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RE: Taking Heroic Risks
There are two ways you can be forcibly liquidated:
- Your collateral drops in value below the current system minimum, say 2x or 1.75x.
- You are the least collateralized position when someone wants to force settle.
The later is a big risk in a falling market. Theoretically you could be 100x collateralized and still called if you are the least collateralized backer out there.
http://docs.hero.global/en/master/ - Great documentation
Thank you, I will check into this document.
This did help answer some of my questions. For example:
"As a consquence, HERO pays no compound interest!"
I wasn't realizing that the 5% interest you note as being "baked in" to the Hero was based on the original reference point value (old USD), and assumed it was just an typical 5% compound annually. That certainly makes the gains seem far more achievable and stable.
There was one part I wanted to double check:
"The HERO does the same, except that it forces the shorters to also hand over a fixed +5% interest per year to the long side of the trades. Independent of the shorters making profit at all, they will need to provide the +5% interest to the long position."
Does this mean the shorters have to "fund" the 5% interest rate out of their "presumed/unbooked" profits on the increasing value of BTS? If so, does that mean if BTS is also dropping, they'll end up having to fork over the 5% plus accept the BTS capital loss (temporary though it may become?)
Thank you for your time!
Yes. If BTS falls persistently, eventually all HERO backers will have to keep adding additional backing BTS to cover HERO appreciation and avoid margin calls. HERO backers are betting this won't happen and that long term BTS will appreciate faster than HERO.