bsips/bsip-0018.md

    BSIP: 00018
    Title: Revive BitAsset through buying Settlement Pool
    Authors: Fabian Schuh
    Status: Draft
    Type: Protocol
    Created: 2017-06-05
    Discussion: https://bitsharestalk.org/index.php/topic,24322.0.html
    Worker: FIXME

# Abstract

BitAssets, i. e. market-pegged assets (MPA) like bitUSD in BitShares can suffer
a "global settlement" event. After global settlement, the asset is
effectively rendered useless. This BSIP proposes a protocol change to
enable resolving a global settlement so that affected assets can be
continued and put to good use again.

# Motivation

Market-pegged assets, aka SmartCoins are among the core features of the
BitShares blockchain and as such provide one of our unique selling points.

MPAs can suffer a "global settlement" event. A global settlement occurs
when the least collateralized short position has insufficient collateral
to buy back the borrowed SmartCoins at the current feed price. What
happens then is that the MPA is tagged with a "settlement price",
defined as the collateral ratio of the least collateralized short. All
short positions are closed automatically, by collecting sufficient
collateral into a settlement pool and paying out the remainder to the
short's owners. MPA holders can use the forced settlement operation to
receive their share from the settlement pool in exchange for their MPAs.
Even after global settlement, market-pegged assets can still be
transferred or traded, but they can no longer be borrowed.

Currently, in BitShares, there is no actual way to resolve the global
settlement, but eventually, all significant holders will have to settle
their positions to obtain BTS for their long position. Some dust will
remain scattered all over the place, where the value of the dust
position is lower than the fees required to get rid of it.

# Rationale

When a market-pegged assets undergoes a global settlement, one of the crucial
mechanisms that support the peg (namely "margin calls") is no longer available.
However, other mechanisms, such as the "face-value", trading and settlement
still exist and, unless the valuation of BTS decreases significantly, the
outstanding debt (the BitAsset long positions) are still collateralized by
approximately 100% through the settlement pool at the fixed settlement price.

This means, if a global settlement event happened on USD at a price of 1
bitUSD/BTS, then an outstanding debt of 1000 bitUSD would be backed by
1000 BTS in the settlement pool of the bitUSD asset and no other call
positions would be open by anyone else. Every bitUSD long position
could, in this case, claim BTS from the settlement pool at a rate of
1:1.

# Proposal

All that is needed for the asset to be *revived* is:

* empty the settlement pool
* re-enable price feeds

Since after a global settlement, the collateral for the outstanding long
positions are stored in the settlement pool, we here propose to **obtain
the funds in the settlement pool and its outstanding debt from the
network**. Since the collateral ratio of the settlement pool after a
global settlement is 100%, obtaining the settlement funds in order to
convert it into an open call position **requires to also provide
additional collateral or reduce the debt** in order to not cause another
global settlement or margin call right away.

# Specifications

## `obtain_settlement_funds_operation`

This operation is all that is needed empty the settlement pool and re-enable price feeds.
It has the following payload:

 * `fee` (asset_type): The operation requires a fee to be paid               
 * `symbol` (asset_id_typ): Symbol that has a settlement fund to be claimed.
 * `account` (account_type): This account obtains the collateral **as well** as
   the debt (i.e. call position) and has to either pay additional collateral,
   provide shares of the BitAsset to reduce the outstanding debt, or a combination
   of both.
 * `additional_collateral` (asset_type): Collateral paid by the account in
   order to support the call position
 * `additional_debt` (asset_type): Debt that is paid by the account in order to reduce the
   debt (while keeping the full settlement pool as collateral)
 * `obtain_settlement_funds` (asset_type): The amount of settlement funds the
   account is willing to obtain

The operation works as follows:
 
 1. It pays a fee
 2. It reduces the account's balance by `debt`.
    The debt is used to reduce the outstanding shares of the globally settled BitAsset.
 3. It reduces the account's balance by `collateral`.
    The collateral is used to initially support the accounts' call position.
    However, technically, only little additional collateral is required (if the
    valuation of the collateral hasn't change since the global
    settlement) if the owner accepts a margin call.
 4. The global settlement flag is removed from the asset.          
 5. The asset is re-enabled such that price feeds can be produced again.
 6. After sufficient price feeds, the asset can be borrowed again.

The required checks for the operation are:

 * Has the asset globally settled?
 * Are funds in the settlement pool?
 * `debt` > 0 or `collateral` > 0
 * `obtain_settlement_funds` <= `settlement_pool`

# Discussion

## Sufficient Collateral

Given that at the time of claiming the settlement funds, the blockchain
cannot know the valuation of the collateral, the user needs to ensure
that sufficient collateral is provided to support the call position
**after** the price feeds are refreshed. Otherwise, the asset will
either experience another global settlement event right away, or the
call position will be margin called.  In any way, it is up to the user
of the above operation to take that risk.

## Partially Obtaining Settlement Funds

In the case a widely used BitAsset is globally settled, the costs of providing
the collateral can be shared among multiple participants by means of only
obtaining a fraction of the settlement pool.

## BitAssets using BitAssets as collateral are unaffected

One huge advantage of this approach is BitAssets that are collateralized
by other BitAssets are not directly affected by this proposal. Even
though the *economical debt* of such asset may be argued about if the
collateral asset experienced a global settlement, the *technical debt*
is unaffected. Converting the settlement pool into a regular call
position through this proposal would not only restore the original
BitAsset, but also reset the collateral of the derived BitAsset.

## Committee funded BitAsset Recovery

## Cost vs. Profit

This operation opens an interesting cost vs. profit trade-off for those willing
to take the risk of using this operation that we would like to discuss. Keep in
mind that

 * the valuation of the collateral may be volatile (e.g. in case of BTS)
 * after global settlement, the long positions can settle and thus
   reduce the debt as well as the settlement pool

Market participants that are willing to take risk may want to obtain a larger
chunk of a settlement pool as it means an **instant short position**.

# Summary for Shareholders

This proposal presents a flexible way of reviving a BitAsset that has
experienced a global settlement event. The blockchain or shareholders do
not need to take any risk as the proposal only offers a new way for
market participants to (partially) revive the BitAsset.

# Copyright
This document is placed in the public domain.