250 lines
9.6 KiB
Markdown
250 lines
9.6 KiB
Markdown
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: 0035 (partly)
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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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This BSIP depends on [BSIP 31](bsip-0031.md).
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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](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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* When checking for black swan or globally settling, ignore this 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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Then, the maximum debt it wants to cover can be calculated as:
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```
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max_debt_to_cover = max_amount_to_sell * match_price
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```
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It need to be rounded up to an integer as well.
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Then adjust `max_amount_to_sell` to be more precise by:
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```
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max_amount_to_sell = round_down(max_debt_to_cover / match_price)
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```
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## Rounding and Edge Cases
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Without `target_CR` option set, when a call order is partially filled, its
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paid collateral will be rounded down, so its collateral ratio will increase.
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With `target_CR` option set, when a call order is partially filled, it's
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possible that its paid collateral will be rounded up. If the call order's
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collateral ratio is not too low, partially filling will likely leads to an
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increase in collateral ratio.
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However, there are edge cases: if the call order's collateral ratio is already
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low, or its debt or collateral amount is tiny, rounding up paid collateral on
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partially filling will probably lead to a decrease in collateral ratio,
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in extreme cases it may even lead to a black swan event. This is against the
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intention of this BSIP. To solve this issue, when detected a decrease in
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collateral ratio when matching, ignore the `target_CR` option of corresponding
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call order, and re-evaluate the match.
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## When and How To Use the Option
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The `target_collateral_ratio` option can to be set, updated or cleared when
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creating or updating a short position. When doing so, other rules still apply,
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E.G. can't update a short position to have too small collateral ratio.
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For one account, different short positions (for different assets) can be set
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with different `target_collateral_ratio`.
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For one short position,
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* if want to close it completely to cut losses when being margin called,
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* don't set or clear `target_collateral_ratio` option, because the option is
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**optional** so can be unset or cleared;
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* if want to sell as little collateral as possible when being margin called,
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to keep the remaining short position as large as possible,
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* set `target_collateral_ratio` to `MCR` or less;
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* if want to sell more than minimum required collateral when being margin
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called, to reduce the possibility of being margin called again in the near
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future, but don't want to completely close the short position,
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* set `target_collateral_ratio` to a value higher than `MCR`, E.G. `300%`.
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The higher the value is, the more collateral will be listed for sale when
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it's margin called.
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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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## `proposal_create_evaluator`
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The `proposal_create_evaluator` is used to evaluate and apply the
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`proposal_create_operation`, which can contain zero or more
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`call_order_udpate_operation` objects. Need to add logic:
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* only allow `target_collateral_ratio` to be set after the hard fork.
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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, compare it to `MCR`, use the bigger
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one (aka `max(target_collateral_ratio,MCR)`) to calculate maximum amount of
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collateral for sale and maximum amount of debt to cover according to the
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equation described above, then process as before.
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### Rounding
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Rules about rounding are defined in [BSIP 35](bsip-0035.md).
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The rule for matching a limit order with a call order need to be revised as
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(new rules **in bold**):
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* if the call order is receiving the whole debt amount, which means it's
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smaller and the short position will be closed after the match, round up its
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paying amount;
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* **otherwise,**
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* **if the call order has `target_collateral_ratio` set and is receiving the
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maximum debt amount calculated with `target_collateral_ratio`, see the call
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order as smaller, try to round up its paying amount;**
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* **for edge cases, if the call order's collateral ratio would not increase
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after being partially filled due to the round-up (which may even cause a
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black swan event in an extreme scenario), see its `target_collateral_ratio`
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as "not set" for this time, re-apply the filling rules for this match.**
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* otherwise, the call order is larger, round down its paying amount.
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* if the limit order would receive nothing, cancel it (it's smaller,
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so safe to cancel);
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* otherwise, calculate the amount that the limit order would pay as
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`round_up(receiving_amount * match_price)`. After filled both orders,
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if the limit order still exists, the remaining amount might be too small,
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so cancel it.
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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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