Headers
| UMIP # Leave blank - an UMIP no will be assigned at proposal stage
| ------------------- | ------------------------------------------------------------- |
| UMIP Title | Add EURGBPBigMac, USDCNYBigMac and GBPEUR as supported price identifiers|
| Authors | Junte |
| Status | Draft |
| Created | Date created on May 5, 2021 |
| Discourse Link | Insert link to discourse topic after it has been moved into draft UMIPs_ |
Summary
The DVM should support requests for the Economist’s Big Mac price index and GBP/ EUR.
Motivation
The DVM currently does not support EURGBPBigMac, USDCNYBigMac and GBP/ EUR as price identifiers.
This section should explain clearly why the UMA Protocol would be improved by having the ability to identify this price.
The iconic Big Mac Index tracks the purchasing power parity of currencies. This allows for a different view on Forex pairs. For the sake of simplicity the Raw, non-GDP-adjusted index is chosen. The index has five base currencies and numerous quote currencies. The chosen pairs should give an insight into how the UK will perform after Brexit and track the gap between China and the USA.
It is anticipated that this Price Identifier will be used to create insert anticipated synthetic contracts that can be built on this price identifier
Data Specifications
How should voters access the data necessary to calculate the measure tracked in this price identifier?
The definition of the identifiers should be:
EURGBPBigMac= 100* ((uk_big_mac_gbp/ eu_big_mac_eur) / EURGBP)
where UK-Big Mac= £3.29 and EU-Big Mac= €4.25 form a fixed implied exchange rate: (3.29/ 4.25)= 0.77412 for the period of 1 Jan '21- 1 Jul '21. For example: the live “mid” EURGBP exchange rate is 0.8604 at the time of writing:
EURGBPBigMac= 100* (0.77412 / 0.8604)= 89.97211
The British Pound is the quote currency and is ~10.03% undervalued compared to the base currency Euro. Big-Mac prices are taken solely from the Index which is updated twice a year. These are average prices in both the UK and the Euro-zone, prices can vary locally. Note that EU-Big Mac is the price in the Euro-zone only, which currently encompasses 19 countries. Our Big Mac index shows how burger prices are changing
USDCNYBigMac= 100*((cn_big_mac_cny / us_big_mac_usd) / USDCNY)
where CN-Big Mac= 22.40 yuan and US-Big Mac= $5.66 are constants during 1 Jan '21- 1 Jul '21 => 22.40/ 5.66= 3.9576 is the implied exchange rate. The prices are taken from the official Big-Mac Index only.
For example the actual “open” exchange rate was 6.48151 on 12 Jan '21, the day the index was published:
USDCNYBigMac= 100*(3.9576 / 6.48151)= 61.05985 suggesting the Yuan is 38.94% undervalued compared to the US-dollar.
Full parity = 100; 10% undervalued = 90; 39% undervalued = 61; 15% overvalued= 115
Similar to the collateralization monitoring of uGAS and uSTONKS, uPUNK will determine liquidations based on a 2-hour trade weighted average price (TWAP) of the token itself.
For settlement it was suggested in the discourse to take the median price:
I guess this would need to be a Big Mac Index Future, recursively referencing its own price (a la uGas) until it ultimately settles on expiry after the Big Mac Index is published?
The median of the average monthly average prices could be taken for price settlement.
While Forex data are free through open centralized exchange, brokers, and other sources APIs, the most reliable are paid. We propose to use TraderMades’ APIs whose pricing is accessible on their website. TraderMade has also a Free Tier which can be used by the voters and would be sufficient to provide the price of a certain asset. More info on Forex pairs: UMIP-29 and here.
For CNYUSD see: UMIP-32 . Note that 6 decimals are used instead of the 5 decimals that TraderMade provides.
Technical Specifications
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Identifier name: GBPEUR
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Base Currency: GBP
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Quote Currency: EUR
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Result Processing: None
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Input Processing: None. Human intervention in extreme circumstances where the result differs from broad market consensus.
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Price Steps: 0.00001 (5 decimals in more general trading format)
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Rounding: Closest, 0.5 up (> .000005 rounds up, < .000005 rounds down)
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Scaling Decimals: 18 (1e18)
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Pricing Interval: 60 seconds
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Dispute timestamp rounding: down
Rationale
The Index is only published twice a year. The settlement before or after is a point of discussion. If settled shortly after the publication, you would get a surprise in how the Big Mac prices have developed the last half year. Although it would be more of a bet and therefore more exciting. The time of expiry could be two weeks earlier (on 1st of January and 1st of June) than the time of settlement. This way the eventual price of the synth is never really certain.
The Index is backward looking and during the half year McD’s could have changed their prices.
Implementation
The price is self-referential and would be calculated similar to uGAS, using the TWAP of the last two trading hours before request.
*Describe how UMA tokenholders should arrive at the price in the case of a DVM price request. Document each step a voter should take to query for and return a price at a specific timestamp.
Step 1
Step 2:
…
Step n :
Security Considerations
All UMIPs must include a discussion of the security implications/considerations relevant to the proposed change as well as proposed mitigations.
The particular features of the proposed price identifier should be discussed in relation to their security. Some issues to consider include
- How could manipulation occur?
Insider knowledge of BigMac prices, from the Economists’ team in particular. - How could this price Identifier be exploited?
- Do the instructions for determining the price provide people with enough certainty?
Certainty or no certainty, that’s the question of date of expiry and settlement in this case. - Are there any current or future possible concerns with the way the price identifier is defined?
The Economist could stop the publication of the Index, although highly unlikely it has already been around since the sixties. McD’s could go bankrupt. - Are there any concerns around if the price identifier implementation is deterministic?
