<p>Abstractly spoken, what you have in the current BitAsset 1.0 implementation is that in the market two parties meet that have different estimations for the future price.</p>

<p>Let's define <strong>the price</strong> to be the price of a bitAsset (i.e. bitUSD) denominated in BTS (base base currency in the BitShares network). For example <code>0.1 BTS per bitUSD</code>. We need to clarify this here, because every market in BitShares can also be flipped, i.e. we can trade <code>BTS:USD</code> or <code>USD:BTS</code>.</p>

<h2>Going Short</h2>

<p>Let's say <em>Mark</em> thinks the price (i.e. <code>0.1BTS per bitUSD</code>) will go up in the future while <em>Nanny</em> expects the price to drop soon. Nanny wants to a bet for this and goes <em>short</em> on bitUSD. <em>Going short</em> on a bitAssets means, that you lend it from the network (i.e. the network creates them for you) and sell it to a buyer (here, Mark). </p>

<h2>The collateral</h2>

<p>In order to go short, you need to lock up some of your funds (here BitShares) as collateral, you can see this pretty much as a security that you will be able to give back your lent bitUSD eventually. The total collateral is 200% the amount your short payed by both parties of the trade. This means that:</p>

<ul>
<li>In order to short 1 bitUSD, the amount of BTS worth 2 USD has to be locked up.</li>
<li>The shorter pays half of the collateral and the buys pays half.</li>
<li>If you want to short-sell 1 bitUSD you will have to lock away 1 USD worth of BTS and will not get anything from the trade.</li>
</ul>

<h2>Price movment</h2>

<p>If the price (say to 0.09BTS per bitUSD) goes <strong>down</strong> then the market moved according to Nanny expectations and she should make a profit from the prediction. How is this achieve? As a short-seller, she has to give back the lent bitUSD eventually, so she can decide to do this at a price of <code>0.09 BTS/USD</code>. This means she needs to buy bitUSD cheaper from the market than she sold it earlier in the short-sell. With the bought bitUSD, she can close her short order (i.e. cover) and give back the lent USD which will free up the collateral, which, considering that she had to buy bitUSD with BTS, should leave her a profit of 10%.</p>

<p>However, if the price goes <strong>up</strong> she can do one out of three things:</p>

<ul>
<li>Wait for the 30 day short limits to arrive. The Network will put a buy order for bitUSD and close here order automatically giving her what is left from the collateral</li>
<li>Wait for the price to go up even further and risk a <em>margin call</em>. This will be triggered from the network if the collateral is only 150% (in contrast to the 200%). The network will force (i.e. it does this automatically) you to buy up bitUSD on the market and close the order.</li>
<li>The short seller can decide to cover on her own buy buying up bitUSD and closing the order herself.</li>
</ul>

<p>All of these options will make the short-seller a loss as the prediction was wrong.</p>

<h2>Market Peg</h2>

<p>In the end, the market peg is achieved by a <em>social consensus</em> in such that 1 bitUSD should be worth 1 USD. Hence, trading against <em>the peg</em> should make you lose money because someone else will make a profit from trading towards <em>the peg</em>. Wouldn't you want to trade if someone offered you $1 for $90c?</p>

CC BY-SA 3.0
2017-12-24T03:33:00.267Z
Can we call Bitshares a digital bucket shop? Well, you don't trade against the House, because there is no House in distributed system, so you just trade against some other person, but you don't trade real assets, so it is a sort of bucket shop concept. Right or wrong?
Nulik
CC BY-SA 3.0
2015-04-23T06:36:32.543Z
2015-04-23T06:36:32.543Z
Fabian Schuh
<p>Someone who wants the asset is going to buy it back from you. There should be about as many people wanting to get into BitUSD as get out of it. If for some reason there's an imbalance, there should be enough people who don't particularly care what asset they hold to absorb the imbalance at a slightly better rate.</p>

<p>Note that the above assumes that the scheme actually works and is reasonably popular.</p>

CC BY-SA 3.0
2015-04-22T09:12:40.873Z
so this will only work if we are assuming there are equal amount of sellers/buyers.
Patoshi パトシ
CC BY-SA 3.0
2015-04-22T09:13:41.103Z
No, it ensures there are an equal amount of sellers/buyers. If, for example, there are too many sellers, the price will fall and some people will stop selling and some people will start buying. At some price, the sellers and buyers will meet, and that's, almost by definition, the market price.
David Schwartz
CC BY-SA 3.0
2015-04-22T09:15:36.820Z
Unless there's some reason that buyers and sellers would value the asset differently (which there shouldn't be), the market price will be the price at which buyers and sellers agree and are willing to trade the asset. If this doesn't happen, the asset *isn't* pegged.
David Schwartz
CC BY-SA 3.0
2015-04-22T09:10:29.280Z
2015-04-22T09:10:29.280Z
David Schwartz
<p>The idea is that the protocol has people who tell the coin what the price is. Then, based on that, it either adds or removes money from the system.</p>

<blockquote>
  <p>Now the question I have is say if you have 1000 BitUSD and you want to cash out to USD. Who is going to be the one giving you actual dollars?</p>
</blockquote>

<p>Someone who is willing to sell their USD in exchange for BitUSD. There's no organization that will guarantee that you can get USD for your BitUSD.</p>

<p>I would have expected this to have exploded somehow by now, but it seems to be working fine after 6 months.</p>

CC BY-SA 3.0
2015-04-22T09:26:17.517Z
so bitusd is at the whims of an exchange to decide on a rate. and if they pull a mtgox, that could really hurt them them.
Patoshi パトシ
CC BY-SA 3.0
2015-04-22T11:46:41.113Z
@duckx Exchanges don't decide rates. At least, honest exchanges don't.
David Schwartz
CC BY-SA 3.0
2015-04-22T09:22:12.513Z
2015-04-22T09:22:12.513Z
Nick ODell
<p>I'm reading up on Bitshares and they say they have market pegged assets that are linked to USD and Gold (BitUSD and BitGold)</p>

<p>They say it holds a stable price and fluctuates somehow to make sure you still have that exact value. What I'm assuming they mean is that if you have 100 BitUSD that is equal to $100 USD. And if BitUSD dropped in value to say $90, your bitUSD will fluctuate to 110 or something to compensate the change. So the coins/asset are the #'s that are actually moving not the value.</p>

<p>Now the question I have is say if you have 1000 BitUSD and you want to cash out to USD. Who is going to be the one giving you actual dollars? Sure if you put in $1000 USD and purchased 1000 BitUSD. Say if you wanted to sell that 1000BitUSD now, who is going to buy that back from u at $1000?</p>

<p>This is what I'm confused about on the Market Pegged Assets. </p>

<bitshares>
Can someone explain how does Bitshares market pegged assets work?
Patoshi パトシ
# Can someone explain how does Bitshares market pegged assets work?

(Asked by: username_0 on 2015-04-22)

I'm reading up on Bitshares and they say they have market pegged assets that are linked to USD and Gold (BitUSD and BitGold)

They say it holds a stable price and fluctuates somehow to make sure you still have that exact value. What I'm assuming they mean is that if you have 100 BitUSD that is equal to $100 USD. And if BitUSD dropped in value to say $90, your bitUSD will fluctuate to 110 or something to compensate the change. So the coins/asset are the #'s that are actually moving not the value.

Now the question I have is say if you have 1000 BitUSD and you want to cash out to USD. Who is going to be the one giving you actual dollars? Sure if you put in $1000 USD and purchased 1000 BitUSD. Say if you wanted to sell that 1000BitUSD now, who is going to buy that back from u at $1000?

This is what I'm confused about on the Market Pegged Assets.

**Tags:** bitshares


---

## 3 answers

### Answer by username_1 on 2015-04-23. Score: 1 | Accepted answer

Abstractly spoken, what you have in the current BitAsset 1.0 implementation is that in the market two parties meet that have different estimations for the future price.

Let's define **the price** to be the price of a bitAsset (i.e. bitUSD) denominated in BTS (base base currency in the BitShares network). For example `0.1 BTS per bitUSD`. We need to clarify this here, because every market in BitShares can also be flipped, i.e. we can trade `BTS:USD` or `USD:BTS`.

## Going Short

Let's say *Mark* thinks the price (i.e. `0.1BTS per bitUSD`) will go up in the future while *Nanny* expects the price to drop soon. Nanny wants to a bet for this and goes *short* on bitUSD. *Going short* on a bitAssets means, that you lend it from the network (i.e. the network creates them for you) and sell it to a buyer (here, Mark).

## The collateral

In order to go short, you need to lock up some of your funds (here BitShares) as collateral, you can see this pretty much as a security that you will be able to give back your lent bitUSD eventually. The total collateral is 200% the amount your short payed by both parties of the trade. This means that:

* In order to short 1 bitUSD, the amount of BTS worth 2 USD has to be locked up.
* The shorter pays half of the collateral and the buys pays half.
* If you want to short-sell 1 bitUSD you will have to lock away 1 USD worth of BTS and will not get anything from the trade.

## Price movment

If the price (say to 0.09BTS per bitUSD) goes **down** then the market moved according to Nanny expectations and she should make a profit from the prediction. How is this achieve? As a short-seller, she has to give back the lent bitUSD eventually, so she can decide to do this at a price of `0.09 BTS/USD`. This means she needs to buy bitUSD cheaper from the market than she sold it earlier in the short-sell. With the bought bitUSD, she can close her short order (i.e. cover) and give back the lent USD which will free up the collateral, which, considering that she had to buy bitUSD with BTS, should leave her a profit of 10%.

However, if the price goes **up** she can do one out of three things:

* Wait for the 30 day short limits to arrive. The Network will put a buy order for bitUSD and close here order automatically giving her what is left from the collateral
* Wait for the price to go up even further and risk a *margin call*. This will be triggered from the network if the collateral is only 150% (in contrast to the 200%). The network will force (i.e. it does this automatically) you to buy up bitUSD on the market and close the order.
* The short seller can decide to cover on her own buy buying up bitUSD and closing the order herself.

All of these options will make the short-seller a loss as the prediction was wrong.

## Market Peg

In the end, the market peg is achieved by a *social consensus* in such that 1 bitUSD should be worth 1 USD. Hence, trading against *the peg* should make you lose money because someone else will make a profit from trading towards *the peg*. Wouldn't you want to trade if someone offered you $1 for $90c?

> **Comments:**
> **username_2**: Can we call Bitshares a digital bucket shop? Well, you don't trade against the House, because there is no House in distributed system, so you just trade against some other person, but you don't trade real assets, so it is a sort of bucket shop concept. Right or wrong?  

---

### Answer by username_3 on 2015-04-22. Score: 0

Someone who wants the asset is going to buy it back from you. There should be about as many people wanting to get into BitUSD as get out of it. If for some reason there's an imbalance, there should be enough people who don't particularly care what asset they hold to absorb the imbalance at a slightly better rate.

Note that the above assumes that the scheme actually works and is reasonably popular.

> **Comments:**
> **username_0**: so this will only work if we are assuming there are equal amount of sellers/buyers.  
> **username_3**: No, it ensures there are an equal amount of sellers/buyers. If, for example, there are too many sellers, the price will fall and some people will stop selling and some people will start buying. At some price, the sellers and buyers will meet, and that's, almost by definition, the market price.  
> **username_3**: Unless there's some reason that buyers and sellers would value the asset differently (which there shouldn't be), the market price will be the price at which buyers and sellers agree and are willing to trade the asset. If this doesn't happen, the asset *isn't* pegged.  

---

### Answer by username_4 on 2015-04-22. Score: 0

The idea is that the protocol has people who tell the coin what the price is. Then, based on that, it either adds or removes money from the system.

> Now the question I have is say if you have 1000 BitUSD and you want to cash out to USD. Who is going to be the one giving you actual dollars?

Someone who is willing to sell their USD in exchange for BitUSD. There's no organization that will guarantee that you can get USD for your BitUSD.

I would have expected this to have exploded somehow by now, but it seems to be working fine after 6 months.

> **Comments:**
> **username_0**: so bitusd is at the whims of an exchange to decide on a rate. and if they pull a mtgox, that could really hurt them them.  
> **username_3**: @duckx Exchanges don't decide rates. At least, honest exchanges don't.  

---

