Topic: Long+Short basket currencies (Read 3603 times)

I hadn't planned to implement the long and short coins as baskets themselves but simply to buy back pairs aka completed baskets for the value of the backdrop, since the actual long and short parts cancel each other.

Maybe though people holding shortcoins might have an incentive to simply not offer them for sale until some mythical pie in the sky time when they will be worth the full amount of the backdrop, the stuff it is short on having vanished away to zero value.

So I can see how having a time limit by which they have to be redeemed in order for the entire shortcoin to not become worthless could be useful.

But if having to tie up capital in the form of backdrop is as big a problem as you seemed to have earlier thought maybe tying it up indefinitely in the hope the thing you shorted will become worthless, or even just in the hope it will some year or decade become worth less than it was when you bought the basket or the shortcoin, is unlikely?

I wonder how much of a problem it would actually be to have a few scrooges who keep hoarding shortcoins, more and more and more shortcoins, and "never" selling them?

Since the longcoin can never go down in value to less than the value of its backdrop, the house/platform presumably should always be able to buy the longcoins back for that amount if no one else is willing to offer more.


Yes but options maybe require some special programming, if only in the form of smart contracts that take any needed collateral into the custody of the contract itself (which Open Transactions smart contracts can do); they might not be amenable to being implemented simply as tokens people can trade on the markets like any other tokens?

(This idea of trading like any other token is also part of why I prefer not to have to resort to having expiry dates on tokens.)

-MarkM-

What if the longcoin could be split further? I.e. the issuer/house/platform will pay for the longcoin in backdrop + asset?
Then each basket is:
(((1 BTC) + (15 LTC)) + (1 BTC - 15 LTC))
Now the market has to value the longcoin more than the shortcoin. I see no way to "game" this system, but do you?
Unfortunately, in a market with anonymous consumers, anyone could seek to recoup their fees by scamming the lenders.

Again, the oracle problem comes into play. I prefer my futurecoin idea above. Options don't need an oracle either.
hee hee

Maybe the platform could afford to do that on an alternating-type basis.

That is, it accepts them one at a time, and each time only of the type it didn't accept the previous time.

This could be smoothed out somewhat by having users offer the coins for sale, the marketbot then being able to look at both markets to check it can make a pair, and if doing so is within what it thinks (oops, maybe needing an oracle to do its thinking for it) is a worthwhile price it buys a pair.

Thus its buying activity basically broadcasts to the markets what its oracle is telling it is worth buying, which again brings us back to oracles.

It seems possible that if the interest on leverage loans is high enough, and such loans are popular enough, a brokerage doing the collateral/leverage accounts could build up enough collateral of its own that it might be able to provide larger leverage ratios to smaller borrowers, maybe even eventually to the point that small enough loans requested by frequent enough customers could even reach 1:1

For example if a specific customer has borrowed 100 of something at 1% per such loan 100 times, then the brokerage has already received 100 from them in fees, thus might be willing to risk some of that by offering an increase in leverage on loans that small or smaller.

Futurecoins maybe could be done as baskets the way assassination markets and such work. Basically someone interested in betting on a true/false proposition buys a basket of two coins, an itwasfalsecoin and an itwastruecoin. They then sell either of those to someone wanting the one they themselves do not want. When history reveals whether "it" was true or false, the house buys back either the true or the false but not both, the other becoming worthless.

Presumably the coins would then be retired while new but similar baskets are issued offering much the same bet but covering a new span of time.

Unfortunately this again needs an oracle, and oracles introduce liability as to whether the oracle might from time to time, ever, or always lie.

(LIARbility, hee hee.)

-MarkM-

Obviously trading on margin / leverage isn't really feasible for the markets we're talking about. The best we can strive for, then, is 1:1 trading. A long/short basket does much worse than this, and so do the various CFD ideas. The futurecoins and options work 1:1, which is good. Additionally, both futurecoins and options can be traded as assets, but again, they don't work so well in an illiquid market.

I think the only way to do it is to have the issuer (or some market-maker) accept longcoins and shortcoins separately.

In people's minds one half should be worth more than the other, but getting them to agree that their half is worth less than the other guy's half could be a problem.

Leverage is not something we can do without securely escrowed or held collateral unless we have soldiers and/or police and/or lawyers in place on the planet where the collateral is located that can and will go get us that collateral in the event of a default.

In the game we can in fact have units of army and navy, and even nuclear missiles and so on, so in game contexts we can maybe allow collateral to be something we do not have in our vault. But in "real life" if it ain't in our vault we should assume Tom WIlliams and/or Pirateat40 has it.

All this really means is leverage is for the relatively rich.

The leverage I am thinking might be realistic to provide is the collateral/leverage account setup, whereby your broker maintains for you a nym that holds stuff of yours that the broker is willing to accept as collateral and the broker loans you stuff up to a value of some fraction (maybe half) of the value they think your collateral they have custody of is worth.

So compared to that, the basket long+short coins didn't look that bad really.

This matter of how to actually cause markets to value the longcoins and shortcoins appropriately is interesting though, Hmm...

-MarkM-

It could be implemented this way:
- Alice advertises a CFD at X price (spot)
- Bob agrees to the contract. He takes the short.
- It is Alice's CFD, so she will be naming the price. This is specified in the contract. (Obviously, this could be the other way around)
- At contractually-specified intervals, (this part can be done by a bot) Alice publishes a price to the server.
- Bob sells 1 BTC to Alice at that price. The "losing" party sends the "winning" party the difference. These two transactions are designed to cancel out, so Alice's published price is always above X.

But what is really happening (cancel out the dollars) is:
- At intervals, Bob sells 1 BTC to Alice for X (spot at time of contract)

And really, the whole appeal of CFD's is that they can be done on margin, and for that, one needs an oracle. Therefore, it's probably best for the sale to be done as a means of dispute resolution; it's better for the parties to agree on the price. Still, even one dispute would require a trade at the full value of the contract... and as that's probably not feasible, we're back to our problems:
- Baskets: "backdrop" problem means that if the price changes too much, coins can be less than worthless yet discarded for 0.
The backdrop also means it's not done on any kind of margin/leverage; in fact it's quite the opposite. The backdrop must be several times the value of the asset being traded, so to make a little profit from your longcoin or shortcoin, you need a lot of money.
- CFD's (traditional): relies on an oracle
- CFD's (with dispute resolution): again takes a lot of money to make a little profit
- CFD's (repetitive futures contract): again, lots of money, little profit
- Futures contract: Aha! we might be getting somewhere... it can't be done on margin (an account in the red will just be thrown away), but it could work...

I'm not very familiar with Open Transactions. Can it hold money in escrow? Can it hold fiat? If so, we could use trade-able "futurecoins":
- A futurecoin pair is created at $10 by a user. In order to hold a long or short position (an unbalanced coin), a user's account must have enough money to fulfill the contract. Thus, the user deposits 1 BTC.
- The user sells the longcoin to someone with $10 in their account.
- Several things can now happen. Both people can hold their coins, and a sale at $10 will be executed when the contract ends. The first user could buy the longcoin back on the open market, and when the contract ends, no transaction will take place. Buying the balancing coin would also allow the user to withdraw his money. So would selling the unbalanced coin, so perhaps this would encourage liquidity

I'm not sure futures were meant to be an asset

Of course, there are also options, but without an oracle (MPEX relies on an oracle), all options sold must be covered. If you are selling a PUT option, you must have fiat*put price*quantity on the exchange, and if you are selling a CALL option, you must have BTC*quantity on the exchange. However, only the original seller must have sold it covered; if I buy a PUT option from you and sell it to someone else, you still hold the obligation. I can use bananacoins to short BTC, without having BTC or fiat on the exchange this way: I buy the PUT from you with bananacoins and wait for it to appreciate.

The long+short basket currencies does have one major strongpoint: there's only one of it. Futures, CFD's, and options all have a strike price or something like it, so in a low-liquidity market, they're hard to trade. The baskets, however, are only two things: a longcoin and a shortcoin, and these can be valued by the market.

That does beg the question, however: "Who backs the long- and short-coins?" Why is a litecoin-longcoin worth 15 LTC + 1 BTC? If they can only be redeemed from the issuer as pairs, the 15 and -15 LTC don't really exist except in the minds of the traders. There is no real reason to value a longcoin more than a shortcoin except the concept; it's like a piece of paper which SAYS it's worth 1 BTC + 15 LTC, but it's only worth what others will pay. Bitcoin is worth only what others will pay, but it doesn't state in the transaction "this is worth 3 bales of hay" or whatever. It seems to me that the issuer must also buy-back individual long- and short-coins, or else the system is indistinguishable from two halves of a key which must be put together to open a lock: why should one half be worth more than the other?

Awesome, so the site mediating this has no skin in the game, it can just charge its standard per-API-call usage tokens fee for use of its functionality and not care how much value Bob and Alice are wagering and exchanging.

Unfortunately I don't see how to call this thing an asset and put it on a market in my server though.

Unlike the basket currency concept it does not seem amenable to being a token that people can buy and sell.

-MarkM-