This paper provides an in-depth exploration of Market Pegged Assets (MPAs) on the BitShares blockchain, focusing on their purpose, characteristics, and operational mechanisms. The discussion emphasizes the general concept while replacing references to assets like BitCNY and BitUSD with examples such as HONEST.CNY and HONEST.USD for clarity.
Market Pegged Assets (MPAs) in the BitShares ecosystem are innovative digital assets designed to maintain price parity with globally recognized currencies. Unlike traditional User Issued Assets (UIAs), MPAs employ collateral and sophisticated market mechanics to regulate their supply and demand.
MPAs are freely traded digital assets that track the value of conventional underlying assets through Contracts for Difference (CFD). For instance, HONEST.CNY and HONEST.USD mirror the value of the Chinese Yuan and the U.S. Dollar, respectively.
MPAs, also known as SmartCoins, ensure 100% or more of their value is backed by the BitShares core currency (BTS). The collateralization system, implemented through smart contracts, eliminates counterparty risk and allows conversion to BTS at any time.
As a private business on the BitShares blockchain HONEST provides a feed indicating a fair price for each MPA, known as the Settlement Price or Feed Price. This price is crucial in triggering margin calls if collateral ratios fall below the minimum requirement, currently set at 175% and subject to change by HONEST. The collateral from positions facing margin calls is used to buy back debt, automatically closing the position.
To create an MPA like HONEST.CNY, a user puts collateral (e.g., BTS) into a smart contract, initiating the issuance of the MPA. The collateral serves as security for the MPA and is held until the user decides to reclaim it.
Individual users of BitShares blockchain protocol dynamically adjusts the supply of MPAs based on market demand by self issuing new tokens backed by collateral. Users can increase their MPA supply by putting collateral into smart contracts, while decreasing the supply involves returning the borrowed assets, releasing the collateral.
If the value of an MPA rises significantly, reducing the collateral ratio, the blockchain triggers Margin Calls. This process involves selling the collateral in the market, buying back the MPA, closing the contract, and paying the remaining collateral to the user.
Market Pegged Assets on the BitShares blockchain, exemplified by tokens like HONEST.CNY and HONEST.USD, showcase a sophisticated and decentralized approach to creating stable digital assets. The combination of collateralization, market mechanics, and blockchain protocols ensures the integrity and stability of these assets in a manner that is resistant to censorship and counterparty risk.
