Recording this here from
https://t.me/Bitshares_TradersPermie: Explaining shorting bitUSD
For ease of explanation let's assume 1bts = 1USD
If you want to take a margin-long position on bts of $10 (buy 10bts on margin) then you will require at LEAST 175% collateral.
This means you must ALREADY OWN ($10 * 1.75) = $17.50 worth of bts (17.5bts)
With your investable-stash of 17.5bts you can use them as collateral for a loan. You can "mortgage" your shares in exchange for a loan of bitUSD.
So you go to the USD:BTS market on the DEX and "borrow bitUSD". Choosing the minimum (RISKY!!) collateral ratio of 1.75 (175%)
You put up your 17.5bts as collateral, confirm the loan, and then the blockchain with transfer you $10bitUSD.
You must/can then USE/SPEND/SELL this bitUSD loan.
To go margin-long bts you would then spend your $10bit to buy more bts on the market.
At the price of 1bts=$1
You now have 10bts in assets,
$10 in liabilities and
17.5bts locked-up in collateral (mortgage-debt)
With the MINIMUM collateral ratio of 175% you have a very risky trade.
If the price of bts then falls to $0.99/bts you then have a $10 liability,
but your 17.5bts would only $17.33 worth of bts-collateral.
This would result in a margin call.
Your 17.5bts would be used to buy $10bitUSD off the market. As the price is only $0.99/bts, 10.1bts of your collateral would be used to buy $10bit
And the remaining 7.4bts would be returned to you.
You could now STILL have the 10bts you bought on margin, but only 7.4bts returned from your collateral.
Your total bts net-worth would now be 17.4bts.
A LOSS of 0.1bts
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If the price went UP to $2/bts
You would now have the 10bts you bought on margin,
$10 liabilities
And 17.5bts in collateral worth $35bitUSD
If you then "closed" your position, you would need to sell 5bts of your 10bts you bought on margin for $10bitUSD
You would then use this $10bit to repay your loan/mortgage and your 17.5bts would be returned to you.
17.5bts collateral + the 5bts you didn't have to sell to repay the loan = 22.5bts net-worth
"How to profit by helping Bitshares gain liquidity and become more appealing to new customers.
"Make the market" between USDT and bitUSD "
Permie:
OPEN.USDT on the DEX is an OpenLedger "iou" they claim to always redeem for an equivalent amount of USDT (Tether) when/if you request delivery (want to withdraw tether).
This enables DEX traders to gain price exposure to Tether
1USDT is (allegedly, don't trust it too much) backed by $1 worth of "real" dollars in a fiat bank account controlled by Tether company.
This means that USDT is a "bearer asset" worth $1.
Anyone (a "bearer") who holds USDT can exchange for $1 fiat
On the DEX, there is a market between OPEN.USDT and bitUSD.
If bitUSD trades at (approximately) the same price as USDT then bitUSD can be shown to ALSO be a "bearer asset" worth $1
bitUSD on the DEX is shortened to simply "USD"
So on the DEX OPEN.USDT:USD market you will see that approximately 1USDT trades for approximately 1bitUSD.
In reality bitUSD is valued slightly higher, as it is decentralised.
This price-similarity is only created/encouraged by the free market.
Traders who really do value USDT the same amount as they value bitUSD.
Traders who wish to exit the DEX and the cryptosphere (withdraw from crypto and receive fiat dollars to their bank account) want to purchase Tether because it is listed on many centralised exchanges.
These traders likely already have an account set up with polo/kraken/bitrex/etc and they find Tether the easiest fiat-derivative to withdraw.
USDT is however only worth as much as Tether the company is able to keep their promises and redeem USDT for fiat $.
There is a risk of "default", that Tether will suspend or cancel all withdrawals and USDT will become temporarily or permanently useless.
The extent to which traders fear this risk will determine the price at which USDT trades against bitUSD.
bitUSD is backed by at least 175% collateral in bts.
It has visible and PROVABLE reserves backing bitUSD.
USDT relies on Tether and the fiat-bankers doing proper audits of Tethers bank-reserves.
If rumours begin to circulate that Tether is experiencing issues, or withdrawals to bank-fiat are taking along time, the price of USDT in terms of bitUSD will go down. (bitUSD would become worth more than USDT)
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There is also the risk that OL in particular has issues that mean they temporarily or permenantly stop honouring their OPEN.USDT for "real" USDT.
This risk will also be priced into the market by traders
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There is obviously also the risk of bitUSD collapsing, in this case for a short time USDT would be worth more than bitUSD on the OPEN.USDT:USD DEX market. Only a short time, because if bitUSD /Bitshares itself is collapsing then I doubt traders will continue using the DEX
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Traders who want to profit by buying and selling OPEN.USDT are known to be "market makers".
They provide offers to SELL USDT AND offers to BUY USDT.
For example, they offer to BUY USDT for 0.95bitUSD, and at the same time have an open offer to SELL USDT for 1.05bitUSD.
If an impatient buyer or seller of USDT comes into the marketplace and accepts the offers the "market maker" is offering, then the impatient user gets the tokens they want RIGHT NOW, at a price they are willing to pay.
The patient "market maker" gets profitable trades fulfilled as and when impatient trades come to market.
The market maker of this example makes a 10% profit.
Just like any item, they have bought USDT low, and sold it high.
The profit % is known as "the spread"
As more and more traders come into the USDT:USD market, they will compete to be first in line so that the impatient users who come to market will accept their offers first.
More market makers = lower spreads and Lower profit per trade BUT it also means HIGHER LIQUIDITY!!!!
Liquidity is the amount of USDT available to be bought or sold by the impatient user.
Users who come to the DEX want to be able to perform their desired actions (buy or sell their USDT in this case) AS SOON AS POSSIBLE for the BEST PRICE possible.
Bitshares-bulls (bts shareholders) can help improve the user experience for impatient users/customers by "making the market"
This works with any market pair on the DEX, but can be VERY RISKY.
For example bts:BTC market making is much much riskier because both the BTC price and bts price are free floating. They are not related in any concrete way.
USDT and bitUSD both TARGET THE VALUE OF $1, and therefore they remain closely related.
This makes the OPEN.USDT:USD market on the DEX the easiest market to "make" for novice or time-limited traders
