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[bsip18] replace black swan by global settlement where applicable

oxarbitrage-patch-1
Fabian Schuh 2017-06-06 10:13:01 +02:00
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@ -10,47 +10,49 @@
# Abstract # Abstract
BitAssets, i. e. market-pegged assets (MPA) like bitUSD in BitShares can suffer BitAssets, i. e. market-pegged assets (MPA) like bitUSD in BitShares can suffer
a "global settlement" event also known as "black swan". After global a "global settlement" event. After global settlement, the asset is
settlement, the asset is effectively rendered useless. This BSIP proposes a effectively rendered useless. This BSIP proposes a protocol change to
protocol change to enable resolving a global settlement so that affected assets enable resolving a global settlement so that affected assets can be
can be continued and put to good use again. continued and put to good use again.
# Motivation # Motivation
Market-pegged assets, aka SmartCoins are among the core features of the Market-pegged assets, aka SmartCoins are among the core features of the
BitShares blockchain and as such provide one of our unique selling points. 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 MPAs can suffer a "global settlement" event. A global settlement occurs
collateralized short position has insufficient collateral to buy back the when the least collateralized short position has insufficient collateral
borrowed SmartCoins at the current feed price. What happens then is that the to buy back the borrowed SmartCoins at the current feed price. What
MPA is tagged with a "settlement price", defined as the collateral ratio of the happens then is that the MPA is tagged with a "settlement price",
least collateralized short. All short positions are closed automatically, by defined as the collateral ratio of the least collateralized short. All
collecting sufficient collateral into a settlement pool and paying out the short positions are closed automatically, by collecting sufficient
remainder to the short's owners. MPA holders can use the forced settlement collateral into a settlement pool and paying out the remainder to the
operation to receive their share from the settlement pool in exchange for their short's owners. MPA holders can use the forced settlement operation to
MPAs. Even after global settlement, market-pegged assets can still be 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. transferred or traded, but they can no longer be borrowed.
Currently, in BitShares, there is no actual way to resolve the black swan, but Currently, in BitShares, there is no actual way to resolve the global
eventually, all significant holders will have to settle their positions to settlement, but eventually, all significant holders will have to settle
obtain BTS for their black swan long position. Some dust will remain scattered their positions to obtain BTS for their long position. Some dust will
all over the place, where the value of the dust position is lower than the fees remain scattered all over the place, where the value of the dust
required to get rid of it. position is lower than the fees required to get rid of it.
# Rational # 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. mechanisms that support the peg (namely "margin calls") is no longer available.
However, other mechanisms, such as the "face-value", trading and settlement However, other mechanisms, such as the "face-value", trading and settlement
still exist and, unless the valuation of BTS decreases significantly, the still exist and, unless the valuation of BTS decreases significantly, the
outstanding debt (the BitAsset long positions) are still collateralized by 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 This means, if a global settlement event happened on USD at a price of 1
an outstanding debt of 1000 bitUSD would be backed by 1000 BTS in the bitUSD/BTS, then an outstanding debt of 1000 bitUSD would be backed by
settlement pool of the bitUSD asset and no other call positions would be open 1000 BTS in the settlement pool of the bitUSD asset and no other call
by anyone else. Every bitUSD long position could, in this case, claim BTS from positions would be open by anyone else. Every bitUSD long position
the settlement pool at a rate of 1:1. could, in this case, claim BTS from the settlement pool at a rate of
1:1.
# Proposal # Proposal
@ -59,13 +61,14 @@ All that is needed for the asset to be *revived* is:
* empty the settlement pool * empty the settlement pool
* re-enable price feeds * re-enable price feeds
Since after a black swan, the collateral for the outstanding long positions are Since after a global settlement, the collateral for the outstanding long
stored in the settlement pool, we here propose to **obtain the funds in the positions are stored in the settlement pool, we here propose to **obtain
settlement pool and it's outstanding debt from the network**. Since the the funds in the settlement pool and it's outstanding debt from the
collateral ratio of the settlement pool after a black swan is 100%, obtaining network**. Since the collateral ratio of the settlement pool after a
the settlement funds in order to convert it into an open call position global settlement is 100%, obtaining the settlement funds in order to
**requires to also provide additional collateral or reduce the debt** in order convert it into an open call position **requires to also provide
to not cause another black swan or margin call right away. additional collateral or reduce the debt** in order to not cause another
global settlement or margin call right away.
# Specifications # Specifications
@ -95,8 +98,8 @@ The operation works as follows:
3. It reduces the account's balance by `collateral`. 3. It reduces the account's balance by `collateral`.
The collateral is used to initially support the accounts' call position. The collateral is used to initially support the accounts' call position.
However, technically, only little additional collateral is required (if the However, technically, only little additional collateral is required (if the
valuation of the collateral hasn't change since the black swan event) if the valuation of the collateral hasn't change since the global
owner accepts a margin call. settlement) if the owner accepts a margin call.
4. The global settlement flag is removed from the asset. 4. The global settlement flag is removed from the asset.
5. The asset is re-enabled such that price feeds can be produced again. 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. 6. After sufficient price feeds, the asset can be borrowed again.
@ -112,12 +115,13 @@ The required checks for the operation are:
## Sufficient Collateral ## Sufficient Collateral
Given that at the time of claiming the settlement funds, the blockchain cannot Given that at the time of claiming the settlement funds, the blockchain
know the valuation of the collateral, the user needs to ensure that sufficient cannot know the valuation of the collateral, the user needs to ensure
collateral is provided to support the call position **after** the price feeds that sufficient collateral is provided to support the call position
are refreshed. Otherwise, the asset will either experience another black swan **after** the price feeds are refreshed. Otherwise, the asset will
event right away, or the call position will be margin called. either experience another global settlement event right away, or the
In any way, it is up to the user of the above operation to take that risk. 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 ## Partially Obtaining Settlement Funds
@ -127,13 +131,13 @@ obtaining a fraction of the settlement pool.
## BitAssets using BitAssets as collateral are unaffected ## BitAssets using BitAssets as collateral are unaffected
One huge advantage of this approach is BitAssets that are collateralized by One huge advantage of this approach is BitAssets that are collateralized
other BitAssets are not directly affected by this proposal. Even though the by other BitAssets are not directly affected by this proposal. Even
*economical debt* of such asset may be argued about if the collateral asset though the *economical debt* of such asset may be argued about if the
experienced a black swan event, the *technical debt* is unaffected. Converting collateral asset experienced a global settlement, the *technical debt*
the settlement pool into a regular call position through this proposal would is unaffected. Converting the settlement pool into a regular call
not only restore the original BitAsset, but also reset the collateral of the position through this proposal would not only restore the original
derived BitAsset. BitAsset, but also reset the collateral of the derived BitAsset.
## Committee funded BitAsset Recovery ## 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 mind that
* the valuation of the collateral may be volatile (e.g. in case of BTS) * 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 * after global settlement, the long positions can settle and thus
well as the settlement pool reduce the debt as well as the settlement pool
Market participants that are willing to take risk may want to obtain a larger 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**. 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 # Summary for Shareholders
This proposal presents a flexible way of reviving a BitAsset that has 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 experienced a global settlement event. The blockchain or shareholders do
take any risk as the proposal only offers a new way for market participants to not need to take any risk as the proposal only offers a new way for
(partially) revive the BitAsset. market participants to (partially) revive the BitAsset.
# Copyright # Copyright
This document is placed in the public domain. This document is placed in the public domain.