What went wrong
After we noticed many people selling XPY in the paybase market, Josh called and had us confirm there was not an issue with the system because of the rate at which people were selling XPY. After verifying there was no bug or issue with code, we began to evaluate changes that were made to the system before the update.
As you know, we released gift card purchasing in paybase. When someone purchases a gift card (by design) the XPY used to buy the gift card (from the users account) is then sold on the market by us, in order to re-fund our gyft account with BTC. This naturally drives the price of xpy down. Within the first 20 minutes of launch, 673 worth of XPY was used to purchase gift cards which was automatically sold on the market. This caused the price to drop from $3.48 to $2.94 in a short period of time. Immediately following, users realized they could buy any amount of xpy for around this $2.94 price (which is lower than any other exchange at the time). Users would then be able to withdraw the purchased xpy to another exchange and sell it for a higher value than they paid for it in paybase. They could also sell it in paybase for a little more than purchased for (if the value continued to drop) which is what happened. As the value continued to fall, the people that purchased instantly were then able to sell for more in other exchanges (causing the value to continue to drop).
1.
One way this could have been avoided is if we used other open market buy prices to calculate our "instant buy price" (which we were doing before because we did not have our own market). But since we want to be the market leader and have the most volume, we decided to have other markets "follow" us instead of us following them (by using our own buy price).
2.
Another way this could have been avoided is to have disabled the instant buy/sell before we released the update (but there wasn't enough thought on my end to foresee something like this happening).
3.
A third way this could have been avoided was to build our backend code to create open market buy orders when users bought instantly from us. We have planned to do this last week but ran into a road block when trying to integrate with the trading engine at the last minute and didn't have time to finish the code for this to be implemented before releasing. This was also stated in the sign-off form and labeled as a non critical issue because this is how instant buy has always worked from the beginning (so there was no change to the logic). We did not consider that the downward pressure on the market started by gift card purchases would create an arbitrage dream for bots (and humans) between markets.
Seeing this play out and after continuing to evaluate options and outcomes, it is easy to say that the XPY market depth just wasn't large enough in paybase yet to support a high rate of gift card purchases in a short period of time (at launch) which caused a chain reaction (snow-ball effect).
Lastly, knowing what I know now about the situation has forced me to re-evaluate the thoroughness in thinking through all market affecting outcomes before a feature launch. We spent a great deal of time testing the software, fixing bugs, testing again, and delaying the launch to continue testing. I spent a less amount of time focusing on how the new updates would affect the market if different scenarios were to happen. I learned that it is equally important to spend as much time running through scenarios and outcomes that could affect the market now that we run an open market with features inside the market that directly affect the value of the coin. Our system is more unique than others in that since tonight we now have internal features (besides instant buy/sell) that affect the value of xpy and these have to be considered when launching a new feature.
I take full responsibility for the lack of thoroughness in planning how new additions could have affected the open market.
Short term resolution:
We turned off instant buy/sell - Complete
Long term resolution:
We will be implementing #3 above - Early next week
- When instant buys are made, the application should immediately make a purchase in our open market in paybase
We will be turning back on instant buy/sell whenever #3 is complete.
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Joe Mordica
CTO
GAW
22 Millbranch Rd. Ste 800
Hattiesburg, MS 39402
Anywhere: 601-602-5061
Fax: 413-206-7101
[email protected] 
