[bsip18] new proposal
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Fabian Schuh
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@ -11,7 +11,7 @@ detailed explanation.
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# Available BSIPs
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Number | Title | Owner | Type | Status
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------------------ | ---------------------------------- | -------------- | -------------- | -------
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-------------------|----------------------------------------------------------|-------------------|----------------|--------
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[1](bsip-0001.md) | BSIP Purpose and Guidelines | Fabian Schuh | Informational | Draft
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[2](bsip-0002.md) | Refund Create Order Fees on Cancel | Daniel Larimer | Protocol | Accepted
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[3](bsip-0003.md) | Maker / Taker Market Fees Flag | Daniel Larimer | Protocol | Deferred
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@ -25,7 +25,8 @@ Number | Title | Owner | Type
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11 | On Demand Voting | Daniel Larmier | Protocol | Draft
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12 | Hardfork Procedure Proposal | Fabian Schuh | Informational | Draft
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13 | Contract for Difference (CFD) trading | Frank Ahrens | Protocol | Draft
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14 | Annual Membership price determined by the registrar | Jakub Zarembinski | Deferred
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14 | Annual Membership price determined by the registrar | Jakub Zarembinski | Protocol | Deferred
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[15](bsip-0015.md) | Disable negative voting on workers | Daniel Larimer | Protocol | Installed
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[16](bsip-0016.md) | Optimization to Force Settlement Parameters of BitCNY | Jerry Liu | Protocol | Installed
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[17](bsip-0017.md) | Revive BitAssets after global settlement | Peter Conrad | Protocol | Draft
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[17](bsip-0017.md) | Revive BitAsset after Global Settlement | Peter Conrad | Protocol | Draft
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[18](bsip-0018.md) | Revive BitAsset through buying Settlement Pool | Fabian Schuh | Protocol | Draft
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161
bsip-0018.md
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161
bsip-0018.md
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BSIP: 00018
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Title: Revive BitAsset through buying Settlement Pool
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Authors: Fabian Schuh
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Status: Draft
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Type: Protocol
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Created: 2017-06-05
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Discussion: FIXME
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Worker: FIXME
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# Abstract
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BitAssets, i. e. market-pegged assets (MPA) like bitUSD in BitShares can suffer
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a "global settlement" event also known as "black swan". After global
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settlement, the asset is effectively rendered useless. This BSIP proposes a
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protocol change to enable resolving a global settlement so that affected assets
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can be continued and put to good use again.
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# Motivation
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Market-pegged assets, aka SmartCoins are among the core features of the
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BitShares blockchain and as such provide one of our unique selling points.
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MPAs can suffer a "black swan" event. A black swan occurs when the least
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collateralized short position has insufficient collateral to buy back the
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borrowed SmartCoins at the current feed price. What happens then is that the
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MPA is tagged with a "settlement price", defined as the collateral ratio of the
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least collateralized short. All short positions are closed automatically, by
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collecting sufficient collateral into a settlement pool and paying out the
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remainder to the short's owners. MPA holders can use the forced settlement
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operation to receive their share from the settlement pool in exchange for their
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MPAs. Even after global settlement, market-pegged assets can still be
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transferred or traded, but they can no longer be borrowed.
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Currently, in BitShares, there is no actual way to resolve the black swan, but
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eventually, all significant holders will have to settle their positions to
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obtain BTS for their black swan long position. Some dust will remain scattered
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all over the place, where the value of the dust position is lower than the fees
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required to get rid of it.
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# Rational
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When a market-pegged assets undergoes a black swan event, one of the crucial
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mechanisms that support the peg (namely "margin calls") is no longer available.
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However, other mechanisms, such as the "face-value", trading and settlement
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still exist and, unless the valuation of BTS decreases significantly, the
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outstanding debt (the BitAsset long positions) are still collateralized by
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approximately 100% through the settlement pool at the fixed black swan price.
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This means, if a black swan event happened on USD at a price of 1 bitUSD/BTS, then
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an outstanding debt of 1000 bitUSD would be backed by 1000 BTS in the
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settlement pool of the bitUSD asset and no other call positions would be open
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by anyone else. Every bitUSD long position could, in this case, claim BTS from
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the settlement pool at a rate of 1:1.
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# Proposal
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All that is needed for the asset to be *revived* is:
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* empty the settlement pool
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* re-enable price feeds
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Since after a black swan, the collateral for the outstanding long positions are
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stored in the settlement pool, we here propose to **obtain the funds in the
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settlement pool and it's outstanding debt from the network**. Since the
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collateral ratio of the settlement pool after a black swan is 100%, obtaining
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the settlement funds in order to convert it into an open call position
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**requires to also provide additional collateral or reduce the debt** in order
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to not cause another black swan or margin call right away.
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# Specifications
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## `obtain_settlement_funds_operation`
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This operation is all that is needed empty the settlement pool and re-enable price feeds.
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It has the following payload:
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* `fee` (asset_type): The operation requires a fee to be paid
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* `symbol` (asset_id_typ): Symbol that has a settlement fund to be claimed.
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* `account` (account_type): This account obtains the collateral **as well** as
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the debt (i.e. call position) and has to either pay additional collateral,
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provide shares of the BitAsset to reduce the outstanding debt, or a combination
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of both.
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* `additional_collateral` (asset_type): Collateral paid by the account in
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order to support the call position
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* `additional_debt` (asset_type): Debt that is paid by the account in order to reduce the
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debt (while keeping the full settlement pool as collateral)
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* `obtain_settlement_funds` (asset_type): The amount of settlement funds the
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account is willing to obtain
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The operation works as follows:
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1. It pays a fee
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2. It reduces the account's balance by `debt`.
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The debt is used to reduce the outstanding shares of the globally settled BitAsset.
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3. It reduces the account's balance by `collateral`.
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The collateral is used to initially support the accounts' call position.
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However, technically, only little additional collateral is required (if the
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valuation of the collateral hasn't change since the black swan event) if the
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owner accepts a margin call.
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4. The global settlement flag is removed from the asset.
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5. The asset is re-enabled such that price feeds can be produced again.
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6. After sufficient price feeds, the asset can be borrowed again.
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The required checks for the operation are:
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* Has the asset globally settled?
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* Are funds in the settlement pool?
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* `debt` > 0 or `collateral` > 0
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* `obtain_settlement_funds` <= `settlement_pool`
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# Discussion
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## Sufficient Collateral
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Given that at the time of claiming the settlement funds, the blockchain cannot
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know the valuation of the collateral, the user needs to ensure that sufficient
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collateral is provided to support the call position **after** the price feeds
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are refreshed. Otherwise, the asset will either experience another black swan
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event right away, or the call position will be margin called.
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In any way, it is up to the user of the above operation to take that risk.
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## Partially Obtaining Settlement Funds
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In the case a widely used BitAsset is globally settled, the costs of providing
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the collateral can be shared among multiple participants by means of only
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obtaining a fraction of the settlement pool.
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## BitAssets using BitAssets as collateral are unaffected
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One huge advantage of this approach is BitAssets that are collateralized by
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other BitAssets are not directly affected by this proposal. Even though the
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*economical debt* of such asset may be argued about if the collateral asset
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experienced a black swan event, the *technical debt* is unaffected. Converting
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the settlement pool into a regular call position through this proposal would
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not only restore the original BitAsset, but also reset the collateral of the
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derived BitAsset.
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## Committee funded BitAsset Recovery
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## Cost vs. Profit
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This operation opens an interesting cost vs. profit trade-off for those willing
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to take the risk of using this operation that we would like to discuss. Keep in
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mind that
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* the valuation of the collateral may be volatile (e.g. in case of BTS)
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* after black swan, the long positions can settle and thus reduce the debt as
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well as the settlement pool
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Market participants that are willing to take risk may want to obtain a larger
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chunk of a settlement pool as it means an **instant short position**.
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# Summary for Shareholders
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This proposal presents a flexible way of reviving a BitAsset that has
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experienced a black swan event. The blockchain or shareholders do not need to
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take any risk as the proposal only offers a new way for market participants to
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(partially) revive the BitAsset.
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# Copyright
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This document is placed in the public domain.
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