On Improving Resilience of the Ecosystem in the Wake of Last Week's Bloodbath
Reflections on last weeks bloodbath
On September the 13th, while the streets ran red with blood, the order book on the DEX ran gold with margin calls and liquidations. Many of us witnessed it, some of us lost small or even large fortunes, a few made out like bandits increasing their position tremendously. This is now the 2nd or 3rd time I've witnessed shareholders get called and even liquidated, and it has become apparent to me that there is critical infrastructure currently missing from the ecosystem. While we have several trading bots, it's obvious we need a very basic bot that can track debt positions for shareholders going long on BTS, and provide notifications when certain thresholds are hit and/or when the price moves more than a user defined percentage in less than a user defined period of time. If I was better at coding (or had the time to teach myself), I would have created something like this myself. I have every reason to believe that from a shareholder's perspective, a creation of a tool like this given away for free to the community would add enough value to the ecosystem to justify the effort and/or expense.
tl;dr: We need to create a piece of software that can send emails, IMs, SMS, and make phone calls to notify users when their margin levels fall bellow a threshold deemed acceptable by the user.Simple and straightforward. I doubt I'm the first to say it, but since the need is still unmet it obviously merits mentioning again.
The yields of my reflections
One concept that has interested me since I first heard Bytemaster mention it in an interview years ago, is a Mutual Aid Society on a blockchain. As far as I know not much came of it after it was first proposed, but I believe we may have a use case worth exploring for it right here within the community of our shareholders. Even if we already had a notification system, what about anyone holding a debt position who is unable to react quickly enough (a distinct possiblity since our markets operate 24/7/365)? Our ecosystem would be more robust if we had a safety net (or better yet multiple safety nets, that compete with each other based on their parameters), would this not make our ecosystem more robust? Would this not be an absolutely ideal application for a decentralized M.A.S? A decentralized autonomous robotic entity within BitShares, that would act as a safety net for all those Heroes who issue price-stable currencies into existence by collateralizing them with their shares.
I imagine it would be strictly voluntary, with membership dues that would be proportional to some combination of a rolling average of a user's debt positions, and probably additional metrics - essnetially the complete reinvention of "credit ratings" for a completely different type of financial system. Even defining "credit rating" within the the context of the BitShares ecosystem will obviously require brainstorming and debate on our parts.
The MAS software entity would need to be able to maintain a pool of BTS, that would presumably originate from membership dues, and it would need to be able to dynamically add collateral (and remove it when the danger is past) to members' debt positions without any kind of human intervention. I have little doubt that what I describe is impossible to implement on BitShares as it is today - I imagine this would require a hard fork somewhere along the way (luckily DPoS chains are agile enough that they can upgrade themselves when there is a clear need), but I definitely think it may be possible. If my fellow shareholders are in agreement that this is something we want and need, I have complete faith that if such a safety net is possible to implement in a trustless fashion, this community is fully capable of devising the best possible way to do so.
To be honest, with the coming Sovereign Hero campaign (taking into consideration that some of the materials I've seen for it involve encouraging new business adopters to expand the supply of HERO by borrowing it into existence), it is my opinion that an MAS-based safety net intended to protect against margin calls and liquidiations is probably a piece of absolutely mission critical infrastructure.
Edit: I realized I only included the link to 2nd blog post by Bytemaster on the subject. Here is the first. I'm also starting to realize that STEEM is probably the culmination of his efforts then...
I would like to see a window on the DEX trading page that shows the collateral and highlights my position, would be simple to check and make a huge improvement to the whole experience. Step 2 would absolutely be having email or SMS notifications sent. If you write a worker proposal or BSIP I will vote for it.
This doesn't require a BSIP or a Worker proposal. The capability to display this information exists, as evidenced by the fact that block explorers provide it, and there is already a UI worker proposal voted in. This needs to be brought up in the form of an issue on the bitshares-ui GitHub.
Edit: Except for SMS notifications maybe. Although that could be done easy enough by integrating into an SMS provider's API. The only thing is, you would need to leave your client running for it to work.
Please create a feature request in https://github.com/bitshares/bitshares-ui/issues/
I opened a github issue here. Please comment on it if you think my explanation was unclear or if you have anything else to add to it.
Interesting idea, but I'm not really convinced that a MAS would be very helpful in this case.
The idea of an insurance or MAS is to insure against devastating, low probability events that happen to people largely statistically independent. In this case the danger of margin calls moves identically for all MAS members. Meaning most of the time you will be paying a worthless service and once BTS price drastically drops the funds will be used up very quickly.
There is simply no way around the risk associated with taking a short USD (or whatever) position.
I saw some catastrophic events take place during that selloff. I'm sure some were unavoidable, but I'm willing to bet some should have been easily preventable.
At a glance, this appears to be the case, but I do not believe the notion holds when you have large sums of data (such as that which is already stored on our blockchain) that you can analyze. One example: the attentiveness with which debt positions are maintained (adding collateral s needed) on average is something we can measure with relative ease. So if a situation were to arise where a member who normally is on top of his game when it comes to adding collateral, who additionally already had the necessary liquidity to increase their collateral on a transparent public ledger (easily verifiable, given the right prerequisite information having been provided by members), the safety net would trigger for them.
If the MAS only activated safety nets for members under specific conditions, the details of which all members must be obviously be consensus about by default, I see no reason that the creation of such a MAS would not be a worthwhile endeavor . I'm not talking about creating an insurance policy to keep people from getting called because they don't have the collateral - obviously that would implode in not time at all. I'm talking about a safety net that can protect them when they have all they need to avoid disaster, but due to circumstances for whatever reason are unable to sign & broadcast the necessary transaction.
It can be a MAS, it can be something else, the specifics aren't important.
I'm suggesting a MAS, because it seems appropriate to me for this use case. What I'm really getting at though, is in order for BitShares ecosystem to be robust, we need to create infrastructure that minimizes the human element as a risk factor disasters that cause capital to evaporate. We need to identify weak points, such as the ones that (potentially) are revealed every time there is a massive selloff like that, and address them. If you think my proposal is no good for the problem, please suggest an alternative. If you don't believe that there is a problem that need addressing, please try and convince the rest of us.
Thanks for clarifying, I see what you mean now. That probably would provide some value.
I don't see how adding bells and whistles to risk seeking behavior will stop people from losing money. Might be a nice feature, but that's it. I'd rather have more liquidity. For example integrated trading bots to ensure liquidity in the market. And maybe a first off feature for an exchange?
I agree with you - we absolutely do need well documented bots for market making, because otherwise our lack of liquidity it will remain a perpetual chicken/egg problem. But, simply put, both are necessary. A supply of smartcoins is a prerequisite to liquidity on the DEX - unless you're OK with trading entirely in OpenLedger's IOUs. Borrowing bitAssets on the DEX can definitely be risky, but it is necessary. Without it, there would be no price-stable smartCoins.
What you call "bells and whistles" I see as a system that would promote safe behavior by rewarding it with a safety net. Now, if the configuration parameters are open-ended, theoretically it could be twisted into something that promotes risk, however in reality I don't think the incentive structures would align. Unlike our financial system in the time leading up to the crash in 2008, an open source blockchain system is completely transparent. A MAS acting as a safety net exclusively for those engaging in high risk behavior would simply be unsustainable. At the same time, if its users/members must achieve consensus as to its rules in order to participate, those who seek to to reduce their exposure to risk would have a strong incentive to insist on rules that at the very least over no protection to members who engage in high risk behavior, if not outright punish the mfor it..
So let me see if I understand -- you want to build an automated stop-loss for the entire crypto market?
No. Not a stop loss, and certainly not for the entire crypto market. More like an insurance policy targetted specifically and exclusively at the traders who borrow price-stable smartcoins into existence on the BitShares Decentralized Exchange.
Interesting, I think the volatility that concerns you is the growing pains of an asset in it's infancy.
Are "price-stable smartcoins" already a thing or did you just ~coin~ that? ;)
What do you think bitusd is?
I actually wasn't aware of that until now. Thanks :)
I probably should have been more clear that this post was meant to be an open letter to my fellow shareholders in the BitShares Decentralizeed Autonomous Bank & Exchange. There are a multitude of resources available with information about how it works. I would even be more than happy to do a Q&A post about BitShares to spread the wealth of knowledge. This thread, however, is not an appropriate venue for such Q&A.
Well I'm glad you weren't cuz now I know what Bitshares are!
You're welcome. Information is a form of wealth that tends to accumulate when it is shared.
THAT is an awesome quote.
Thanks you, but I'm not quoting anything/anyone. It's original.
Could you explain by an example, how would it work? I am not too savvy with the trading stuff
So the basic idea is it would be a piece of software ultimately bound to the BitShares blockchain, that would have its own reserve pool of funds. This reserve would be grown with membership dues from its members. It would provide a safety net similar to an insurance policy to traders that maintain debt positions on the DEX, who choose to be its members. by covering their asses in the event that they are unable to react to a market panic with the urgency such an event demands.
Specifically, the services would consist of monitoring collateral levels of its members, and automatically adding collateral to positions in risk of getting liquidated. The rules for when and to which of its which member's positions adds collateral to would most likely be decided upon democratically by its members. Then, during a crash like the one on the 12th, it would identify which of its members were in the most danger (as per the rules agreed upon by its memers), and automatically increase the collateral of their positions, with an obvious expectation that they would make an effort to replace that collateral with their own ASAP so that the resources it tied up would be freed up and once again available as a safety net or all of its members.
Edit: The precise rules should be essentially open-ended. I envision something more along the lines of an extensible framework for running such an entity, with the various permutations of governing rules ultimately dictated by the free market.
I've just gotten into Bitshares and OpenLedger. Amazing opportunities!
I don't understand everything you presenting in your post, but I'm happy to have found Bitshares and I'll keep learning.
This post has received a 2.81 % upvote from @booster thanks to: @ashaman.
we dont need to worry at all
How is your comment at all relevant to anything in my post?
because many cryptocurriencies are getting worldwide acceptance.
and the relevance to the specific content of my post is...?
I gave up searching for relevance when I saw people commenting "very informative post" on price screenshots from coinmarketcap
And I started flagging such nonsense with very little mercy.
Such a nice post ...may be this idea will give a jump to system....