Merge pull request #70 from bitshares/bsip38
BSIP 38: add target CR option to short positions
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@ -45,3 +45,4 @@ Number | Title |
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[35](bsip-0035.md) | Mitigate Rounding Issue On Order Matching | Abit More | Protocol | Accepted
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[36](bsip-0036.md) | Remove expired price feeds on maintenance interval | oxarbitrage | Protocol | Accepted
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[37](bsip-0037.md) | Allow new asset name to end with a number | oxarbitrage | Protocol | Accepted
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[38](bsip-0038.md) | Add target collateral ratio option to short positions | Abit More | Protocol | Draft
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153
bsip-0038.md
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153
bsip-0038.md
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BSIP: 0038
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Title: Add target collateral ratio option to short positions
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Author: Abit More <https://github.com/abitmore>
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Status: Draft
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Type: Protocol
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Created: 2018-03-05
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Discussion: https://bitsharestalk.org/index.php?topic=25924.0,
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https://github.com/bitshares/bsips/issues/51
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Replaces: -
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Worker: To be done
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# Abstract
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When a short position is margin called, some of its collateral will be sold
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and some or all of its debt will be covered accordingly.
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However, usually more collateral will be sold, in comparison to the minimum
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amount required to be sold to maintain the maintenance collateral ratio (MCR)
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requirement.
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This BSIP proposes a protocol change to let shortes (borrowers) have control
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over selling how much collateral when being margin called.
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# Motivation
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As discussed in [this forum
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post](https://bitsharestalk.org/index.php?topic=25924.0), current process gives
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manipulators big chance to short BTS and make money and increase the risk of
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black swan, thus hurts the BTS ecosystem. Many participants in the discussion
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agree that usually it's not really required to cover all debt (thus selling more
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collateral) when being margin called.
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After [BSIP 31](https://github.com/bitshares/bsips/blob/master/bsip-0031.md) is
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in place, shorters will have more chance to not cover all debt on margin call,
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but it's not 100% guaranteed, and they can only accept the result passively.
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# Rationale
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Different shorters have different expectations when being margin called:
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* some want to close their short positions completely to cut losses;
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* some want to sell as little collateral as possible to keep remaining short
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positions as large as possible;
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* some want to sell more than minimum required collateral to reduce the
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possibility of being margin called again in the near future, but don't
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want to close their short positions completely.
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With a new "target collateral ratio" option, all these expectations can be met.
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## The Definition of Target Collateral Ratio
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"Target collateral ratio" is an optional value which can be set onto a short
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position, when the position being automatically liquidized (margin called),
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sell no more than required collateral until collateral ratio of the position
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reaches this value.
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* Default value: not set, which means to sell as much collateral as possible,
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which is same to current behavior.
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* When the value is set but below MCR, use MCR.
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* When matching a margin call order with a force settle order, ignore this
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option.
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## The Math
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Let prices described below be in terms of `debt / collateral`,
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e.g. how much CNY per BTS.
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A margin call order can be matched with a limit order as either maker or taker,
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in any case, there would be a matching price. We can solve an equation as
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follows:
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```
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target_CR = new_collateral / ( new_debt / feed_price )
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= ( collateral - max_amount_to_sell ) * feed_price
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/ ( debt - amount_to_get )
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= ( collateral - max_amount_to_sell ) * feed_price
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/ ( debt - max_amount_to_sell * match_price )
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=>
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max_amount_to_sell = (debt * target_CR - collateral * feed_price)
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/ (target_CR * match_price - feed_price)
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```
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The result is a rational number, need to be rounded up to an integer.
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# Specifications
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## `call_order_object`
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The `call_order_object` stores current status of a short position.
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Need to add a new field into it:
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* `optional<uint16_t> target_collateral_ratio;`
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Same to other collateral ratios, the actual ratio is the value divided by
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`GRAPHENE_COLLATERAL_RATIO_DENOM` aka `1000`.
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Due to the `uint16_t` data type, the new field's maximum value is `65535`,
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which means `6553.5%`.
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## `call_order_update_operation`
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The `call_order_update_operation` is used to open, update and close short
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positions. It contains an `extensions` field:
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* `extensions_type extensions;`
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Need to override data type of this field so it can include the new "target
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collateral ratio" option.
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## `call_order_update_evaluator`
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The `call_order_update_evaluator` is used to evaluate and apply the
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`call_order_udpate_operation`. Need to add logic:
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* only allow `target_collateral_ratio` to be set after the hard fork;
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* set/update/clear `target_collateral_ratio` field of `call_order_object`
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accordingly. Specifically,
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* set or update the field if it presents in the operation and is valid,
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* clear the field if it doesn't present in the operation or is not valid.
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## Call Order Matching and Filling
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After a call order get matched with a limit order and about to fill,
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* if `target_collateral_ratio` is not set, process as before;
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* if `target_collateral_ratio` is set, calculate maximum amount of collateral
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for sale according to the equation described above, then process as before.
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## UI/UX
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The new option need to be presented and can be used in UI after the hard fork.
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When there are call orders to be filled, if `target_collateral_ratio` option
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is set, UI need to show exact amounts of collateral that another trader is able
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to buy according to the equation described above.
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# Discussion
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With this BSIP, we provided a tool that can be used by shorters to keep their
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positions, however, it's not always the best strategy to keep as large position
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as possible, sometimes it's even more risky than just cutting losses.
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Nevertheless, how to use the tool, is up to the traders to decide.
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# Summary for Shareholders
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"This is how it should work."
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# Copyright
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This document is placed in the public domain.
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# See Also
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* https://bitsharestalk.org/index.php?topic=25924.0
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* https://github.com/bitshares/bsips/issues/51
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