Risk Levels of pAssets on PegNet
The more liquid the pAsset the faster it can safety convert it
Giving Traders What They Want — 1 Minute Conversions
One of the most requested functions on PegNet recently is to move pAssets from 10 minute conversions to 1 minute conversions. This provides a 10X increase in the numbers of conversions a trader could do each day on PegNet from 144 to 1,440. However their is a risk this introduces to the PegNet so I’d like to talk about a few thoughts about how to manage risk in PegNet by connecting market liquidity with speed on conversions.
One thing I’ve been thinking about is the need for “risk levels” on PegNet for assets of different liquidity levels. The current rule to be listed on PegNet at all is $100 Million market cap + $5 Million in daily trading volume for a pAsset to be listed. A more sophisticated version of this policy will have to be set in the light of moving toward 1 minute conversion times. While more convenient this short interval lowers the bar for an attacker to front run the prices on an external exchange in order to push up or down the price of a pAsset in the PegNet and thus run the liquidity attack PegNet must prevent.
So while this might not be an issue for BTC, ETH, BCH all with multi billions of USD in daily trading, this might well be an issue for Decred or Ravencoin.
Three Levels of Risk, High, Medium, Low
Level 1 High Risk
pAssets with < than $100 MM in Market Cap + $5 MM 24H Volume
Policy: L1 pAssets have one way conversions like in the case of pFCT.
Level 2. Medium Risk
pAssets with > than $100 MM in Market Cap + $5 MM Daily Volume
Policy: L2 pAssets use 2 way conversions & 10 minute pricing intervals.
Level 3. Low Risk
pAssets with > than $1 Billion in Market Cap + $50 Million in Daily Volume
Policy: L3 pAssets have 2 way conversions & 1 minute pricing intervals.
I think this will tie in nicely with the work that David Chapman & Who have been doing on the Dynamically On-boarding New Assets to PegNet via Descriptor Files for managing pAsset lists. This could be another variable in those Descriptor files, the level of the pAsset and thus its pricing data being reported, reported every 10 minutes or being reported every 1 minute.
These Descriptor Files available to miners, would be updated from time to time (perhaps monthly) as new pAssets perhaps qualify for a lower risk level or if their market cap has declined, the pAsset may have risen into a higher risk category.