Stabilized Bitcoin using eMunie economics

[Fuserleer]

thus even in a stable exchange. your supply buffer would not be the same. and because there is lack of supply. people can abuse that. by arbitraging. and only using your exchange as a temporary 'flip' rather than a permanent store

This got me thinking, so I'd like to clarify this "flipping".

I think you are stating that traders could use the buffer against itself to make a profit on trades.

That is they buy at the buffers lowest bid, and sell at its highest ask, but the buffer doesn't post trades that other traders can see, it only reacts to trades that others posted.  The rules that define how much it will buy/sell are strictly enforced but easy to calculate what the buffer will buy and sell at in any given moment.

Also bear in mind that the conversion of EMU->BTC/USD/GBP or anything else is frictionless and costless to the buffer, its a zero sum game.  If it didn't receive any new supply, and started with 1M units of the base asset, it could convert all of the USD, GBP, BTC token assets it made back to the base asset and it would end up back at 1M (this is due to the FIFO conversion queue).

So lets say that a trader A thinks he can profit, the buffer only buys if the ask is below current price-max delta, and only sells if the bid is above current price+max delta

With that in mind, how could he profit, I don't see any immediate means to do it?

[Fuserleer]

A lot of people have criticized me for attempting all this on my own, but when I come to actually look for assistance in verification, I get zero.  And in the case of you, it seems you're now trying to incite a character assassination :|

I am certainly not trying to incite a character assassination but I do wonder about the strategy that you are using here (as it is so far the same as what @CfB is using).

If there is simply no academic that has any interest in your project then you think that somehow that is their misunderstanding?

No, but for them to have an opportunity to become interested in the first place, they have to know about me and my ideas, otherwise how else would you suggest we discover each other?  "Looking for distinguished Professor" adverts in the personals of newspapers?

If the idea really has zero merit, then fine, but what if that isn't the case?

It's more efficient for me to disclose the beginnings of an idea, and be informed by someone in the know that "I see the idea, but xyz" than for me to spend a lot of time writing papers, studies and everything else. Especially if there is an immediate problem in my critical thinking that I am not seeing, which someone else could point out to me saving a lot of wasted effort on my part, but maybe provides inception of a better idea themselves off the back of mine.

[franky1]

thus even in a stable exchange. your supply buffer would not be the same. and because there is lack of supply. people can abuse that. by arbitraging. and only using your exchange as a temporary 'flip' rather than a permanent store

That is they buy at the buffers lowest bid, and sell at its highest ask, but the buffer doesn't post trades that other traders can see, it only reacts to trades that others posted.  The rules that define how much it will buy/sell are strictly enforced but easy to calculate what the buffer will buy and sell at in any given moment.

no!

they sell at a higher price elsewhere... and then deposit fiat into emunie to buy your cheap controlled coins.. then withdraw.

basically the users dont hoard coins long term in your "buffer" they just use your exchange as a quick 2 minute flip.
im guessing your economics doesnt extend to flips and arbitrage of the open market.

so maybe its best you stick to your strengths of the centralised single exchange economy. as your theories fall flat and dont work out on bitcoins open market. but i do hope you get some fame in centralised markets and (utopian dream hope) that you become the person to solve world fiats issues.

[Anima]

no!

they sell at a higher price elsewhere... and then deposit fiat into emunie to buy your cheap controlled coins.. then withdraw.

Why would people buy at a high price elsewhere when they too can buy on the main exchange at a lower price? - it will never happen.

[Sparky_eMunie]

The sentiment change would be:

A. the vast majority of traders would stop pumps & dumps, as they would not be profitable
B. few may try a coordinated pump & dump of an incredible amount in order to defeat the system buffer

it's not impossible to defeat the system (by exhausing the buffer), but because the buffer receives new currency during the pump, it's very difficult to accomplish.

With eMunie's economic model, BTC would be a digital currency, and not a speculative digital commodity.

thats the utopian dream if you are the only wallet service and the only exchange available..
again failing to see the sentiment of a open and free market.

IMHO in order to achieve mass adoption outside of the IT crowd a wallet service requires the following properties:

A. Fast payment. Customers are not willing to wait for more than 10-15 seconds for payment processing.
B. Value stability. After looking at the menu and ordering a steak dinner, customers cannot be expected to pay 10% more due to market instability when they are done eating.
C. Decentralization. The payment system should not be controlled and potentially manipulated by a bunch of people.
D. Scalability. Preferably scalable to Visa dimensions..
E. Easy of use. A grandma should be able to use it without a computer science course.

Currently everything available on the market fails on at least three of these five properties.

Bitcoin fails at A, B, arguably at C (huge block chain size, Chinese miners behind a slow firewall controlling a large portion of it), D (7 TX / sec) and arguably at E.

[monsterer]

There are two chief issues in play here, I think:

1. I believe CIYAM's point is that there is nothing backing the stabilisation of the currency, except for the currency itself, which is the same way bitshares works. If demand crashes, there could be a downward spiral of devaluation causing a black swan. This is largely a fair point, which can only be resolved by having the backing currency off chain, which is hard to say the least.

2. Having the blockchain as a market maker subjects the currency itself to the adverse selection problem due to 'informed traders', which all marker makers face. This scenario manifests itself as traders buying from you when you ask is too low and selling to you when you bid is too high. There are a proportion of informed traders present in any market, alongside 'noise traders' who buy/sell at any price. Your simulation won't have included the effect of informed traders because it only manifests itself in live forward testing. However, you can add it to your simulation - informed traders know with certainty the future direction of the price after time period X, so they profit from your pricing mistakes.

edit: I meant to write about the difference between point 2 and bitshares approach, which you might find helpful - bitshares doesn't have a blockchain market maker, instead it socialises the adverse selection risk, because individual users lock up collateral (equivalent of your buffers) in order to create their pegged assets, and other users are required to take the other side of the trade. This way, the currency itself doesn't inflate wildly out of control in the case of a black swan, instead individual users get margin called.

[franky1]

no!

they sell at a higher price elsewhere... and then deposit fiat into emunie to buy your cheap controlled coins.. then withdraw.

Why would people buy at a high price elsewhere when they too can buy on the main exchange at a lower price? - it will never happen.

lol.. goodluck with that theory.
it will only work if there was 1 sole exchange in existance... learn the term arbitrage. and why arbitrage is a real thing.

[franky1]

not a speculative digital commodity.

i have to point out another fundemental flaw in your economics understanding.

bitcoin never is, was or would be a commodity.

a commodity is a raw material that can be deemed as an equal quality to others of the same type. but is then used to create something. where the value is not derived from its production, but comes from the utility of what it can create. (the demand)

EG
wheat creates bread
oil creates car fuel
gold creates electronics and jewellry.

.. now then
bitcoins cannot be created into anything else.. bitcoin, if you knew much about economics is an asset. its value is based on its own merits of what it is, not what it can be manufactured into.

i think that the misconception that bitcoin is a commodity must be the analogy comparison to golds rarity.. which makes some believe bitcoin must be gold in every characteristic that gold has.

this is where it goes wrong..
although gold can sit as an asset, it is also a commodity as described above. bitcoin is not a commodity and is only an asset... to be more precise an digital asset currency.

[Fuserleer]

thus even in a stable exchange. your supply buffer would not be the same. and because there is lack of supply. people can abuse that. by arbitraging. and only using your exchange as a temporary 'flip' rather than a permanent store

That is they buy at the buffers lowest bid, and sell at its highest ask, but the buffer doesn't post trades that other traders can see, it only reacts to trades that others posted.  The rules that define how much it will buy/sell are strictly enforced but easy to calculate what the buffer will buy and sell at in any given moment.

no!

they sell at a higher price elsewhere... and then deposit fiat into emunie to buy your cheap controlled coins.. then withdraw.

basically the users dont hoard coins long term in your "buffer" they just use your exchange as a quick 2 minute flip.
im guessing your economics doesnt extend to flips and arbitrage of the open market.

so maybe its best you stick to your strengths of the centralised single exchange economy. as your theories fall flat and dont work out on bitcoins open market. but i do hope you get some fame in centralised markets and (utopian dream hope) that you become the person to solve world fiats issues.

Ok now I understand!  If you had explicitly stated 5+ posts ago that these were external exchanges we could have saved some time, as with your mentioning of the buffers and such, I wrongly assumed you meant the internet exchange.  Basically then your argument is the same as monsterers below?

There are two chief issues in play here, I think:

1. I believe CIYAM's point is that there is nothing backing the stabilisation of the currency, except for the currency itself, which is the same way bitshares works. If demand crashes, there could be a downward spiral of devaluation causing a black swan. This is largely a fair point, which can only be resolved by having the backing currency off chain, which is hard to say the least.

Indeed, and again, I never suggested that it could indefinitely prevent this from happening, but that it simply postpones the "crash" in case the cause is actually a whale/s colluding as per an agenda.  But the same can work in reverse surely, if the backing currency crashes, then the value of the asset it is backing is also in jeopardy.

2. Having the blockchain as a market maker subjects the currency itself to the adverse selection problem due to 'informed traders', which all marker makers face. This scenario manifests itself as traders buying from you when you ask is too low and selling to you when you bid is too high. There are a proportion of informed traders present in any market, alongside 'noise traders' who buy/sell at any price. Your simulation won't have included the effect of informed traders because it only manifests itself in live forward testing. However, you can add it to your simulation - informed traders know with certainty the future direction of the price after time period X, so they profit from your pricing mistakes.

Right so that brings me to the crux of the issue that needs to be addressed.  You are right, these informed traders were not accounted for in the test, I considered it and maybe wrongly determined that their effect would not be great enough to deplete the buffers.

However, as its been raised here, I'll revisit that thought process and look to include their effect into the test and rerun it.  Should the result then be that the price is still stable and the buffers are healthy, perhaps we can begin to look at this model in a more serious manner?

[franky1]

A. Fast payment. Customers are not willing to wait for more than 10-15 seconds for payment processing.
B. Value stability. After looking at the menu and ordering a steak dinner, customers cannot be expected to pay 10% more due to market instability when they are done eating.
C. Decentralization. The payment system should not be controlled and potentially manipulated by a bunch of people.
D. Scalability. Preferably scalable to Visa dimensions..
E. Easy of use. A grandma should be able to use it without a computer science course.

Currently everything available on the market fails on at least three of these five properties.

Bitcoin fails at A, B, arguably at C (huge block chain size, Chinese miners behind a slow firewall controlling a large portion of it), D (7 TX / sec) and arguably at E.

fiat
A. 3-5 business days. for wire transfers, cheques and even paypal withdraws
D. comparing Visa worldwide is a failure of understanding visa.. dd you know that Visa has not 1 ledger.. but multiple ledgers. and the statistics of world transactions is based on the combined sum of all their ledgers.. on that note. i wish to combine bitcoins ledger to represent visa USA, litecoin to represent VISA europe, feathercoin to represent Visa UK.  and a dozen other altcoins to represent the other dozen Visa ledgers.. and then lets combine the total transactions per second of cryptocurrency as a whole


now lets talk about this topics theory..
A. lets delay day trading instand trades because the emunie exchange has to find order matches to stay within the 10% preference. and delay some trades if they look like pumps/dumps
B. lets have a small value change per day, killing off day traders and ultimately alot of bitcoins free market spirit.
C.. lol so the solution to decentralization is to take away the dozen open markets and replace it with 1 market that has hard code to control trades...
D. if emunie is the only exchange, scalability wont be a problem. bitcoins free market utility and choice would die and so people would stick to fiat.
E. maybe emunie can make a easy use wallet. but desire to use bitcoin wont be there as its no longer better than fiat

[monsterer]

Indeed, and again, I never suggested that it could indefinitely prevent this from happening, but that it simply postpones the "crash" in case the cause is actually a whale/s colluding as per an agenda.  But the same can work in reverse surely, if the backing currency crashes, then the value of the asset it is backing is also in jeopardy.

It can, but there is no dependency between the two, which is critical. A dependency can cause the spiral of death as devaluation causes further devaluation and market panic.

Right so that brings me to the crux of the issue that needs to be addressed.  You are right, these informed traders were not accounted for in the test, I considered it and maybe wrongly determined that their effect would not be great enough to deplete the buffers.

However, as its been raised here, I'll revisit that thought process and look to include their effect into the test and rerun it.  Should the result then be that the price is still stable and the buffers are healthy, perhaps we can begin to look at this model in a more serious manner?

You can actually get an estimate for the proportion of informed traders present in the market from your data - it can be approximated by orderflow, so take a sliding window of trades and calculate the buy volume and sell volume, then the VPIN = (buy-sell)/(buy+sell). This goes between -1 and +1, so just abs() it to give you your normalised proportion.

[Fuserleer]

Indeed, and again, I never suggested that it could indefinitely prevent this from happening, but that it simply postpones the "crash" in case the cause is actually a whale/s colluding as per an agenda.  But the same can work in reverse surely, if the backing currency crashes, then the value of the asset it is backing is also in jeopardy.

It can, but there is no dependency between the two, which is critical. A dependency can cause the spiral of death as devaluation causes further devaluation and market panic.

Right, you don't want dependency, but even without out any, the effect can still occur.

Right so that brings me to the crux of the issue that needs to be addressed.  You are right, these informed traders were not accounted for in the test, I considered it and maybe wrongly determined that their effect would not be great enough to deplete the buffers.

However, as its been raised here, I'll revisit that thought process and look to include their effect into the test and rerun it.  Should the result then be that the price is still stable and the buffers are healthy, perhaps we can begin to look at this model in a more serious manner?

You can actually get an estimate for the proportion of informed traders present in the market from your data - it can be approximated by orderflow, so take a sliding window of trades and calculate the buy volume and sell volume, then the VPIN = (buy-sell)/(buy+sell). This goes between -1 and +1, so just abs() it to give you your normalised proportion.

Ok great thanks for that.  I might call upon you as I'm implementing the modifications if thats OK with you , as you've looked into Informed Traders and other such phenomenon in more detail than I have.

I largely considered the activity of buying low on the internal exchange and selling high on an external one as irrational, as the barrier to entry cost to trade on the internal exchange is minimal, I (perhaps incorrectly) assumed that no one would buy at the higher external price.  (Are there even any valid reasons why they would?)

[Sparky_eMunie]

not a speculative digital commodity.

i have to point out another fundemental flaw in your economics understanding.

bitcoin never is, was or would be a commodity.

As reported by Bloomberg, the Commodity Futures Trading Commission has now ruled that bitcoin, the peer-to-peer digital currency, is a commodity. This means the CFTC can regulate it and punish evildoers.

https://www.equities.com/news/is-bitcoin-a-commodity-or-a-currency

[franky1]

I largely considered the activity of buying low on the internal exchange and selling high on an external one as irrational, as the barrier to entry cost to trade on the internal exchange is minimal, I (perhaps incorrectly) assumed that no one would buy at the higher external price.  (Are there even any valid reasons why they would?)

the same reasons that there are 12 prominent exchanges in existance. if you can explain why there should be only one. then you will have your answer.

i would explain the answer but there are too many reasons to list them all.
summerised
features(troll boxes, put and call options. shorts vs plain standard no fancy feature, basic trading)
barriers of entry (kYC or no kyc preference)
liquidity(how much volume(your buzz word buffer))
trust that its not going to fail
trust that the prices move enough to make profit on
limits or lack of financial limits to deposit/withdraw (AML or internal profit making vs zero fee trading)
arbitrage oppertunities..

i left that to last. because although your mindset might be a stable currency for consumer spending of goods and services.. exchange day traders love the opposite. they love price movements.

[franky1]

As reported by Bloomberg, the Commodity Futures Trading Commission has now ruled that bitcoin, the peer-to-peer digital currency, is a commodity. This means the CFTC can regulate it and punish evildoers.

https://www.equities.com/news/is-bitcoin-a-commodity-or-a-currency

well we both know how american financial commissions work.. look at their blindness around the sub-prime loans that they classed as good investments..
so i dont hold much 'water in the faith of american financial commissions.

i prefer to use logic, and understanding or the reality of things. rather than what classification sits in purely based to make the commision most profit via licences, fines, taxes and fees

[Fuserleer]

I largely considered the activity of buying low on the internal exchange and selling high on an external one as irrational, as the barrier to entry cost to trade on the internal exchange is minimal, I (perhaps incorrectly) assumed that no one would buy at the higher external price.  (Are there even any valid reasons why they would?)

i left that to last. because although your mindset might be a stable currency for consumer spending of goods and services.. exchange day traders love the opposite. they love price movements.

Ok thanks for the list, some I agree with, some I do not so much.

However your last point is interesting and it captures exactly why Bitcoin will never be a mass market currency....because its a commodity used by traders to increase wealth, and that is not what a currency should be.

[franky1]

Ok thanks for the list, some I agree with, some I do not so much.

However your last point is interesting and it captures exactly why Bitcoin will never be a mass market currency....because its a commodity used by traders to increase wealth, and that is not what a currency should be.

you know day traders dont just trade commodities.. they trade ASSETS too..
bitcoin is a asset. so dont think about the oil market.. think about the stocks and shares market and your mindset will shift away from thinking about bitcoin as s commodity (based purely on the ill informed analogy of gold) and instead think of the asset trading.

lastly bitcoin is a great currency..
instead of centralized inflation that causes people to not save their income, and to spend it so much they even get loans to spend more, causing the country to have debt issues..

bitcoin is deflationry.
infact the coins i said in 2012-15 i am now spending happily without a care in the world. because the deflationary nature has helped me to turn a one hours wage into a weeks worth of spending. all because i saved.

inflationary currency is bad. deflationary currency is good.

[Sparky_eMunie]

As reported by Bloomberg, the Commodity Futures Trading Commission has now ruled that bitcoin, the peer-to-peer digital currency, is a commodity. This means the CFTC can regulate it and punish evildoers.

https://www.equities.com/news/is-bitcoin-a-commodity-or-a-currency

well we both know how american financial commissions work.. look at their blindness around the sub-prime loans that they classed as good investments..
so i dont hold much 'water in the faith of american financial commissions.

i prefer to use logic, and understanding or the reality of things. rather than what classification sits in purely based to make the commision most profit via licences, fines, taxes and fees

Well, that's the difference between theory and reality. In theory BTC may be an asset and not a commodity, but in reality it is a commodity.

In theory a bottle of water is a harmless drink, but try to exlain that to the guys of airport security.

[franky1]

Well, that's the difference between theory and reality. In theory BTC may be an asset and not a commodity, but in reality it is a commodity.

bitcoin is not a commodity.. which proves the commission have got the wrong theory, and it will eventually bite them in the ass.

its like the commission want to classify a duck is a crocodile.. so they can make money putting up signs in childrens parks next to lake that say, "dontfeed the crocodiles' they can class it all they like and get all the grants and budgets to make profit from all they like, but the reality is a duck is a duck and kids will still feed the ducks because they dont see crocodiles

[Sparky_eMunie]

Franky, the reality is that if the US goverment says that a duck is a crocodile, and sticks to it for a sufficiently long time, the duck becomes a crocodile.