286 lines
12 KiB
Markdown
286 lines
12 KiB
Markdown
BSIP: 00018
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Title: Revive BitAsset through buying Settlement Pool
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Authors: Fabian Schuh, Peter Conrad
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Status: Implemented
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Type: Protocol
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Created: 2017-06-05
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Discussion: https://bitsharestalk.org/index.php/topic,24322.0.html
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Worker: 1.14.56
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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. After global settlement, the asset is
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effectively rendered useless. This BSIP proposes a protocol change to
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enable resolving a global settlement so that affected assets can be
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continued and put to good use again.
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# Motivation
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The necessity of reviving bitassets has already been discussed in
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BSIP-0017, and is unquestioned.
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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 "global settlement" event. A global settlement occurs
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when the least collateralized short position has insufficient collateral
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to buy back the borrowed SmartCoins at the current feed price. What
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happens then is that the MPA is tagged with a "settlement price",
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defined as the collateral ratio of the least collateralized short. All
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short positions are closed automatically, by collecting sufficient
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collateral into a settlement pool and paying out the remainder to the
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short's owners. MPA holders can use the forced settlement operation to
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receive their share from the settlement pool in exchange for their MPAs.
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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 global
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settlement, but eventually, all significant holders will have to settle
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their positions to obtain BTS for their long position. Some dust will
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remain scattered all over the place, where the value of the dust
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position is lower than the fees required to get rid of it.
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# Rationale
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When a market-pegged asset undergoes a global settlement, 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 the underlying asset decreases
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significantly, the outstanding debt (the BitAsset long positions) are still
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collateralized through the settlement pool at the fixed settlement price. It is
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even possible that the value of the collateral exceeds the nominal value of the
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MPA significantly.
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For example, if a global settlement event happened on USD at a price of 1
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bitUSD/BTS, then an outstanding debt of 1000 bitUSD would be backed by
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1000 BTS in the settlement pool of the bitUSD asset. No other call positions
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would be open by anyone else. Every bitUSD long position could, in this case,
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claim BTS from 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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* re-enable price feeds
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* replace the settlement pool with sufficiently collateralized call positions.
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Since after a global settlement, the collateral for the outstanding long
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positions are stored in the settlement pool, we here propose a way to **obtain
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the funds in the settlement pool and its outstanding debt from the
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network**. Since the collateral ratio of the settlement pool after a
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global settlement is 100%, obtaining the settlement funds in order to
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convert it into an open call position **requires to also provide
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additional collateral or reduce the debt** in order to not cause another
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global settlement or margin call right away.
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# Specifications
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Like in BSIP-0017, let SWAN be an asset that has seen global settlement, and
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let BACK be the asset backing SWAN.
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## Bugfix: MPAs that have seen a global settlement cannot be settled after the price feed expires
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It has turned out that force-settling an MPA requires a valid price feed
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even when the MPA has a `settlement_price` set. This is clearly a bug,
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since in that case the settlement price is independent from the price
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feed. Furthermore, publishing price feeds is no longer possible after a
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global settlement, so the time when settlement is possible at all is
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limited to the expiration period of the price feed of the MPA.
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This bug will be fixed. See
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https://github.com/cryptonomex/graphene/issues/664#issuecomment-254056746
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for a discussion.
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(This fix is also part of BSIP-0017. Obviously, it needs to be fixed only once.
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It is repeated here because it is currently unclear which of these proposals
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will be implemented.)
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## Auto-revive after increase of settlement fund value
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This applies only to SmartCoins, not to Prediction Markets.
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A price increase of BACK can lead to the situation where SWAN is worth much more
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than it was originally intended to be. I. e. the value of the settlement fund
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becomes much greater than the nominal value of the existing supply of SWAN.
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When the value of the settlement fund reaches the minimum required collateral
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(in terms of price feed and MCR), a call_order_object owned by the issuer of
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SWAN is created (or updated) that takes the settlement_fund as collateral and
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covers the full debt. The settlement_fund and the settlement_price will then
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be cleared, which revives the asset.
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The condition can easily be checked at the time the price feed is updated.
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Obviously, this requires a price feed. Currently it is not possible to
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publish a price feed for assets that have seen global settlement. This
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restriction will be removed.
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## Recollateralize
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This applies only to SmartCoins, not to Prediction Markets.
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### Overview
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The idea of turning the settlement fund into a short position when its
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value has increased sufficiently can easily be extended. If the value of
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the settlement fund itself is too low to create a sufficiently collateralized
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short position (in terms of price feed and MCR), investors could volunteer to
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add the required amount of collateral to the fund and take ownership of the
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resulting short position (collateral+debt).
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The proposed operation enables potential investors to "bid" additional
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collateral for taking over part of the debt (or all of it). When enough bids
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have been made to cover the full outstanding debt, and all of them are
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sufficiently collateralized (in terms of price feed and MCR), the
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settlement_fund and the bids are turned into call positions. Finally, the
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settlement_price is removed from the asset, which revives it.
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If the available bids cover more than the outstanding debt, bids with a higher
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collateral/debt ratio are preferred over those with a lower ratio. The intent is
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to turn the competition among investors into better collateralized calls, which
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is in the interest of the MPA holders.
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### `bid_collateral_operation`
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The operation has the following payload:
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* `fee`(asset_type): The operation requires a fee to be paid
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* `bidder`(account_type): This account pays the additional collateral and
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will become the owner of the resulting call position, if the bid is accepted
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* `additional_collateral`(asset_type): Collateral paid by the account in order
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to support the call position
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* `debt_covered`(asset_type): The amount of debt the account is willing to cover
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The operation works as follows:
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1. It pays a fee
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2. If account has already placed a bid on the same MPA, the existing bid is
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cancelled (see below).
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3. If `debt_covered` equals 0, no further action is taken.
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4. It reduces the account's balance by `additional_collateral`.
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5. It creates a `collateral_bid_object` containing the `bidder` and the partial
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inverted swan price calculated as `additional_collateral` / `debt_covered`.
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The required validity checks for the operation are:
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* `debt` == 0 || `debt` > 0 && `collateral` > 0
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The required evalutation checks for the operation are:
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* debt_covered.asset must be a bitasset (not a PM) with a settlement_price
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* additional_collateral.asset must be the asset backing SWAN
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* account must have sufficient BACK, i. e. at least additional_collateral
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Obviously, the operation must be authorized by `bidder`.
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### `collateral_bid_object`
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The `collateral_bid_object` stores information about bids offered by accounts
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using the `bid_collateral_operation`. It is indexed
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1. by_id
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2. by debt asset and bidder
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3. by debt asset and partial inverted swan price.
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When a `collateral_bid_object` is cancelled, the additional_collateral (i. e.
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the partial inverted swan price's base) is returned to the bidder and the
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`collateral_bid_object` is deleted.
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The intent of the partial inverted swan price is to facilitate selection of the
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bids that will result in the call_order_objects with the lowest debt/collateral
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ratio after the revival of the bitasset.
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### Maintenance
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In every maintenance interval, all MPAs that have a settlement_price are checked
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if
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* they have a valid price feed, and
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* if enough sufficiently collateralized bids are available to cover the debt.
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If both conditions are met, for each `collateral_bid_object` (in order of
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descending partial inverted swan price) a new call_order_object will be
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constructed in this way, starting with remaining_debt=SWAN.current_supply:
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* call.borrower = bid.bidder
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* call.debt = bid.debt.amount
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* call.collateral = call.debt * SWAN.settlement_price + bid.additional_collateral.amount
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* remaining_debt -= call.debt
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* SWAN.settlement_fund -= call.debt * SWAN.settlement_price
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If remaining_debt reaches 0, any remaining bids will be cancelled.
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It is likely that for the last converted bid the requested debt will be less
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than the remaining_debt. In that case, call.debt will be set to remaining_debt
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and call.collateral will be set to asset.settlement_fund + additional_collateral.
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### `execute_bid_operation`
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In order to make the revival event visible in the bid owners' account histories,
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a new virtual `execute_bid_operation` will be introduced, that contains these
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parameters:
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* the `bidder`
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* the actual covered `debt`
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* the total `collateral` of the resulting call_order
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The semantics of that operation includes the removal of the existing bid and
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the creation of the new call_order as described above.
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# Discussion
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## Partially Obtaining Settlement Funds
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In the case a widely used BitAsset is globally settled, the cost of providing
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sufficient collateral and the associated risk may be prohibitively high. The
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proposed bidding mechanism allows to split the cost (and the risk) among
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multiple participants.
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## BitAssets using BitAssets as collateral are unaffected
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One huge advantage of this approach over BSIP-0017 is that BitAssets which are
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collateralized by other BitAssets are not directly affected by this proposal.
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Even though the *economical debt* of such asset may be argued about if the
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collateral asset experienced a global settlement, the *technical debt*
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is unaffected. Converting the settlement pool into a regular call
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position through this proposal would not only restore the original
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BitAsset, but also reset the collateral of the derived BitAsset.
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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 global settlement, the long positions can settle and thus
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reduce the debt as 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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## Feeds
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Re-collateralization is deliberately not restricted to the issuer of the
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globally settled bitasset. The intent here is to incentivize potential
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investors. Effectively, during an uptrend in the value of the
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collateral, this works like a reverse auction. A higher value of the
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collateral results in a lower required amount for re-collateralization,
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i. e. the chance/risk ratio increases. This incentive makes sense,
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because additional collateral is in the best interest of the holders of
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the settled BitAsset.
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This "reverse auction" ends when the BitAsset is auto-revived by
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creating a short position for the issuer. At that point, an "investor"
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could re-collateralize with zero risk, which is no longer in the
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interest of the holders.
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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 global settlement event. The blockchain or shareholders do
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not need to take any risk as the proposal only offers a new way for
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market participants to (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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