This paper elucidates the intricate mechanics of margin calls on the BitShares blockchain, focusing on the USD:BTS market and utilizing examples with HONEST.CNY, HONEST.USD, etc. It provides clarity on what margin calls are, how they are initiated, the calculation of call prices, and the nuances involved in their execution.
Margin calls play a pivotal role in maintaining stability and adherence to collateral requirements in the BitShares ecosystem. This paper aims to demystify the mechanics behind margin calls, shedding light on their significance in markets like HONEST.CNY:BTS and HONEST.USD:BTS.
A margin call in BitShares compels a user to sell collateral, converting it into the borrowed token to settle their position. In the HONEST.USD:BTS market, a margin call equates to a bid order to buy HONEST.USD with BTS. It is triggered when the price surge renders the user’s collateral insufficient, violating the BitShares market rules.
The call price (CP) of a margin position relies on the Maintenance Collateral Ratio (MCR), debt, and collateral:
$$
\text{Call Price (CP)} = \frac{\text{Collateral}}{\text{Debt} \times \text{MCR}}
$$
The collateral ratio (CR) is determined by the feed price (settlement price):
$$
\text{Collateral Ratio (CR)} = \frac{\frac{\text{Collateral}}{\text{Feed
Price}}}{\text{Debt}}
$$
Margin calls are contingent on the feed price being below the call price. The Squeeze Protection Price (SQPP) and Squeeze Protection Ratio (SQPR) play crucial roles in determining the conditions for executing a margin call. The SQPP is calculated as follows:
$$
\text{SQPP} = \text{Feed Price} \times \text{SQPR}
$$
The margin call executes within the range \([CP - SQPP]\). This introduces complexities where execution may not occur at lower prices due to blocking sell orders.
The collateral ratio, SQPR, and MCR collectively determine the safety and timing of margin calls. Ensuring a collateral ratio higher than \(MCR \times SQPR\) is essential to avoid margin calls.
Margin calls only execute in the range \([CP - SQPP]\), hindering execution when there are lower-priced sell orders.
Forced margin calls consistently buy at a premium relative to the settlement price, even if lower-priced sell orders are available.
Margin calls are intricate processes within the BitShares blockchain, ensuring adherence to collateral requirements and market stability. Understanding the interplay of parameters like MCR, SQPR, and execution ranges is crucial for participants engaging in leveraged positions with assets like HONEST.CNY and HONEST.USD.
