Author Topic: Pegging  (Read 7449 times)

kolinko

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Pegging
« on: June 26, 2014, 07:02:41 pm »
So, your current methods of pegging to bitcoin are either replacing the whole Bitcoin with TruthCoin/VoteCoin, or sidechains? I'm not trolling, I'm not making fun. I'm honestly asking.

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That was a replacement for Ethereum, not side chains!

We're getting offtopic here, but Gavin also went after side chains. Sorry for nitpicking and derailing the thread :) Here's a quote from his Bit-thereum article:

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But... but... doesn't it have to be more complicated than that? New Bitcoin Script opcodes? Contract code in the blockchain? A merged-mined chain or new colored coin or something?

I don't think so. Bitcoin already provides a global currency and distributed ledger-- there is no need to re-invent those wheels. Combining real-world information with Bitcoin is where things start to get really interesting.

(merged-mined chain, and new script opcodes = technologies required to establish a sidechain)
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psztorc

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Re: Pegging
« Reply #1 on: June 27, 2014, 02:00:29 am »
So, your current methods of pegging to bitcoin are either replacing the whole Bitcoin with TruthCoin/VoteCoin, or sidechains?
No.

We're getting offtopic here, but Gavin also went after side chains.
He's saying that you don't need side chains for smart contracts, if you have a majority of trusted oracles. I agree with the logic but not the premise, as I've made clear.
Nullius In Verba

martinBrown

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Re: Pegging
« Reply #2 on: June 27, 2014, 04:14:46 am »
So, your current methods of pegging to bitcoin are either replacing the whole Bitcoin with TruthCoin/VoteCoin, or sidechains?
No.

Let's distinguish two different meanings of "pegging". A sidechain is two-way "coin-pegging", where one BTC is temporarily converted to one side-coin. This is more than just price pegging, it also preserves coin scarcity. The total supply of BTC + sidechain coins would never exceed the 21 million limit.

"Price-pegging" by portfolio replication is totally different, would be better called price-tracking. Tokens are issued which would track the price of BTC (or USD, or any other asset) through a decentralized hedging contract, described by vbuterin in SchellingCoin.

kolinko

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Re: Pegging
« Reply #3 on: June 27, 2014, 07:25:15 am »
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"Price-pegging" by portfolio replication is totally different, would be better called price-tracking. Tokens are issued which would track the price of BTC (or USD, or any other asset) through a decentralized hedging contract, described by vbuterin in SchellingCoin.

Okay, so what I'm trying to understand here - and I've been asking this question a couple times already with no reply - what happens if the volume of tokens exceeds significantly the volume of Truthcoin?

E.g. the whole market cap of TruthCoin is 500 BTC, but people want to keep over 2000 BTC in the system using the tokens. Or even 250 BTC? Won't the system get out of balance / won't the spreads get too high?

I imagine that I want to make a bet for 2000 BTC within TruthCoin. That will need for me to first buy 2000 BTC worth of TC - which would significantly affect the market price for TC, and then create CFDs - again affecting the price, and then (if I win the bet), I'd have to sell TC for BTC again - again affecting the market price, and again eating a big spread.
While one player is unlikely to cause that, I imagine this may cause problems when big events happen. E.g. market for Bitcoin becomes unstable, and everyone wants to bet that it won't fall in regards to dollar.

You could phrase my question in another way also - what will happen if daily trading volume of TruthCoin/Bitcoin is 5 BTC, and I want to make 10 BTC worth of contracts?
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zack

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Re: Pegging
« Reply #4 on: June 27, 2014, 10:48:05 pm »
there are multiple pools of people holding votecoins.
You could create a pool and give 100% of the votecoins to yourself and cheat on the outcome of every single decision, if you wanted.
No one would bet on your predictions, and you would lose money on every step of this process.

You cannot own more than 100% of the truthcoins. If there are only 100BTC worth of truthcoins, then it is impossible for you to own 150BTC worth of truthcoin.
If many people want to take part in bets, the value of truthcoins should grow to accommodate the betters.
If people really want to bet 1000 BTC of value daily, then the value of all truthcoins will eventually go high enough to accommodate them.

If you think that lots of people want to make truthcoin bets, then you should probably invest in truthcoins, because the value will go up.
If you think that people will stop making truthcoin bets, then you should sell your truthcoins, because the value will go down.

martinBrown

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Re: Pegging
« Reply #5 on: June 28, 2014, 04:22:20 pm »
BTW I may be misunderstanding the whole concept of replicating portfolio you mentioned.
Let's say that it's very early and the market depth for TruthCoins is 5BTC (so, I can buy TruthCoins for 5BTC without significantly changing the price and losing a ton of money on spread, when I want to sell TC back for BTC after the bet finalizes). Is there a way for me to make a bet for 10BTC? I get a feeling that the replicating portfolio mechanism would break, and I'd lose too much money on various spreads, but perhaps I'm wrong?

Let's simplify things for now and forget about the replicating portfolio. Suppose that TRU is an alt-coin, traded on some exchange, and the entire market cap of TRU is 5 BTC (not just market depth, but whole market cap). We're also going on the assumption that bets can only be made with TRU. Right? Because for now we're only considering TRU is an alt-coin all to itself, not as some kind of oracle which mediates bitcoin transactions. Let's also forget about the VoteCoin/TruthCoin two-token-type issue, we're keeping things as simple as possible.

So there's a total market cap of 5 BTC, and there's an ideal exchange where you trade without spread at one flat price, 10 TRU to 1 BTC, so there's a total of 50 TRU. Now you come in and buy 50 more. Now the total supply of TRU is 100, with a market cap of 10 BTC, half owned buy you. You only have 5 BTC worth of TRU, so how can you place a bet worth 10 BTC? You can't, you have to buy another 50 TRU. So you buy another 50, now you own 100 TRU, and the total supply is 150 TRU.

You place a bet with all 100 TRU. Initially, nobody is taking the other side of your bet, so really its still just an offer for someone to accept your bet. (This is where LMSR comes in, because in order to place a bet somebody first has to create a market by providing the initial liquidity for other people to bet against. But let's ignore that for now so we can keep everything dead simple). So let's say the rest of the market (the other 50 TRU of the 150 total supply) likes the odds on your bet and takes the other side. Now you've got a bet going for 50 TRU, since only half of what you've got on offer has been matched. The other half of your offer is still there waiting to be matched. But the whole TRU supply is already allocated (100 of it is your bet, the other 50 has already been matched to half of your bet). So somebody buys 50 more TRU in order to match the rest of your bet. Now the total supply is 200 TRU, total market cap is 20 BTC, and you've got a bet going for 10 BTC worth of truthcoins.

A side-chain model would be equivalent to this. The only difference is that instead of exchanging BTC to TRU on an ideal exchange with a perfectly flat price, you'd be converting BTC to TRU through the side-chain coin-pegging mechanism.


The reason I'm asking, and really the reason I launched the whole Orisi was that I wanted to create a bitcoin wallet that guarantees that would be denominated in dollars.

So what happened to the denominating bets in dollars aspect? Is there a way for Orisi to do that?

zack

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Re: Pegging
« Reply #6 on: June 28, 2014, 04:29:22 pm »
Side chains does not exist martinBrown.
That is not how it will work at all.

There are a max of 21 million bitcoins produced through mining.
Similarly, there will be a max of 21 million truthcoins produced through mining.

At first, each truthcoin will be worth maybe 1/100000th of a bitcoin, but after a few years a truthcoin will probably be worth more than a bitcoin.

martinBrown

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Re: Pegging
« Reply #7 on: June 28, 2014, 10:40:54 pm »
Side chains does not exist martinBrown.

TruthCoin doesn't exist either. It's just a white paper right now, the white paper offers many possibilities and even more have been suggested on this forum (included implementation as a BitShares chain or as an Ethereum contract).

But this is all quite irrelevant to the point of my little thought experiment.

That is not how it will work at all.

I was outlining super simplified model. Thinking through a model which is simplified as much as possible helps (IMO) to form a clear answer to the original question, stated in the topic of this thread. Variations of the question were asked several more times by kolinko, and I agree with him that it hasn't been clearly answered.

There are a max of 21 million bitcoins produced through mining.
Similarly, there will be a max of 21 million truthcoins produced through mining.

At first, each truthcoin will be worth maybe 1/100000th of a bitcoin, but after a few years a truthcoin will probably be worth more than a bitcoin.

Specifying what the total supply will be doesn't help to answer the question that I was addressing (again, its the topic of this thread). But anyway...

Whichever implementation launches first, it will be an open-source project which anyone will be able to fork to their personal liking. But your proposal sounds great to me and I very much hope the zack-bitcoin/Truthcoin-POW implementation materializes exactly as you describe. I will be sure make myself an early adopter of as many of those coins as I can ;D

psztorc

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Re: Pegging
« Reply #8 on: June 30, 2014, 12:14:59 am »
Now I'm going to repeat some things I said before:

Quote from: martinBrown
TruthCoin is basically an extension of SchellingCoin.

"Price-pegging" by portfolio replication is totally different, would be better called price-tracking. Tokens are issued which would track the price of BTC (or USD, or any other asset) through a decentralized hedging contract, described by vbuterin in SchellingCoin.
"""Whatever helps you think about it. I think SchellingCoin makes no sense, and misuses the Schelling Point idea, which requires a completely symmetric and simultaneous game with one information set and multiple equilibria all with exactly the same payout. Nothing even close to what Vitalik wrote about."""


Okay, so what I'm trying to understand here - and I've been asking this question a couple times already with no reply - what happens if the volume of tokens exceeds significantly the volume of Truthcoin?

Or even 250 BTC? Won't the system get out of balance / won't the spreads get too high?.

You could phrase my question in another way also - what will happen if daily trading volume of TruthCoin/Bitcoin is 5 BTC, and I want to make 10 BTC worth of contracts?
"""Everything can be pegged to everything, through the magic of basic finance, see the Excel file, the tab labeled "MV Scaled", comment "This portfolio will be worth return(d1) regardless of what happens to d2."."""


kolinko, you are confused because you did not do as I suggested. If you had, you would see that PMs containing a Scaled Decision (which is what we are talking about) have a bounded range (ie 0 to 1, "scaled" by a "scalar") and would then be something like (minimum = .01 USD/TRU, maximum = 1000 USD/TRU), if the True Exchange Rate went beyond 1000 USD, the market would only pay out 1000 USD-Worth-Of-Truthcoin (cashcoins) per Share, post-judgement. So there are bounds.

There's lots more to say. For example, you may wonder who sets these bounds, and what factors increase/decrease the likelihood that they will be appropriate (neither too short nor too wide). Or, "why are bounds required at all?". If so, I encourage you to open the Excel file and read!

I hope, in the future, I am better at ignoring these requests, to instead foster an actual understanding of the idea and code.
Nullius In Verba

kolinko

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Re: Pegging
« Reply #9 on: June 30, 2014, 06:46:14 pm »
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I hope, in the future, I am better at ignoring these requests, to instead foster an actual understanding of the idea and code.

Thanks for taking time to explain the thing one more time. You're right that I missed that part about the excel :) Will go and read it now.
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