossible for the market to correct.


Offline bitmarket

  • Sr. Member
  • ****
  • Posts: 369
    • View Profile
    • BitShares TV
This is a first start:
https://bter.com/trade/BITUSD_USD


IMHO the peg is holding very well. Some stats and nice pages with an overview are still missing though ..

The fact that the peg is holding without bots to speak of or massive intervention by selfless actors in a low volatility market is a good sign. 

The pegs works well enough that you can use BitUSD to hedge against BTSX falling and make money when BTSX does fall.   

The peg is working despite:
1) buggy client, buggy market, low volume, etc....

Once all of these issues work themselves out it can only improve from here.

This is very encouraging.   Did this just "happen" as predicted or did you guys end up doing a bit of "manipulating" as youpreviously discusses to get this done?
Host of BitShares.TV and Author of BitShares 101

Offline Riverhead

In practice the transactions seem instantaneous because on average you are only 5 seconds away from the next block.  I have found the experience to be similar to the centralized exchanges where once you confirm your order it appears in the appropriate book within a few seconds.