2018-02-19 00:19:59 +00:00

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BSIP: 0035
Title: A Solution To Something-For-Nothing Issue
Author: Abit More <https://github.com/abitmore>
Status: Draft
Type: Protocol
Created: 2018-02-19
Discussion: https://github.com/bitshares/bitshares-core/issues/132,
            https://github.com/bitshares/bitshares-core/issues/184
Replaces: -
Worker: To be done

Abstract

Under some circumstances, when two orders get matched, due to rounding, one order may be paying something but receiving nothing, the other order may be paying nothing but receiving something. This is the so-called something-for-nothing issue.

This looks clearly unfair.

This BSIP proposes an overall mechanism to avoid something-for-nothing issue completely.

This BSIP also sets a principle: something-for-nothing shouldn't happen when matching orders.

Motivation

There are mechanisms in the system to try to avoid something-for-nothing issue, however, not all scenarios are well-handled, see bitshares-core issue #184 for example.

Rationale

Amounts, Prices and Rounding

Amounts in the system are integers with per-asset fixed precisions. The minimum positive amount of an asset is called one Satoshi.

Prices in the system are rational numbers, which are expressed as base_amount / quote_amount (precisions are omitted here).

To calculate how much amount of asset B is equivalent to some amount of asset A, need to calculate amount_of_a * a_to_b_price which is amount_of_a * b_amount_in_price / a_amount_in_price. The accurate result of this formula is a rational number. To convert it to the final result which is an amount, which is an integer, may need to round.

Order Matching

An order means someone is willing to give out some amount of asset X expecting to get some amount of asset Y. The ratio between the two assets is the price of the order. The price can be expressed as either x_amount / y_amount or y_amount / x_amount, when we know which amount in the price is of which asset, the two expressions are equivalent. The amount of asset X is known and fixed.

In a market, E.G. the X:Y market, some people are selling X for Y, some people are selling Y for X (or say buying X with Y). Orders are classified by type (buy or sell), then ordered by price. For each type, the order offering the best price is on the top. So, in every market there may be a top buy order and a top sell order, name them highest bid and lowest ask, so there is a highest bid price (in terms of asset X amount / asset Y amount), and a lowest ask price (in terms of asset X amount / asset Y amount as well).

When the highest bid price is higher or equal to the lowest ask price, the two top orders can be matched with each other.

The Match Price

In a continuous trading market, orders are placed one by one, when comparing every two orders, it's deterministic that one order is placed earlier than the other.

In BitShares, it doesn't mean that the transaction that contains the first order is signed before the transaction contains the second, but means that the first order is processed earlier than the second in the witness node that produced the block that contains the second order.

When two orders get matched, the one placed earlier is maker, the other one is taker. Say, the maker provides an offer, the taker accept the offer. So, when calculating who will get how much, we use the maker order's price, aka maker price, as the match price.

The Need for Compromise

When matching two orders, due to rounding, usually we're unable to completely satisfy both parties.

Here is an example mentioned in the 4th comment of bitshares-core issue #132:

Alice's order: Sell CORE at $3 / 8, balance 1000000 CORE Bob's order: Buy CORE at $19 / 50, balance $10

Both assets have precision of 1, i.e. the order balances are 1000000 CORE-satoshis and 10 USD-satoshis repectively.

Alice is selling at $3/8 CORE = $0.375 / CORE and Bob is buying at $19 / 50 CORE = $0.38, so based on the price, Alice and Bob should match.

Bob's $10 / $0.38 ~ 26.3. So 26.3 is the fewest CORE he is willing to accept (assuming that the meaning of "price" is "the least favorable exchange rate a party is willing to accept in trade"). Combined with the design restriction that satoshis are indivisible, in practice this means Bob will only accept 27 or more CORE for his $10.

But $10 / 27 gives a price smaller than $0.370 and $0.371, which is smaller than Alice's sale price of $0.375. So neither party can fill this offer.

We need to come to a compromise.

The Possible Solutions

There are some possible solutions listed in the 5th comment of bitshares-core issue #132:

(a) Fill someone at a less favorable exchange rate than the price they specified in their order. Downside: This violates the above definition of price; i.e. if a user enters a price intending the system to never sell below that price in any circumstance, the system will not always behave in a way which fulfills that user intent.
(b) Keep both orders on the books. Downside: This complicates the matching algorithm, as now Alice might be able to match an order behind Bob's order. Naive implementation would have potentially unbounded matching complexity; a more clever implementation might be possible but would require substantial design and testing effort.
(c) Cancel an order. This is complicated by the fact that an order such as a margin call cannot be cancelled. Downside: When there are margin calls happening, it seems perverse to delete a large order that's willing to fill them just because the lead margin call happens to fall in a narrow window which causes a rounding issue. Also, orders cancelled by this mechanism cannot be refunded. Otherwise an attacker who wants to consume a lot of memory on all nodes could create a large number of orders, then trigger this case to cancel them all, getting their investment in deferred cancellation fees back without paying the cancel op's per-order fee as intended.
(d) Require all orders to use the same denominator. Altcoin exchanges and many real-world markets like the stock market solve this problem by specifying one asset as the denominator asset, specifying a "tick" which is the smallest unit of price precision, and requiring all prices to conform. Downside: Complicates the implementation of flipped market UI, may require re-working part of market GUI, reduces user flexibility, new asset fields required to specify precision, if n assets exist then O(n^2) markets could exist and we need to figure out how to determine the precision requirement for all of them.

The Chosen Solution

Current code actually implemented (a) in the first place: when matching two orders, if there is a rounding issue, the order with smaller volume will be filled at a less favorable price. It's the least bad compromise since it has the most efficiency (highest traded volume while not hard to implement) among the solutions.

However, when filling a small order at a less favorable price, the receiving amount is often rounded down to zero, thus causes the something-for-nothing issue. Current code tried to solve the issue by cancelling the smaller order when it would receive nothing, but only applied this rule in a few senarios:

when matching two limit orders, processed the maker
when matching a maker limit order with a call order, processed the maker
when matching a limit order with a call order, processed the call order
when matching a settle order with a call order, processed the call order
when globally settling, processed the call order

Other senarios that need to be processed as well:

when matching two limit orders, process the taker
when matching a taker limit order with a call order, process the taker
when matching a force settle order with a call order, process the settle order
when globally settling, process the settlement fund

The Improved Solution (This BSIP)

The detailed rules proposes in this BSIP (new rules highlighted):

match in favor of taker, or say, match at maker price
round down receiving amounts when possible
- when matching two limit orders, round down the receiving amounts in favor of bigger order, or say, try to fill the smaller order
  - if the smaller order would get nothing after the round-down, cancel it
- when matching a limit order with a call order, in favor of call order, round down receiving collateral amount
  - if the limit order would get nothing after the round-down, cancel it
- when matching a settle order with a call order, in favor of call order, round down receiving collateral amount
  - if the settle order would get nothing after the round-down, give it one Satoshi (round up); after paid both side, check (and allow) if a black swan is triggered by the round-up
- when globally settling, in favor of call order, round down receiving collateral amount
  - when the asset is not a prediction market, if a call order would pay nothing, let it pay 1 Satoshi (round up).

Take the example mentioned in the 4th comment of bitshares-core issue #132:

Alice's order: Sell CORE at $3 / 8 = $0.375, balance 1000000 CORE
Bob's order: Buy CORE at $19 / 50 = $0.38, balance $10

Process:

If both orders are limit orders
- If Alice's order is maker, use $3 / 8 as match price; since Bob's order is smaller, round in favor of Alice's order, so Bob will get round_down($10 * 8 CORE / $3) = round_down(26.67 CORE) = 26 CORE, the effective price would be $10 / 26 CORE = $0.3846.
- If Bob's order is maker, use $19 / 50 as match price; since Bob's order is smaller, round in favor of Alice's order, so Bob will get round_down($10 * 50 CORE / $19 = round_down(26.32 CORE) = 26 CORE, the effective price would still be $10 / 26 CORE = $0.3846.
If Alice's order is a call order, always round in favor of it, we get same results.

If we change the example to this:

Alice's order: Buy CORE at 3 CORE / $8 = 0.375, balance $1000000
Bob's order: Sell CORE at 19 CORE / $50 = 0.38, balance 10 CORE

Process:

If both orders are limit orders, we get same results as above
If Bob's order is a call order, we should always round in favor of it, however, it should have a debt amount which is an integer, for example $27, then Alice would get
- round_down(27 * 3 / 8) = round_down(10.125) = 10 CORE as a maker, or
- round_down(27 * 19 / 50) = round_down(10.26) = 10 CORE as a taker.

Specifications

When Matching Two Limit Orders

In match( const limit_order_object&, OrderType ... ) function of database class, after calculated usd_receives which is for the taker, check if it is zero. If the answer is true, skip filling and see the order is filled, return 1, so the order will be cancelled later.

When Matching A Limit Order With A Call Order

In check_call_orders(...) function of database class, after calculated order_receives, check if it is zero. If the answer is true, and the limit order is taker, skip filling and cancel the limit order.

When Matching A Settle Order With A Call Order

In match( const call_order_object&, ... ) function of database class, after calculated call_pays, check if it is zero. If the answer is true, round up it to 1.

If rounded up, after filled both orders, check and allow a black swan event.

When Globally Settling

In global_settle_asset(...) function of database class, check each pays, once it's zero, and the asset is not a prediction market, let it be 1.

Discussion

There is an argument suggests when matching call orders, we should always round in favour of the call. If a settlement receives 0 collateral as a result, that's acceptable, because the settlement price is unknown at the time when settlement is requested, so no guarantee is violated (within the range of rounding errors). This should keep the collateral > 0 as long as there is outstanding debt. A counter-argument supports rounding up to 1 Satoshi since rounding down to zero may break the promise of "every smart coin is backed by something".

There is an argument says breaking the min_to_receive limit is a no-go, because that's why it's called a "limit order". A counter-argument says slightly breaking the limit is the least bad compromise.

Summary for Shareholders

[to be added if any]

Copyright

This document is placed in the public domain.

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