From dd5130f5535fa65fa44310772701e229c16cd249 Mon Sep 17 00:00:00 2001 From: Fabian Schuh Date: Tue, 6 Jun 2017 10:13:01 +0200 Subject: [PATCH] [bsip18] replace black swan by global settlement where applicable --- bsip-0018.md | 108 ++++++++++++++++++++++++++------------------------- 1 file changed, 56 insertions(+), 52 deletions(-) diff --git a/bsip-0018.md b/bsip-0018.md index 71d752c..1d177f6 100644 --- a/bsip-0018.md +++ b/bsip-0018.md @@ -10,47 +10,49 @@ # Abstract BitAssets, i. e. market-pegged assets (MPA) like bitUSD in BitShares can suffer -a "global settlement" event also known as "black swan". 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. +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 "black swan" event. A black swan 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 +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 black swan, but -eventually, all significant holders will have to settle their positions to -obtain BTS for their black swan 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. +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. # Rational -When a market-pegged assets undergoes a black swan event, one of the crucial +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 black swan price. +approximately 100% through the settlement pool at the fixed settlement price. -This means, if a black swan 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. +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 @@ -59,13 +61,14 @@ All that is needed for the asset to be *revived* is: * empty the settlement pool * re-enable price feeds -Since after a black swan, 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 it's outstanding debt from the network**. Since the -collateral ratio of the settlement pool after a black swan 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 black swan or margin call right away. +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 it's 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 @@ -95,8 +98,8 @@ The operation works as follows: 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 black swan event) if the - owner accepts a margin call. + 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. @@ -112,12 +115,13 @@ The required checks for the operation are: ## 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 black swan -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. +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 @@ -127,13 +131,13 @@ 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 black swan event, 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. +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 @@ -144,8 +148,8 @@ 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 black swan, the long positions can settle and thus reduce the debt as - well as the settlement pool + * 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**. @@ -153,9 +157,9 @@ 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 black swan 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. +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.