Moved the price discovery docs and begin a rewrite

Refs #254.
keep-network · Sep 26, 2019 · 90dce02 · 90dce02
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diff --git a/docs/bonding/index.adoc b/docs/bonding/index.adoc
@@ -130,7 +130,7 @@ between the signing bond collateral and BTC.
 
 In concrete terms, that means the price of ETH to BTC. Due to only needing
 prices for a single pair of assets, tBTC will initially use a simple
-<<price-oracle/index.adoc#price-oracle,price oracle>>.
+<<price-discovery/index.adoc#price-discovery,price oracle>>.
 
 == Undercollateralization
 

diff --git a/docs/index.adoc b/docs/index.adoc
@@ -251,7 +251,7 @@ include::deposits/index.adoc[leveloffset=+2]
 
 include::bonding/index.adoc[leveloffset=+2]
 
-include::price-oracle/index.adoc[leveloffset=+2]
+include::price-discovery/index.adoc[leveloffset=+2]
 
 include::minting/index.adoc[leveloffset=+2]
 

diff --git a/docs/price-oracle/index.adoc → docs/price-discovery/index.adoc b/docs/price-oracle/index.adoc → docs/price-discovery/index.adoc
@@ -1,12 +1,12 @@
 [env.theorem]
 :toc: macro
 
-[#price-oracle]
-= Price Oracle
+[#price-discovery]
+= Price Discovery
 
 ifndef::tbtc[toc::[]]
 
-The price oracle is an integral part of the system, ensuring sufficient collateral backs all tBTC signers. We model the oracle after the https://developer.makerdao.com/feeds/[USD price feeds from MakerDAO], operated initially by a single trusted actor and later governed by the ecosystem. 
+The price oracle is an integral part of the system, ensuring sufficient collateral backs all tBTC signers. We model the oracle after the https://developer.makerdao.com/feeds/[USD price feeds from MakerDAO], operated initially by a single trusted actor and later governed by the ecosystem.
 
 The minimal price feed design is specified completely by the interface below:
 
@@ -29,22 +29,22 @@ This mitigates unnecessary recomputations by maintainers for price changes below
 
 == Price encoding
 
-A bitcoin has 8 decimal places, the smallest unit being a satoshi, meaning 100 000 000 satoshis = 1 bitcoin. 
-An ether by contrast, has 18 decimal places, the smallest unit being a wei, meaning  
-1 000 000 000 000 000 000 wei = 1 ether. 
+A bitcoin has 8 decimal places, the smallest unit being a satoshi, meaning 100 000 000 satoshis = 1 bitcoin.
+An ether by contrast, has 18 decimal places, the smallest unit being a wei, meaning
+1 000 000 000 000 000 000 wei = 1 ether.
 
-To express the price of bitcoin relative to ether, we must use a ratio of the number of wei to a satoshi. 
-A simple design is to use `x` wei : 1 satoshi. Hence, for a call to `getPrice` when 32.32 ETH : 1 BTC (Jun 2019), 
-the value 323 200 000 000 wei is returned. 
+To express the price of bitcoin relative to ether, we must use a ratio of the number of wei to a satoshi.
+A simple design is to use `x` wei : 1 satoshi. Hence, for a call to `getPrice` when 32.32 ETH : 1 BTC (Jun 2019),
+the value 323 200 000 000 wei is returned.
 
-However, if 1 wei is worth more than 1 sat, then the price can no longer be accurately encoded. This scenario of a 'flippening', 
-when 1 ether becomes worth 10,000,000,000x as much as 1 bitcoin, we find unlikely in the very short-term. 
-Rather than prematurely optimize, incorporating a 2 integer ratio of `x` wei to `y` satoshi and changing the call semantics, 
+However, if 1 wei is worth more than 1 sat, then the price can no longer be accurately encoded. This scenario of a 'flippening',
+when 1 ether becomes worth 10,000,000,000x as much as 1 bitcoin, we find unlikely in the very short-term.
+Rather than prematurely optimize, incorporating a 2 integer ratio of `x` wei to `y` satoshi and changing the call semantics,
 we leave this as a future exercise for governance.
 
 == Future design
 
 The price oracle is integral to tBTC's security and in the future, will be principally governed by
-the tBTC ecosystem. The first upgrades will focus on incorporating a medianizer model from MakerDAO, where 
+the tBTC ecosystem. The first upgrades will focus on incorporating a medianizer model from MakerDAO, where
 multiple price feeds are voted in and the median price is calculated from their reports. Other on-chain price signals like
-decentralized exchanges (DEX's) and liquidity pools (Uniswap) are being considered.
+decentralized exchanges (DEX's) and liquidity pools (Uniswap) are being considered.
diff --git a/docs/price-discovery/on-price-feeds.adoc b/docs/price-discovery/on-price-feeds.adoc
@@ -0,0 +1,56 @@
+= On price feeds
+
+Price feeds are a difficult subject in decentralized systems.
+
+Price isn't a global phenomenon -- it's local to a transaction's participants,
+and stems from their subjective beliefs about the value of an asset and the
+current and future conditions of a market.
+
+At first glance, atop the fractured and subjective nature of price, we layer an
+additional conundrum -- the long-discussed "oracle problem". How can a group of
+pseudonymous actors be convinced to report the trust in a decentralized system,
+when they have a strong incentive to lie?
+
+Addressing these issues in the general case is far outside the scope of this
+document. Instead, we can discuss a few common approaches and how they perform
+in the context of a system like tBTC.
+
+There are three common approaches to bringing price data onto a blockchain like
+Ethereum
+
+1. Trusted oracles. If an entity or fixed group of entities can be trusted,
+   publishing trusted price data is simple.
+
+2. Schelling point games. These schemes make use of a large number of
+   participants with difficulty coordinating. Each participant submits their
+   version of the "truth", and those that differ significantly from the
+   plurality are punished, while those that reported with the herd are rewarded.
+   Truthcoin, Augur, Witnet, and UMA have all done interesting work in this
+   space; the Witnet team has written
+   https://medium.com/witnet/on-oracles-and-schelling-points-2a1807c29b73[an accessible primer].
+
+3. Market-based schemes. One of the surest ways to make price data accessible
+   to a chain is to bring trade execution onto that chain, using schemes like
+   batched auctions.
+
+In a system built to maintain a censorship-resistant supply peg, a trusted
+oracle requirement is deeply dissatisfying. A system is only as decentralized as
+it's most easily captured component; and a trusted price feed, even one that
+mixes data from many
+
+Schelling point games are an attractive alternative to trusted feeds. A
+Schelling point price feed enables permissionless participation, can better
+resist outside capture and censorship,
+
+The downside of a Schelling game approach is what Paul Sztorc calls "parasitic
+contracts". Expressive host chains enable "games outside the game" -- incentives
+that can warp honest reporting in Schelling games. Growing the size and money at
+risk of a reporter set can combat this issue; but when the security of an entire
+peg is at stake, imagining a large enough financial interest in honest price
+discovery is difficult.
+
+The last approach, utilizing on-chain markets, can enable direct price data on
+a smart contract chain. The devil, however, is in the details -- how does a
+scheme prevent miner tampering? How about fake volume and wash trades meant to
+manipulate a price? Market-based schemes need to be built to a particular use
+case, and are only as resilient as the participation in the market.