RE: Feedback loops and Analysis of Bitshares architecture in relation to Smart-Assets sustainability
These are two factors, but I think there may be more factors.
You make some interesting observations on these factors.
There is a much bigger feedback loop in people borrowing Bit USD and then selling it buy BTS, putting it up in collateral and then margining it to get bitUSD. People do this to the max. (like 7 rounds). This drives the margin ratio way out of line.
Solvency is a real issue. But one has to address the question of when is the best time to address the issue. Before it happens or when it happens. I think these situations need to be mostly avoided. IE change the incentives. Market conditions (ieBTC falling from 20,000 to 4,000) though can also cause it.
In my analysis, market conditions and the lack of liquidity were a big portion. Now it is a little more complicated as markets have changed.
I think workers are a vital part of the community. Without them, nothing would happen. Workers are not without their own set of difficulties.
Worker feedback loop could be lessened with higher commissions. This has been discussed before, but trading is still essentially free.
I think one also has to consider activity on other exchanges. Some I believe allow one to take out leveraged BTS positions. This would be an easy way to manipulate markets.
For some reason I am finding this all harder than normal to comprehend. Probably caused by me working too hard earlier in the day.
The settlement protection fund would have been wiped out multiple times in a price crash from $1.00 to $0.05 over the last two years. That kind of volatility is hard to do too much about.
Taking over better collateralized positions to pay for worse collateralized positions is unfair. It encourages people to take more risk. It is a moral hazard. People would run with less collateral, and hide that money in other accounts.
To some extent this sounds like the bad bank solution to the subprime financial crisis.
I don’t think you fully understand all that goes on in BitUSD settlement, I don’t think I do either. I know there is some real game playing and shenanigans.
I don’t think this protocol idea will catch on.
You asked for feedback, and I wanted to give a little. One tip I could say is to truly understand what is happening, you need to look at the behavior that happens, why it happens and who is doing it. There are logical reasons they do what they do. And certain players have certain incentives. And people cannot always speak frankly about what happens for fear of risk, and reprisal within the community. There is plenty of fighting and blaming and has been in the past. So it gets complicated. I don't know if there is any easy solution. There is usually a reason hard problems are hard. Hope this helps in some small way.