BSIP71: Add "Prevent Global Settlement" Flag for Smartcoin (old title: Global Settlement Protection via core code) #179

bitcrab · 2019-07-02T15:26:40Z

Abstract

This BSIP proposes a new solution to handle bad debt: the core idea is, while bad debt appears, the system does not take over the bad debt positions; instead, it accepts the smartcoin devaluation caused by bad debt and it lets borrowing, margin call, and force settlement all operate referring to the BTS/devaluated smartcoin price. This solution avoids any global/partial settlement, and keeps the borrowing, margin calls and force settlement features to continue and allow the market to decide how to finally remove bad debt, either by BTS price restoration or by debt position adjustment/ margin call order filling/force settlement.

Motivation

BitShares has a mechanism to handle debt positions whose collateral is valued less than the debt itself ("bad debt"). This mechanism is called global settlement ("black swan") and is triggered when the published feed price (FP) is less than or equal to the product of the global settlement price (P_gs) and the maximum short-squeeze ratio (MSSR).

FP ≤ P_gs × MSSR

If this does occur it means that the collateral ratio (CR) of at least one debt position is less than the MSSR.

Global settlement is not a good way to handle bad debt, as can be seen to what happened to bitUSD. After global settlement was triggered for bitUSD in December 2018:

traders could no longer borrow bitUSD;
the price of bitUSD dropped below USD because of insufficient collateral; and,
it will take a long time for bitUSD to be revived.

The community has had extensive discussions about how to handle the bad debt in a better way in the future. However an easy way, BSIP58, has been implemented for smartcoins like bitCNY and bitUSD; it has worked successfully to prevent GS from happening with no other obvious impact. However, BSIP58 has some issues - it is suspected of market manipulation and it risks witnesses independence. Moving forward, this BSIP will be built based on BSIP58 and eliminate all its disadvantages.

Rationale

We now have several choices on handling bad debt:

Global Settlement
Global Settlement Protection via Price Feeding
Convert Bad Debt Positions to Limit Orders
Take Over only Under-Collateralized Debt Positions without GS (aka Partial GS)
Prevent Global Settlement

We need to do a deep review on bad debt before evaluating above solutions.

Bad debt means in some debt positions the debt cannot be fully paid by selling the collaterals via margin call/force settlement at the market price. In other words, the relevant smartcoin loses sufficient collateral to back the value and will possibly devalue.

At this moment, the system should accept the fact that the smartcoin will possibly devalue, find ways to minimize the impact to different parties in the market and the time to revive.

In my view, a good way to handle bad debt need to follow below principles:

Do not punish good traders who have managed to maintain their collateral ratio well.
Do not stop the smartcoin features, including borrowing, margin call and force settlement, and all these operations should refer to the same price.
Ensure the debt positions/margin call orders be settled in the order from lower CR to higher CR.

In above mentioned 5 solutions, only "5. Prevent Global Settlement" fulfills all 3 principles.

Partial GS is another attractive solution: it is similar to Global Settlement but differs in that (a) only takes over the bad debt positions and moves them to a settlement pool without touching the debt positions with CR>1, and (b) users can issue force settlement from the pool, from the margin call orders, or from the good debt position depending on which has the lowest CR.

The problem of Partial GS is that borrowing and force settlement may refer to different prices which will lead to obvious confusion and unfairness.

The "Prevent Global Settlement" solution adopts a new idea to handle bad debt: while bad debt appears, the smartcoin will be devaluated at a ratio of the lowest CR from among the bad debt positions, yet all the smartcoin trading features, including borrowing, margin call and force settlement, will all switch to refer to GS price to ensure the continuity and fairness of all the features.

Specifications

Add one flag "Prevent Global Settlement" to each smartcoin asset.

Introduce a new parameter: settlement price. Its value shall be calculated as:

if flag "Prevent Global Settlement" is enabled
	setlement price =  max(FP_M, P_gs)
else
	settlement price =  FP_M

where FP_M is the median of the prices published by witnesses; witnesses should always feed the real market price.

All calculations of debt position collateral ratios and trading price determinations in borrowing, margin call and force settlement shall refer to the settlement price instead of directly to the feed price.

Potential Risks

References

Discussion

New BSIP: Add "Prevent Global Settlement" Flag for Smartcoin (old title: Global Settlement Protection via core code)

Summary for Shareholders

It is important to eliminate concerns about global settlement. This is currently achieved with the technical options that are available to the witnesses. A more advanced solution as proposed here is needed.

Copyright

This document is placed in the public domain.

The text was updated successfully, but these errors were encountered:

bangzi1001 · 2019-07-14T15:45:37Z

I agree asset owners should able to enable Global Settlement Protection for their assets.

At this moment, BitCNY and BitUSD Global Settlement Protection are done by witnesses in their price feed script but due to high turnover of witnesses, nobody can ensure after 1-2 years how many new witnesses enable Global Settlement Protection in their price feed script.

abitmore · 2019-07-15T20:31:50Z

A related discussion is here: https://bitsharestalk.org/index.php?topic=27273.0

abitmore · 2019-07-15T20:41:56Z

FWIW earlier discussions about BSIP58: #135

clockworkgr · 2019-07-15T20:49:06Z

Completely disagree. Not even sure how this is even a discussion.

matle85 · 2019-07-15T20:55:32Z

GS protection completely undermines how the assets are meant to work.

Disagree.

CryptickCryptick1 · 2019-07-15T20:59:35Z

For context and understanding of the prior global settlements I would like to share the 20 plus page article I wrote for last global settlement. While not directly having all the answers, I think this pulls a few noteworthy ideas into the discussion. https://www.dexbot.info/2019/05/21/understanding-trading-activity-and-potential-causes-of-bitasset-settlement/

abitmore · 2019-07-17T09:22:12Z

The basic idea of this issue is that we should not punish the good traders who are maintaining their collateral ratio well (E.G. always above 175% even 200%).

Actually there are 3 topics (questions) here:

whether to punish good traders who have managed to maintain their collateral ratio well
whether the system would take over positions of traders who have failed to maintain their collateral ratio up to a level (I don't say this is a punishment since some traders may just want it)
protect debt asset holders to what level when there appears a debt position with CR below 100%

The original GS rule

Answers to the questions:

Question: whether to punish good traders who have managed to maintain their collateral ratio well?
Answer: yes
Question: whether the system would take over positions of traders who have failed to maintain their collateral ratio up to a level?
Answer: yes
Question: protect debt asset holders to what level when there appears a debt position with CR below 100%?
Answer: low (let the debt asset float with the collateral asset immediately, although there are chances that one bitUSD could worth more than 1 fiat USD)

IMHO the answer of this rule to the 1st question is stupid, and the 3rd answer is not ideal.

Current voted-in GS protection rule

Answers:

Question: whether to punish good traders who have managed to maintain their collateral ratio well?
Answer: no
Question: whether the system would take over positions of traders who have failed to maintain their collateral ratio up to a level?
Answer: no
Question: protect debt asset holders to what level when there appears a debt position with CR below 100%?
Answer: medium (after the under-collateralized (CR<100%) debt positions are closed due to margin calls or force settlements, the rest debt holders can get full-valued collateral via either margin calls or force-settlements)

I think the main reason that some people are against this rule is the 2nd "no".

Some people are against it due to the appearance (adjusted feed price showing on UI). Actually if it's implemented in core, witnesses will no longer need to publish "fake" price feeds, thus UI will show a normal feed price, and an adjusted "settle price" (which is already showing in UI).

A few people are against it due to the 3rd answer, since it doesn't 100% guarantee that debt asset holders could get fully-valued collateral via force-settlement.

The "convert bad debt positions to limit orders" rule

The mechanism is proposed in forum https://bitsharestalk.org/index.php?topic=27273.0. The answers are:

Question: whether to punish good traders who have managed to maintain their collateral ratio well?
Answer: some (they still expose to force-settlements and margin calls instead of the took-over positions)
Question: whether the system would take over positions of traders who have failed to maintain their collateral ratio up to a level?
Answer: yes
Question: protect debt asset holders to what level when there appears a debt position with CR below 100%?
Answer: high (they can always get full-valued collateral if there are positions not took over)

The main debate is whether this rule favors debt asset owners too much.

The "take over only under-collateralized debt positions but no GS" rule (aka partial GS)

Answers by this rule:

Question: whether to punish good traders who have managed to maintain their collateral ratio well?
Answer: no
Question: whether the system would take over positions of traders who have failed to maintain their collateral ratio up to a level?
Answer: yes
Question: protect debt asset holders to what level when there appears a debt position with CR below 100%?
Answer: medium (same as the GS protection rule)

This is a new idea.

When CR of a debt position drops below a threshold (E.G. 110%), the system take over the debt by moving the collateral and debt to a special "debt-watcher" account, the original borrower's debt position would be closed and he'll lose all the collateral. The debt position of the special account still exposes to margin calls and force-settlements, same as other debt positions, if it has the lowest CR, it gets filled first.

1. Global settlement occurs

Yes
Yes, even the ones with CR > 1
Low: See 2., switches to global settlement mode with fixed settlement price for all, and big gab from CR < 1 to revival (CR >= MCR)
No: All positions are confiscated, leverage for the user is lost
Yes, instant force settlement allows arbitrage and margin position creation is not possible to react to demand
No, it gets distributed among all positions (one pool is created)
Yes
No, only through collateral bidding
No (collateral bidding only gives incentive after CR >= 1 and before CR < MCR)

2. GS protection rule through price feed adjustment (currently active)

Answers:

No, only through margin call and force settlement like before
No
Low-Medium:
- Force settlement gives you less value due to manipulated price feed while there are positions with CR < 1
- Normal usage instantly after price feed normalizes after CR >= 1
High: Only margin call and force settlement can affect
No
No
Hidden through manipulated price feed (hidden in the sense of not visible on the blockchain)
Yes, still owns the positon and can replenish collateral
No, but possible through margin call and force settlement

3. The "convert bad debt positions to limit orders" rule

The mechanism is proposed in forum https://bitsharestalk.org/index.php?topic=27273.0.

Party. Margin call and force settlement like before, on top of that the CR<1 can't be affected by force settlement and thus CR >= 1 are being force settled instead
Yes
Medium-High: Normal usage through the whole incident
- Force settlement still takes from a CR >= 1 position because the ones with CR < 1 are a converted to constant sell order
- Last people that want to settle must instead sell to the converted limit order
No: Positions are confiscated
Minimal, order wall when price rises
No, because not all bitassets could be force settled anymore. Essentially, the "last" to settle would be punished
Yes, but holders need to know how to look for the converted sell order
No, position is converted and lost
No, and removal also not possible

4. The "take over under-collateralized debt positions and prevent GS" rule

Answers by this rule:

No
Yes
Medium:
- Force settlement may give you less value due to fixed settlement price
No: Position is confiscated, leverage for the user is lost
No
No
Yes
No
No, and removal also not possible

5. Global Settlement Protection via Core Code(aka simple GSP)

Same like 2.

6. Prevent GS rule through flag with force settle incentive

Add bitasset flags "prevent global settlement" and "reverse force settlement offset during margin call". Both flags would be turned on for bitCNY and bitUSD after upgrade.
First flag is obvious, simply don't globally settle. Second flag add incentive to maintain CR by switching the behavior of the force settlement offset: If CR >= MCR, use offset as is now. If CR < MCR, offset benefits the bitasset holder and not the margin position holder. This reversal may or may not be used, but it provides incentive to the community to deal with bad margin positions.

EDIT: Forgot one aspect. If "prevent global settlement" is turned on, a margin call of a position with CR < 1 would still seek to buy exactly the debt, and not at current feedprice.

Answers by this rule:

No
No
Medium:
- Force settlement applies to undercollaterized position
Medium: Margin call and force settlement affect, if CR<MCR force settlement includes a penalty
No
No
Yes
Yes, still owns the positon and can replenish collateral
Yes, incentive is present to force settle when positions are being called and CR between 1 and MCR

What do you think about my idea?

sschiessl-bcp · 2019-07-19T15:49:22Z

@bitcrab thanks for the update on the text! I adjusted my numbering to match yours.

Is there any difference in 2. and 5. (minus witness-fed vs. core-enforced)?

abitmore · 2019-07-19T15:49:58Z

@sschiessl-bcp

5.7: if it's me to implement the 2nd mechanism into core, I won't adjust price feed, instead, I'll add a flag and another price field, just like your 6th option. So collateral transparency can be kept.

3.1: it does punish good debt position holders to an extent, because they can no longer hide behind the bad debt position holders, thus expose to force-settlements and margin calls.

4.9: no incentive (so far) but it's able to remove via force-settlements and margin calls.

abitmore · 2019-07-19T15:55:21Z

The text @bitcrab added is mostly copied from BSIP58. If to implement into core, some can be different.

bitcrab · 2019-07-19T16:49:24Z

@bitcrab thanks for the update on the text! I adjusted my numbering to match yours.

Is there any difference in 2. and 5. (minus witness-fed vs. core-enforced)?

poll worker or smartcoin tag to enable the feature.

I found European people like "political correctness" so much? you insist to feed market price, but if the margin call or/and force settlement will not refer the feed price, what sense does it make?

sschiessl-bcp · 2019-07-20T07:44:50Z

@bitcrab thanks for the update on the text! I adjusted my numbering to match yours.
Is there any difference in 2. and 5. (minus witness-fed vs. core-enforced)?

poll worker or smartcoin tag to enable the feature.

I found European people like "political correctness" so much? you insist to feed market price, but if the margin call or/and force settlement will not refer the feed price, what sense does it make?

Feed price is something everyone sees (passively) and uses as the everyday reference. The most critic I heard from reports is that the everyday traders are misled with an adjusted price feed. It is also very hard to sell price feed manipulation, and this is where all the resistance come from (independent what their reason for it is).

Currently we have one price feed coming from the witnesses and is put on-chain, and the force settlement price and margin call price are derived from it. My suggestion would alter how the force settlement and margin call price are derived. Your suggestion already alters the price feed that is put on-chain, and the "truth" is only known to witnesses. It must be clear for traders to know what's the feed price (produced by witnesses) and what's the settlement/margin call price of positions with CR < 1 (decided by the blockchain).

Questions:

Can we agree that in the outcome both our approaches produce the same effect? Or do you see any problems with keeping the natural price on-chain?
Like abit said in the forum, the main question remains if the blockchain should take over margin positions with CR < 1, which I agree with you that it shouldn't (https://bitsharestalk.org/index.php?topic=28681.msg332599#msg332599)
I'm also wondering what you think about using the force settle offset as incentive when margin position has bad CR?

bitcrab · 2019-07-21T10:09:12Z

@sschiessl-bcp please check the updated text, I think you can find some answers, and I don't support to add incentive to force settlement to remove bad debt.

sschiessl-bcp · 2019-07-23T12:29:04Z

Thanks @bitcrab .

For the new title, I find it misleading

in fact any and all attempts that we have discussed and presented so far mean that the smartcoin will be undercollaterized
devaluation only occurs (IMO) if the peg breaks
reading the title, some naive users may think that the previous mechanism did NOT have any devaluation/undercollaterization

I found the previous one more accurate. The on-chain flag could be called "Prevent Global Settlement", or in a more positive wording "Alleviate Global Settlement".

Thoughts?

bitcrab · 2019-07-24T04:47:26Z

@sschiessl-bcp in my idea, there will be no GS any more in smartcoin after the implementation of this BSIP, no need to add one flag for smartcoin.

Yes, seems it's really a little misleading

bitcrab · 2019-07-30T06:45:59Z

if there is no further comments, I feel it's time to complete this BSIP and push it forward.

sschiessl-bcp · 2019-07-30T11:13:16Z

When doing the PR, I would still suggest to remove any wording of devaluation. It only is devalued (IMO) if trades happen below the peg. This BSIP does not touch market trading at all.

If we are running in a CR < 1 state, what happens with the Force Settlement Offset (FSO)? Will it be applied on top of it, or do we redefine that FSO reduces until CR = 1 - FSO and then we have no FSO anymore (because there is already the implicit punishment through the adjusted price)?

bitcrab · 2019-07-31T02:58:55Z

When doing the PR, I would still suggest to remove any wording of devaluation. It only is devalued (IMO) if trades happen below the peg. This BSIP does not touch market trading at all.

If we are running in a CR < 1 state, what happens with the Force Settlement Offset (FSO)? Will it be applied on top of it, or do we redefine that FSO reduces until CR = 1 - FSO and then we have no FSO anymore (because there is already the implicit punishment through the adjusted price)?

devaluation of smartcoin is possible while bad debt happens, any solution, either GS, partial settlement, or Prevent GS cannot avoid this completely. so I don't think we cannot use "devaluation" in the proposal, we need tell the truth to public.

no need to do any change to FSO.

Inmortak · 2019-08-08T22:49:27Z

I really doubt there would be that many healthy positions out there when the fund's CR fell below 1. I assume the size of the pool would be very huge. You can look at current bitCNY positions, which is relatively healthy, we can simulate, if we suddenly change the rule to your solution, and price of BTS suddenly falls thus nobody has chance to update her position, please calculate, what price BTS need to fall to to let the pool has CR < 1, and, how big is the pool, and how many healthy positions remain.

Yes, BitCNY is a great example to defend my proposed protocol. There are no positions with CR < MCR at this moment. So, Bts price would have to suddenly fall about 30% for those positions to get to CR < 1.1. At that moment the take over begins, each new taken-over position creates buy pressure on Bts for reasons already discussed and increases pool collateral. I would say we need at least a 45% of sudden decrease in Bts price before force-settlements have to be stopped, according to my protocol and supposing the Pool is initially empty. And that's after this incredibly wild bear market. Add to this that pool is constantly replenished by fees and that taken-over positions can be bought-back which also puts buy pressure on Bts.

Not bad at all!

At any time when people willing to get BTS from market will bring BTS price upward. That's always correct, but not "a consequence" of undercollateralization of a bitasset. Think in this way: if being unable to settle bitasset will bring BTS price up, why not we disable force-settlement when price starts falling? The fact is, being unable to settle (nor to by margin calls), the value of the bitasset will decrease. Selling the bitasset for BTS won't push up BTS's price, but will only push down the bitasset itself's price.

You have a point here. But, notice that under those very extreme conditions, forcing potential force-settlers to go to the market and dump their BitAsset, would provide liquidity for those debtors who are unable to get the bitasset in order to close their positions. Something that is missing today due to the lack of BitAsset available created by the sell-wall. Free Market at its best. Probably the peg would be lost temporarily, but trading would be incentivized, every trade means more fees for the pool, helping it come back to pool_cr > 1.

abitmore · 2019-08-09T00:36:26Z

@Inmortak

few people buys in a bear market. I've argued in BSIP71: Add "Prevent Global Settlement" Flag for Smartcoin (old title: Global Settlement Protection via core code) #179 (comment), your conclusion about take-over would "puts buy pressure on BTS" doesn't stand. The debtors would rather sell BTS for bitAsset to close their positions or waiting for someone to buy than willing to buy BTS to add more collateral.
a) you can't really force people, b) trading is not incentivized, c) force-settlements generate fees too, d) the ones who got the bitAssets from market would be the "good" debtors, they closing positions doesn't help the peg,
e) the ones who dumped devaluated bitAssets for BTS will likely dump BTS in another market for BTC or USDT thus will harm the price further, and will never come back.

Inmortak · 2019-08-09T23:16:41Z

@Inmortak

1. few people buys in a bear market. I've argued in [#179 (comment)](https://github.com/bitshares/bsips/issues/179#issuecomment-518900247), your conclusion about take-over would "puts buy pressure on BTS"  doesn't stand. The debtors would rather sell BTS for bitAsset to close their positions or waiting for someone to buy than willing to buy BTS to add more collateral.

I appreciate your efforts @abitmore, this process is exhausting,

If a given position was taken-over, the possibility of buying it back effectively increases buy pressure on BTS because, as you said, if it was taken-over with a CR =1.4 then, from the debtors perspective, it is as if he sold really cheap BTS. Buying the position back, reduces his loss. And, if we demand the position to have full collateral for the buy-back to occur, then he would have to BUY more bts in the market. Of course, the debtor would feel that pressure and dislike it, he may try to buy back his position simply to immediately close it. But then, that's a probability, not a fact. It is precisely these probabilities that we need to adjust, we call them incentives.

2. a) you can't really force people, b) trading is not incentivized, c) force-settlements generate fees too, d) the ones who got the bitAssets from market would be the "good" debtors, they closing positions doesn't help the peg,
   e) the ones who dumped devaluated bitAssets for BTS will likely dump BTS in another market for BTC or USDT thus will harm the price further, and will never come back.

If force-settlement is suspended because the pool doesn't have any more positions to take over, would-be force-settlers will dump their bitAsset on the market. We agree on that. You see that as a decrease in price of the BitAsset VS Bts, I see it as an increase in price of Bts Vs BitAsset.

Who is right? I think we both are. The public will also be split in their appreciation and, in the minds of many people, many of them outside the Bitshares ecosystem, 1 BitUSD will still be worth 1 USD, simply because they don't understand the intricacies of the protocol. Consequently, to their eyes bts price will be increasing against the dollar, which is what we need to recover pool_CR = 1. Aren't, after all, the prices of all these cryptocoins a matter of perception?

I went to Bitsharestalk and I saw that many of these ideas were already been discussed by the community, way before my analysis. A Pool that takes over bad debt and replenishes via fees is nothing new. The buy-back your taken-over position is, and the whole mechanism to use whenever the pool_cr falls below 1 is new too.

abitmore · 2019-08-09T23:45:55Z

@Inmortak

I was talking about possible behavior before a position is about to be taken-over. You're talking the possibilities after a position been taken over. I think the former plays a more important role in trading because it's precautions due to expectations, the latter is about remedy. Most traders try to act before it's too late.
People only pay attention to markets with top liquidity. Current value and trends of bitassets will be shown on the market cap tracking sites, people will quickly know whether the assets are pegging well. Don't try to fool people.

Inmortak · 2019-08-10T01:45:26Z

1. I was talking about possible behavior before a position is about to be taken-over. You're talking the possibilities after a position been taken over. I think the former plays a more important role in trading because it's precautions due to expectations, the latter is about remedy. Most traders try to act before it's too late.

We both were talking about the extreme case in which the pool has taken over all positions and the pool_cr < 1, and consequently, force settlements have to be stopped. Please follow the thread backwards and see for yourself.

2. People only pay attention to markets with top liquidity. Current value and trends of bitassets will be shown on the market cap tracking sites, people will quickly know whether the assets are pegging well. Don't try to fool people.

@abitmore I am thinking throughly, to the best of my abilities, everything I write here. No need to be harsh. Markets are all about perception. Ignoring that fact is fooling oneself. And markets will always have positive and negative perceptions about any asset/situation. We need to use the good perception people may have about BitUSD in order to self leverage whenever things get acid. Saying that it's legit to present BitUSD falling Vs BTS and not legit presenting Bts going up Vs BitUSD is equivalent to take only the weakest angle of our product and try to make a sale out of it.

There is even a proposal being discussed in BitsharesTalk to create a OMO fund which would hold Tether and exchange it in the DEX as 1 USDT = BitUSD. What do you think will happen if force-settlements are suspended due to pool_cr < 1, and the would be settlers begin to sell their BitUSD for bts, which many other people are trading for USDT? Why would we take the overly negative position that our BitAsset lost his peg and Bts didn't increase when, in reality, these many perspectives tend to average each other?

Anyway, I think the most important points have already been highlighted. And I feel this discussion is already getting a little tiresome. I really thank you for the time you took to understand the mechanism I propose. I hope it is taken into consideration in whatever is submitted for voting.

abitmore · 2019-08-10T15:42:21Z

@Inmortak I apologize is if I've offended you.

yes we're both talking about the same scenario: when price of BTS is falling. There are several kinds of players in the play ground: the bitUSD holders, the debtors with low CR, the debtors with medium CR, the debtors with high CR. The positions with low CR will be taken over anyway. I was talking about the debtors with medium to high CR, they would dump BTS for bitUSD in order to close their positions to avoid being taken over, that leads to sell pressure. Your were talking about the debtors with medium CR who didn't sell quickly enough or have no spare BTS to sell thus got taken over, then the ones among them who have spare BTS to add to collateral and want to add collateral to "carry the bag" again, I meant they wouldn't do it because the incentives aren't big enough and risks are huge, by the way, when the trend changed, everyone starts to buy or settle, the taken-over owners want to "buy back" as well, but at that time they are unable to buy back because the pool won't have their full position nor able to take over another position to fulfill their requests.
I just didn't see why most of people not paying attention when devaluation happens, although I'd admit there would be some people not aware the devaluation.

If you want your opinion to be submitted for voting, please write a BSIP, or convince someone to write a BSIP for you. Thanks.

shulthz · 2019-08-11T04:19:00Z

A position with a CR>1.1 is still a healthy position.

We can't taker over the position whose CR > MSSR.

Which we want to handle is the 'GS', not the position whose CR>MSSR.

The position CR>MSSR or 1.1, should let the market itself to solve it.

bitcrab · 2019-08-11T09:02:21Z

it's time to finalize the BSIP and put on poll voting.

Inmortak · 2019-08-11T23:12:35Z

it's time to finalize the BSIP and put on poll voting.

If I vote for approval of this BSIP, out of everything that has been discussed, what would be implemented? What's the protocol?

bitcrab · 2019-08-12T08:43:03Z

it's time to finalize the BSIP and put on poll voting.

If I vote for approval of this BSIP, out of everything that has been discussed, what would be implemented? What's the protocol?

see Specification at the top

sschiessl-bcp · 2019-08-13T05:25:48Z

Just FYI
MakerDAO re-introducing a form of global settlement
https://blog.makerdao.com/introduction-to-emergency-shutdown-in-multi-collateral-dai/?preview=true&_thumbnail_id=1422

MichelSantos · 2019-08-14T00:11:31Z

In my opinion a positive aspect about this proposal in comparison to BSIP58 is that when global settlement protection (GSP) is activated witnesses will publish the natural feed price which is what will be recorded in the blockchain.

The greatest risk with this proposal is not new but is the same risk as for BSIP58 when GSP is activated: the "settlement price CR" of debt positions will be less than the "feed price CR". If the price of the collateral continues to fall the "feed price CR" will be less than MCR and may potentially become less than 1. The smartcoin will naturally devalue as this BSIP properly describes. In this situation I will like to encourage client software to prominently inform users who are attempting to buy the smartcoin that it is under GSP and cannot be force-settled for the normal value.

MichelSantos · 2019-08-16T20:52:58Z

Please note that the original post has been lightly edited for formatting and readability

bangzi1001 · 2019-09-28T09:35:10Z

BSIP76 Become Game Changer for SmartCoin and this BSIP71 may need to change Effective Price Feed to Max(Normal Price Feed by Witnesses, GS Protection Price, BSIP76 Threshold Price)

BSIP76: Threshold for price feeds through voting
#221

sschiessl-bcp · 2019-09-30T12:43:46Z

Change request to act on BSIP76

#224

abitmore · 2019-10-02T01:58:01Z

@sschiessl-bcp I think perhaps it's better to use 2 flags for GS protection and the threshold. What do you think?

sschiessl-bcp · 2019-10-02T07:26:33Z

@sschiessl-bcp I think perhaps it's better to use 2 flags for GS protection and the threshold. What do you think?

Yes I agree, must not necessarily be connected, and you might want to disable threshhold forever at some point.

litepresence · 2019-12-20T18:31:04Z

The lowering of the rate of interest stimulates economic activity. Projects which would not have been thought "profitable" if the rate of interest had not been influenced by the manipulations of the banks, and which, therefore, would not have been undertaken, are nevertheless found "profitable" and can be initiated.

Ludwig Von Mises

What is the purpose of MSSR except to protect those who make poor loan decisions at the expense of the entire ecosystem? In effect, MSSR does nothing more than BRIBE individuals into making loans that incur more risk than they would otherwise take; an inflationary bubble of the monetary supply. Should we be surprised when it causes a bust? Should we be surprised when it cripples the very market it purports to prop up?

Who are we to claim that MSSR should be 10%? why not 11? 9? maybe 53? perhaps wouldn't 1 be nice?

Its like going to the horse track... you can bet on any lame horse you like and the track ensures you'll never lose more than 10% on your bet.

Maybe, let's put it to a vote! Lets give those who have the most loans out the highest voting power.

Ha!

The state itself becomes more and more identified with the interests of those who run things than with the interests of the people in general.

Friedrick Hayek

The first requisite of a sound monetary system is that it put the least possible power over the quantity or quality of money in the hands of the politicians.

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

Henry Hazlitt

and yet where is this MSSR value decided? By vote of witnesses! Preposterous.

Step back for a second from the technical challenges you're surrounding yourselves with... and ask:

What would Austrian econonomists have to say about the very root of the concept: "maximum" SSR?

It would seem to me that MSSR should be short for "Moral haSSaRd", plain and simple.

Is this blockchain a cartel? Or is it an experiment in Austrian economic theory? It is my understanding we are striving for a vibrant free market; perhaps I'm mistaken.

Markets work efficiently when liquidation of bad debt is immediate.

What have the Austrians to say?

The crisis and the ensuing period of depression are the culmination of the period of unjustified investment brought about by the extension of credit. The projects which owe their existence to the fact that they once appeared "profitable" in the artificial conditions created on the market by the extension of credit and the increase in prices which resulted from it, have ceased to be 'profitable.'

Ludwig Von Mises in The Austrian Theory of the Trade Cycle

central bank’s manipulations of the interest rate can mislead entrepreneurs into making unsound investments. Once we remember that the entrepreneur must forecast an entire array of future prices, it is not surprising that he or she, even if perfectly rational in the neoclassical sense, will make more mistakes when the most important inter-temporal prices (i.e. market interest rates) are influenced not only by “fundamentals” but also by the changing whims of central bankers [...] Business people really are “tricked” by distortions in the price system, leading to erroneous (and regrettable) investments.

Robert P. Murphy https://consultingbyrpm.com/uploads/2010.12%20Rat%20Ex%20and%20ABCT.pdf

not only are expectations pushed out of whack, but entrepreneurs are in effect bribed into making otherwise unwarranted investments

Walter Block https://consultingbyrpm.com/uploads/2010.12%20Rat%20Ex%20and%20ABCT.pdf

malinvestment, a "false boom" where the particular kinds of investments undertaken during the period of fiat money expansion are revealed to lead nowhere but to insolvency and unsustainability. It is the time when errors are made, when speculative borrowing has driven up prices for assets and capital to unsustainable levels, due to low interest rates "artificially" increasing the money supply and triggering an unsustainable injection of fiat money "funds" available for investment into the system, thereby tampering with the complex pricing mechanism of the free market.

https://wiki.mises.org/wiki/Austrian_business_cycle_theory

If a government resorts to inflation, that is, creates money in order to cover its budget deficits or expands credit in order to stimulate business, then no power on earth, no gimmick, device, trick or even indexation can prevent its economic consequences.

Henry Hazlitt

[] instant liquidation for any bank that fails to meet its contractual obligations, would bring about a free banking system so "hard" and sound, that any problem of inflationary credit [] would be minimal.

Murray Rothbard

economic planning, regulation, and intervention pave the way to totalitarianism by building a power structure that will inevitably be seized by the most power-hungry and unscrupulous.

Freidrick Hayek

What is the source of the widespread “cluster of entrepreneurial errors” that typifies the boom-bust sequence? It is that market rates of interest are driven below the “natural rate” as result of credit expansion by the central bank.

Larry J Sechrest (Explaining Malinvestment and Overinvestment 2006)

Austrians have long argued that merely investing capital does not lead to economic growth, but correctly arranged capital structures guided by the market process are the mechanism for growth. Rearranging prices is simply not enough to pull an economy out of a recession. [] elimination of other obstacles found in bankruptcy laws could help expedite the transfer of malinvestments into productive ventures.

https://cdn.mises.org/qjae11_1_4.pdf

MPA's are a core component feature and differential selling point of this blockchain. Is it any wonder that their inability to hold peg coincides directly with the diminishing subjective value of the core BTS token on global markets?

There is more respect to be won in the opinion of this world by a resolute and courageous liquidation of unsound positions than by the most stubborn pursuit of extravagant or unpromising objectives.

George F. Kennan

It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.

Warren Buffett

What is the solution?

You are under collateralized? Your debt is called? Liquidation. Not "limit order" but "market order" liquidation. And if the book is empty? Crash the book and "core account" takes the debt position and gives you 1 BTS in return. Good bye, have a nice day. Your failure to form a solid economic plan for you business does not become everyone else's problem. Over time surely methods could be derived by which a "core account" which acquires debt positions for nil could profit on them in the open market and restore collateral. The details of this core account's methods I am unsure of. I am a logically minded individual, I suspect those of you here more logistically talented could pull off such a feat. What I do know: Bad debt requires immediate liquidation in a vibrant economy; not a lender of last resort at some voted - by the lenders themselves - "reasonable" rate.

I leave you with the advice of Andrew Mellon and Ron Paul:

When you get into a situation like this, the debt has to be eliminated. You have to liquidate the debt and the malinvestment.

Liquidate [!!!]. It will purge the rottenness out of the system.

shulthz · 2019-12-21T07:57:17Z

@litepresence
You can check BSIP74.

abitmore · 2021-05-25T22:45:58Z

FWIW a community member posted new ideas in forum: https://bitsharestalk.org/index.php?topic=33058.0 . It seems he doesn't like Github so did not come here.

fractalnode · 2021-05-26T13:01:25Z

I propose to use 2 methods.

The first method is "partial GS". This type of "bad debt" resolution is warranted in well-developed markets where it is especially important to preserve the value and function of Force Settlement. We would like bitUSD, bitCNY, bitEUR to have a good reputation and be trusted.

The second method would be used wherever the owner is able to accept the devaluation of his token over a period of time. Which is pretty much the same as Bitcrab proposed except that FS is turned off. We know that such an extreme situation on the market often lasts very short and may be caused by a rumor (-50% on USDT), information manipulation or an error in the PF script (an example is bit20)

The option to temporarily disable the FS seems to me to be easy to implement and a desirable option to solve the problem for young and shallow markets or those in which the collateral would be, for example, gold, platinum, stable token or a similar type of asset. An extreme situation may disappear there as quickly as it appears without major losses for investors and without large sell walls

Ideally, the token owner could always change the method of solving the bad debt problem depending on his subjective assessment of the situation or when the project develops and requires greater trust.

abitmore · 2023-06-15T09:21:56Z

Done in BitShares Core 6.0 with bitshares/bitshares-core#2499 and following PRs.

abitmore mentioned this issue Jul 17, 2019

BSIP58: Global Settlement Protection Through Price Feeding #135

Closed

bitcrab changed the title ~~New BSIP: Global Settlement Protection via core code~~ New BSIP: Active Smartcoin Devaluation (old title: Global Settlement Protection via core code) Jul 21, 2019

bitcrab changed the title ~~New BSIP: Active Smartcoin Devaluation (old title: Global Settlement Protection via core code)~~ New BSIP: Add "Prevent Global Settlement" Flag for Smartcoin (old title: Global Settlement Protection via core code) Jul 28, 2019

MichelSantos mentioned this issue Aug 16, 2019

BSIP71: Add "Prevent Global Settlement" Flag for Smartcoin #193

Merged

ryanRfox changed the title ~~New BSIP: Add "Prevent Global Settlement" Flag for Smartcoin (old title: Global Settlement Protection via core code)~~ BSIP71: Add "Prevent Global Settlement" Flag for Smartcoin (old title: Global Settlement Protection via core code) Aug 21, 2019

froooze mentioned this issue Sep 8, 2019

New BSIP: Debt Asset Feature - MPLP (Margin Position Liquidity Pool) #182

Open

pmconrad mentioned this issue Sep 16, 2019

Update README for BSIP69 BSIP71 BSIP73 & BSIP74 #210

Merged

sschiessl-bcp mentioned this issue Sep 30, 2019

BSIP71 - Change Request: Incorporate core changes necessary for BSIP-0076 to allow a threshhold price #224

Open

abitmore added the MPA label Feb 13, 2020

abitmore mentioned this issue May 22, 2021

Alternative black swan response methods bitshares/bitshares-core#2467

Closed

17 tasks

abitmore closed this as completed Jun 15, 2023

BSIP71: Add "Prevent Global Settlement" Flag for Smartcoin (old title: Global Settlement Protection via core code) #179

BSIP71: Add "Prevent Global Settlement" Flag for Smartcoin (old title: Global Settlement Protection via core code) #179

Comments

bitcrab commented Jul 2, 2019 • edited by MichelSantos Loading

Abstract

Motivation

Rationale

Specifications

Potential Risks

References

Discussion

Summary for Shareholders

Copyright

bangzi1001 commented Jul 14, 2019

abitmore commented Jul 15, 2019

abitmore commented Jul 15, 2019

clockworkgr commented Jul 15, 2019

matle85 commented Jul 15, 2019

CryptickCryptick1 commented Jul 15, 2019

abitmore commented Jul 17, 2019 • edited Loading

The original GS rule

Current voted-in GS protection rule

The "convert bad debt positions to limit orders" rule

The "take over only under-collateralized debt positions but no GS" rule (aka partial GS)

Related topics

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sschiessl-bcp commented Jul 19, 2019 • edited Loading

1. Global settlement occurs

2. GS protection rule through price feed adjustment (currently active)

3. The "convert bad debt positions to limit orders" rule

4. The "take over under-collateralized debt positions and prevent GS" rule

5. Global Settlement Protection via Core Code(aka simple GSP)

6. Prevent GS rule through flag with force settle incentive

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