Technology stock market-anchored assets (Annotation: hereafter referred to as "assets" or "anchored assets") are a new type of freely tradable digital assets whose value closely follows traditional assets such as the U.S. dollar or gold. What makes market-anchored assets unique is that they are immune to transaction default risk. Technology stocks use an advanced decentralized ledger of knowledge (an accounting method inspired by Bitcoin). Although Bitcoin as a currency has demonstrated many practical properties, large price fluctuations bring huge currency holding risks and increase the difficulty of daily pricing and payment. A currency that has the performance and advantages of Bitcoin while maintaining the same value as a global currency (such as the U.S. dollar) can have considerable practicality due to its advantages in ease of use and breaking down trade barriers. This article will explain how market-anchored assets, including BitUSD (designed to be anchored to the U.S. dollar), can achieve price stability while minimizing holder risk.
Price Stability
Bitcoin and similar cryptocurrencies track a digital token that is transferable and secure using personal keys on a distributed computer network. . The identification mechanism ensures that tokens cannot be copied and that all participants agree on the system state without the need for a centralized verification agency. This knowledge is recorded in a distributed shared ledger called the "blockchain". We have discovered that these systems can allow value storage and transactions on the Internet to bypass centralized control and censorship. Demand for this functionality drives up the price of cryptocurrencies. Technology stocks use a similar core token called TechShares, which is traded by the abbreviation "THS" on some well-known cryptocurrency exchanges. Like Bitcoin, the exchange rate of THS against major currencies fluctuates.
The anchored asset can be viewed as a futures contract between asset buyers seeking price stability and "shorts" pursuing greater gains amid THS price fluctuations. Technology stocks, this open source software provides a decentralized trading market that can issue anchored assets. All transactions are recorded in the blockchain shared ledger, and the software executes market rules. In order to distinguish it from "external disks", such as websites that facilitate transactions and exchanges between fiat currencies and cryptocurrencies, we call the blockchain-based trading market in the wallet "internal disks". THS holders can use their THS to place buy orders within the market and selectively purchase assets. When buyers and shorts match each other at an agreed-upon price, the anchor asset is created on the tech stock blockchain. In exchange for the THS received from the buyer of the asset, the short party enters into a contract to redeem the same amount of the asset from the market at some time in the future. The THS paid by the asset buyer and the additional THS contributed by the short party are frozen by the system as collateral. When the short seller repurchases the asset from the market and effectively destroys it, and the contract is fulfilled, the collateral can be returned to the short seller's hands, which is called short position closing. If the circulation price of the collateral used to issue assets drops below a certain safety margin, the assets can be automatically repurchased from the market before the collateral is insufficient. These rules create systemic demand for anchor assets while allowing them to remain compensatory.
We believe that these current rules do not specifically restrict the internal exchange rate between BitUSD and THS to some extent to ensure that it remains synchronized with the external exchange rate. The first step to achieve this goal is to obtain reliable external trading exchange rate information and add it to the internal market algorithm. This is not an obvious intervention in the market directly under the control and manipulation of a centralized institution. Thankfully, technology stocks’ consensus mechanism uses a well-thought-out, real-time Delegated Proof of Stake (DPOS) mechanism to vote for “trustees” who are designed to safeguard the best interests of the system and its shareholders. These trustees run computers and other equipment that maintain the tech stock network, checking and submitting broadcast transactions on the blockchain ledger. At the same time, trusted trustees can be used to input external transaction rates into the blockchain, allowing software algorithms to incorporate this information into market rules. These external exchange rate information are called "price feeds". The trustee usually combines price information from multiple information sources (such as external exchanges) to generate a price feed and update it regularly. The system takes the median of all price feeds, so it is very difficult to try to manipulate the price feed without a considerable degree of collusion among certain trustees or institutions. Price feeding and other trustee actions are publicly auditable, and trustees can be voted out by THS holders at any time.
It is very important to consider clearly how to use price feeds to regulate the internal market. Both THS and Bitcoin assets are freely tradable tokens. If the internal market restricts transactions to only occur at a specific exchange rate determined by the median price feed, it will simply encourage people who want to trade at different prices to trade outside the system, such as a certain transaction. Place. However, if we realize that new anchor assets can only be created through the short-selling mechanism, and then selectively limit the short-selling conditions to when there is demand for asset issuance, short-sellers will only be able to execute short sales at prices above the median price feed. operation, rather than allowing shorts to sell at any price. This protects shorts from devaluation of the anchored asset, as new assets can only be issued when market demand drives their price to be at or above the average price.
The price feed function regulates the issuance and destruction of anchor assets and drives market prices toward the mean.
When shorts buy back BitUSD to close their positions, they remove BitUSD from circulation, reducing the total supply. In fact, current technology stock trading rules require short sellers to force-close their positions within 30 days of opening, which means that their outstanding BitUSD must be fully redeemed every 30 days. There is no forced selling requirement for holders of the anchor asset, so shorts will eventually be forced to purchase new short positions at or above the exchange rate. This effectively guarantees that any BitUSD holder can sell BitUSD within 30 days in exchange for THS of the same US dollar value (determined by the price feed).
For shorts and anchor asset buyers, the incentives to participate in the system are different. Asset holders usually want insured assets that have the attributes of cryptocurrencies, while short sellers are usually optimistic about the value of THS and hope to increase their returns by taking advantage of the corresponding market fluctuations of the anchored assets. If the market value of THS corresponding to the issued assets increases, short sellers can use significantly less THS to repurchase the assets and earn corresponding profits. When the price of THS falls, short sellers will face greater losses than simply holding THS. Eventually shorts may face margin calls or the collateral will automatically be used to pay off the contracts. In the current THS system, the margin call warning will be triggered when the value of the collateral is lower than 1.5 times the amount of THS required to close the position. The system will also charge an additional 5% handling fee for the margin call. This fee is used to encourage short sellers to ensure full mortgage. .
Pending order matching
Market pending orders and other signature transactions on the technology stock blockchain are packaged into 10s blocks by the trustee. When buying and selling orders are matched in the internal market of technology stocks, the highest price buy order matches the lowest price sell order, and all THS in the overlapping price range will be destroyed, so that both buyers and sellers can get the amount consistent with their pending orders.
(Translation note: Assume that the unit price of the buy order is 1.1USD, buy 1THS, the total price is 1.1USD; the unit price of the sell order is 1.0USD, sell 1.1THS, the total price is 1.1USD. 1.0~1.1USD is the price repetition range , after the transaction is matched, the buyer will pay 1.1USD and receive 1THS; the seller will pay 1.1THS and receive 1.1USD. The excess 0.1THS will be destroyed)
There are two reasons for this: first, It can avoid high-frequency trading that attempts to forcefully insert a transaction between two pending orders through the price range. Sometimes we call this "head-picking trading". At the same time, it also makes large buyers or sellers pay a higher price for penetrating the market through huge listings far exceeding the current market price and rapidly changing the price direction, because doing so will require paying high rates and losing all price overlap ranges. chips. At the same time, destroying this part of the chips will create value for all THS holders because it makes THS more scarce. When there is huge demand for short selling at price feeds, the current technology stock system allows short sellers to pay interest to asset holders to prioritize order matching. This way, holders of market-anchored assets can also earn additional income on their deposits.
Risk
The design of anchor assets in the current technology stock system is to minimize the risk of loss for asset holders. A short position requires a collateral that is three times the asset’s market price to be frozen to open the position, and the initial collateral consists of THS paid by the buyer and twice the amount of THS pledged by the short position. The requirements for collateral and the edge trigger setting are both conservative choices for the purpose of protecting Bitcoin asset holders from potential price fluctuations of collateral. Forced liquidation of short positions every 30 days provides additional short-term liquidity. Control of the price feed is distributed, with information aggregated from multiple exchanges and completed by more than 50 independently voted trustees. Despite such precautions, it is important to carefully explore the risks of using the system. Risks can be broadly categorized into value risk, transaction settlement risk and systemic risk.
Collateral risk
Bit assets can maintain their price stability because they are backed by collateral security with clear real-world value. When collateral values ??fall, the system is designed to drive internal asset trades to match new real-world rates, triggering margin call alerts if necessary. However, there is still the possibility that when the price of the underlying collateral (THS) drops so fast that the Bitcoin asset becomes "undervalued collateral". A sudden THS price collapse may prevent the system from automatically adjusting in a timely manner. We usually refer to this situation as a "black swan event." In such cases, the full amount of collateral is no longer sufficient to repurchase the Bitcoin asset at the real exchange rate, and the asset may trade at a price lower than its face value. It may be that the market will recover when the value of THS returns, or it may be that the market needs to reset and asset holders will be forced to accept assets whose collateral value is lower than their par value. Under normal circumstances, short-term market movements, interest rate spreads and transaction fees also affect the potential costs of asset exchange entering and exiting the market.
Centralization Risk
Unlike many other attempts to create digital assets anchored to the U.S. dollar, Bitcoin Asset is not an "IOU" issued by any entity. For this reason, it does not need to rely on a specific centralized institution to guarantee its value. Although there will be operational risks in any market, in a technology stock system with open source and auditable attributes, risks can be minimized by carefully studying market rules.
Bit assets stored on exchanges become IOUs and need to bear the risk of centralization. This is the same as storing Bitcoin or technology stocks on exchanges. This risk is not a problem with the characteristics of the bit assets themselves. We recommend that users never deposit Bitcoin assets to exchanges, but only use gateways that issue acceptances on the technology stock network. In this way, you can trade with gateway acceptance without exposing BitUSD, avoiding the centralization risk faced by placing orders.
Systematic risk
"Systemic risk" is the collective term for all other risks faced when meeting the requirements for system use. Chief among these risks is that protecting the encrypted private keys that prove ownership of an asset will be the individual's responsibility and must be protected against theft or loss. By strictly following best practices, this risk can be greatly reduced or eliminated. Systemic risks also include the possibility that there is a fatal flaw in open source software that has been overlooked, or that network facilities around the world are severely damaged.
Prospects
Bit assets are a viable open source alternative to the current banking system. Achieving the performance of maintaining price stability with commonly used currencies can promote widespread acceptance by merchants and use it to mark prices. In addition, additional capital gains and losses due to price fluctuations are avoided, and the need for calculations when filing taxes is reduced. And I have pointed out some specific system risks. No system is risk-free. The current banking system can freeze or seize an individual's assets without permission, such as through a court order or administrative action; both banks and financial institutions are susceptible to insolvency; and the availability and quality of banking services vary widely around the world.
Technology stocks bring a publicly auditable open source bank that can be used by anyone with an Internet connection. Bit assets allow savers and consumers to choose their preferred asset type, which will lead to a flexible and easy-to-use open source bank. Experience