Topic: [OFFICIAL]Bitfinex.com first Bitcoin P2P lending platform for leverage trading - page 134. (Read 723903 times)

I'm glad you are still with us.

The issues as I see them are:

1) The FRR, as it's is currently implemented, is a "magic number" that is arbitrarily set.  Just because it it is derived from a existing data does not mean it meaningfully represents anything. Past performance does not guarantee future results and all that.  Basing the FRR on the current swap book or a very short (6-12 hour) windows would be an improvement but will not solve the problem (see 2 and 3 below).

2) The FRR creates a feedback loop.  A massive amount of money is at one point (I'll get to the delta later).  If you want your offer to be taken, it must be below the FRR.  Since the offers are forced to be below the FRR by the sheer size of the FRR, the average rate of the active swaps goes down.  When the average rate of the active swaps goes down the FRR is adjusted down and the cycle begins again.

3) Back to issue 1), the feedback loop created by the FRR will still affect a FRR based on the current swap book.  All the offers being placed below the FRR will still come into play in the FRR calculation. A few massive offers placed at a ridiculously high rate will bring the FRR up to some value, but the cycle will now start around that new FRR value.

4) The only time the market is free is when the FRR disappears.  As a mater of fact, the only time the market goes up is when the FRR disappears.  If that doesn't convince everyone of the negative impact of the FRR, I don't think anything will.

5) The existence of the FRR along with the massive amount of money in it dictates the market rates.  Let's say you arbitrarily set the FRR to 0.2%.  Where do you think the first offer is going to be placed at?  If the lender whats it to be taken it's going to be 0.1999%.  Other offers will be placed more aggressively but they will still be capped by the 0.2%.  If you set the FRR at something ridiculous, say 2%, real price discovery will take place.  But this is only because the FRR has taken itself out of play.  The rate is so far removed from the field that no lender needs to be concerned about it.

To some the above up, the FRR (with one caveat) cannot be fixed because the FRR, in and of itself, is inherently a market force.  It doesn't allow price discovery because it's massive value caps the maximum price.  There is no way to know if a rate above the FRR is valid because the market can never get through the FRR to test it out.

The caveat for the above is that the FRR can be fixed but only by limiting the amount of money it controls.  If it was capped at some value that could easily swallowed by the market it would not have it's market influence.  In effect, the FRR is taken, it disappears, and the free market returns.


OK, for the sake of argument, we ignore all the above take it as a given that the FRR going to exist. I know I'm once again belaboring the point, but any solution supplied to minimize the effect of the FRR is going to feel like a hack because it is a hack.

I can see two ways to minimize its impact, place the FRR so far out that it become irrelevant or distribute the total FRR load over a range.  The first option is not going to be taken since it is effective the same as removing the FRR. (There is a third option, converting the swap market into a fund, but I don't think that is open to discussion.)

Some possible ways to distribute the FRR load:

1) Allow lenders to set a a 'delta' to the FRR.  I am now convinced this will not work for one primary reason (once again with a caveat), all it does is create a market in a market.  If you disregard all the lenders not participating in the FRR, the offers in the FRR will be competing against themselves via the delta.  The first delta will be FRR-0.001, the next will be FRR-0.002.  All you have achieved is a FRR market in the swap market. It is possible that some of the lender's delta's will push the rate so far from the FRR that there will be room for the market as a whole to compete with them, but at point they have functionally removed themselves from the FRR.  The caveat to this is that the lenders will take an active roll in managing the delta.  If they don't, and just set and forget, the idea might work.  Given that the current FRR lenders are what we are calling passive lenders, this is entirely possible.  But, if only a small minority use the delta, the entire reduces to FRR+0 which is the problem it is attempting to solve.

2) Have the system distribute the FRR load.  With this option Bitfinex can guarantee that the load is distributed.  The only way to distribute the offers is to modify the offer rate.  Various methods can be used to do this but it all comes down to assigning a delta to the lender's offer.  Some are going to get a low delta and see their offers taken first, and others with a high delta are going to be taken last, if at all.  If the deltas do not have a large enough range, all you will achieve is lowering the wall but also widening it so the it's market influence is just as great as the current FRR.  If you have a range too great, you reduce the market influence but will quickly reduce the FRR to a lottery; if a lender gets a low delta, their money goes to work for them, if they get a high delta, their money is idol until the next bull run.  It would be possible to address this, but at that point you are just putting a band-aid on a band-aid.

3) Offer various FRR based on different data sets.  You could do one on the active swap average, one on the current active offers, one on the last 12 hours worth of taken swaps, etc.  I haven't really thought this one out since I pretty much just came up with it.   My initial thought is one of the rates will outperform the others and all FRR lenders will slowly move their money to it.  I will need to give it more thought.

 

Hooray!  They've actually done something to help solve the problems with the market long term, and already the order book has shifted to a more reasonable level.  I hope they do take punitive action against those who were trying to manipulate the market, and use it to provide restitution to those who had what would otherwise have been legitimate short positions if not for the manipulation.  But I'm not holding my breath.

I've been thinking about this and I think there is a relatively simple way to address it.  I am almost positive that Bitfinex can determine that swap is being replaced before it's term is up.  Given that they can, implement the follow rules:

• If a swap is new or if is closing do to its term expiring the system functions as it currently does.
• If a trader is closing his position, the system functions as it currently does.
• If and only if the swap is being replaced by another the swap, the trader pays the current swap issuer a early termination fee.  It could be a flat fee or percentage, based on the remaining term or on the rate difference between the old swap and the new.

This would not affect traders unless they are rate shopping existing swaps against swaps they already hold.  It does not prevent a trader from swapping a high rate loan for a low one but it would would provide an incentive to keep the swap they have for it's full term unless the new rate difference is significant.  In addition, the original swap provider will get the benefit of the termination fee.

I think another side effect would be that it will help stabilize the FRR as it is now implemented.

Any thoughts on this?

https://www.bitfinex.com/pages/announcements

In an effort to address some of the community’s concerns surrounding the price premium of TH1 over intrinsic value and lack of liquidity on the book, Bitfinex will be making some adjustments to TH1. Firstly, we would like to plainly state that Bitfinex will not tolerate any behavior that we deem to be manipulative. We are looking closely at the behavior of some of the participants and are mulling over some overall rule changes to discourage certain behaviors system-wide – more to come on that later. Just because the platform permits an unintended use pattern does not mean that we won’t take a punitive approach in dealing with those traders trying to exploit loopholes in a manipulative fashion. This contract is a beta product, and we have reserved the right to make adjustments as necessary to improve the integrity of the product. To that end, the following changes will soon go into effect:

    TH1 no longer good collateral. As of midnight UTC on Monday, October 20th, 2014, TH1 can no longer be used as collateral for opening long swap positions in TH1BTC. Only collateral in the form of BTC, LTC or USD will be permitted. We have made this decision based on the fact that TH1 itself will be worthless at contract expiration.
    Margin requirements will start to increase. As TH1 approached expiration, we will be increasing the Initial Margin Requirement (IMR) and the Maintenance Margin Requirement (MMR) according to the following schedule at midnight UTC on the respective dates:
    Date   IMR   MMR
    Monday, October 20th, 2014    40%    20%
    Monday, October 27th, 2014    50%    25%
    Monday, November 3rd, 2014    60%    30%
    Monday, November 10th, 2014    70%    35%
    Monday, November 17th, 2014    80%    40%
    Monday, November 24th, 2014    90%    45%
    Monday, December 1st, 2014    100%    50%
    Wednesday, December 3rd, 2014    100%    60%
    Friday, December 5th, 2014    100%    70%
    Sunday, December 7th, 2014    100%    80%
    Tuesday, December 9th, 2014    100%    90%
    Thursday, December 11th, 2014    100%    100%

It will be the responsibility of the traders to insure that their positions are backed by enough collateral to avoid any forced liquidation that may result when MMR is increased. We apologize for any inconvenience caused by these changes as we continue to fine-tune this beta product for future offerings.

Hi all,

Sorry your feel abandoned. I am still here (since yesterday) and still monitoring this issue. We are looking into ways to improve the FRR, and discussing some of your suggestions internally. We are discussing all options. Perhaps some clarification of the goals is in order.

The swaps market exists to enable margin trading. As opposed to traditional trading, we at Bitfinex allow the enabling of margin to be crowdfunded, and have created a new way to generate returns as opposed to trading. There is no guaranteed rate, nor should there be a guaranteed rate. The whole reason for a market is that the rate will be set by those who are participating in the market. It appears that the FRR has been an attractive rate, and many people are using it. We are currently looking into ways to improve the calculation of the FRR, and even discussed removing it. However, the autorenew feature is one of the more popular aspects to the swaps platform, and seems to necessitate some sort of variable rate that ideally would track the general market.

So, any suggestions to improvements in the calculation of the FRR are very welcome, and I am still listening. I, personally, don't like the idea of "buckets", because it seems hacky, and not likely to work. Basically, we want to avoid "magic numbers" that are arbitrarily set, and allow the market to dynamically set the values in a way that makes sense. I think that the goal here is to create a dynamic rate that correctly tracks the market situation. We are not trying to ensure great returns, the market will dictate the price. As long as people need margin, they will need swaps, and this creates the demand which along with the supply, sets the price.

I still personally think that a delta would solve the issue of a huge wall. If you do not want to wait in line, you would simply apply a negative delta to your FRR. You can basically have competition based on the delta value. This allows each individual to set their own preference for rate, and doesn't prescribe some sort of limits. In other words, it allows the market to work and enables price discovery. That is the main issue, is that the FRR currently is hindering price discovery, since you have the choice to either pick a rate you like, and lock it in, or you can pick one floating rate. Since most people like the idea of a floating rate, everyone ends up choosing the same rate, basically giving up the ability to compete based on price. A delta solves all of that, and makes it easy to differentiate the rate at which you are willing to provide a swap, while still allowing you the variability of the FRR.

Here, in my opinion, are the benefits to a delta:
1. Reintroduces competition among all people who are looking for a variable rate
2. Enables better price discovery, as people individually pick a delta rate that suits their individual needs
3. Ensures that the dynamic tension between demand, which wants low rates, and supply, which wants high rates are both represented equally
4. From a technical standpoint is much simpler than some of the other possible solutions that are proposed.
5. Is in keeping with the general principles of a free market.
6. Does not break existing functionality, strictly an option to enable more advanced functionality for those who need it.

Please weigh in with your thoughts. Remember, the goal is to find a good solution for the FRR, while we are not married to it, there doesn't seem to be a viable alternative that is compatible with autorenew.

-Josh

P.S. We are also looking into other ways of calculating the base number of the FRR (weighting more towards the most recent activity, as opposed to a simple average). I thought the discussion of mode and median were also interesting.

I appreciate Bitfinex taking a small action to remedy this situation.  I'm not sure it is enough.

The market is distorted and has been so since the start.  Am I, and others, going to be punished for figuring this out and closing our positions early?

I've lost 7.86 BTC and $383 USD (not including fees).

I hope your solution will address both past and current distortion.

Can you point to a single day since they've started where the market was rationally priced?  The supply impacts the price because there was a shortage of swap contracts being offered.  If your swap times out then you have to either renew (and swap rates increased in anticipation, and there aren't enough of them for everyone) or buy in order to close your position.  As long as the supply of btc is massively higher than the supply of TH1 the market is ripe for manipulation.

When we get to the last 30 days before the contracts expire then every swap contract that lasts until after the expiration date will be taken regardless of their rate because they will never have to be paid back - it's just free money.  So let's say no one offers swap past expiration (why would they?).  That means everyone who has a short position will have to close it before the last day.  That means they need to buy, which means someone will have to want to sell.  That leaves shorters bent over a barrel begging someone with a contract to sell it to them to let them out.  What will bitfinex do then, just give it to them?

The supply should have no impact in the price - the price should reflect the net present value of the expected dividends.  Increasing the supply doesn't change that.  The only purpose of the announcement it to put a time certain for when the hashing provider is supposed to accrue an additional dividend for remittance back to Bitfinex.

We would strongly caution anyone from continuing to be long TH1 unless you believe that the dividends that you will receive through Dec 15 is more than the current bid price.  For that to be true, BTW, difficulty would have to *drop* 10% every 2 weeks until Dec 15 - so - stay long at your own risk and remember that this is a BETA PRODUCT and Bitfinex will do what it needs to to keep the market rationally priced.  This product is intended as a way to speculate on future difficulty.  Substantial distortions and manipulations will not be tolerated.

That's really not enough time.  Since most swap contracts are 30 days we should have 30 days notice before a change in supply.  Otherwise we don't really know what we're buying or selling.  It's now become a matter of speculating on whether or not bitfinex will intercede on the market, and when.

the extra 100 TH1 had not been added yet - still waiting for next dividend to get mined.  Bitfinex has always announced supply increases prospectively in this fashion.

nrd525, I made a mistake here, I thought your post was only referencing the last idea (variable rate buckets).  It's my error and I apologize.

They added more contracts and have kicked the can down the road.  I'm a little pissed that they didn't tell us in advance.  I closed a short position because I believed that there wouldn't be enough swap on the market for everyone to renew, and the price wasn't going down because someone put in a price floor.  Also recognizing this problem I jumped to the other side, buying contracts with the expectation that there would be a short squeeze.  To add contracts at the last minute means that I've now been screwed twice.

Adding more contracts doesn't help because there is still a chance that rational players will not offer any swap for the last day before contracts expire.  Add to this the interest those swap contracts are accumulating, which has to come from somewhere, and in the end there won't be enough TH1 in the market for everyone to close their positions.

Because I cannot predict what bitfinex will do or when, and their actions have serious consequences on the market, I'm now looking for the best way to withdraw.  I thought I was buying contracts in a market of 500, and after the fact it was changed to be a contract in a market of 600.

We agree on the existence of the FRR but I think is becoming glaring obvious that Bitfinex does not; if mjr speaks for Bitfinex, they are married to the FRR.  It is not going away.  The best we will be able to do is convince them to adopt a better way of implementing it.

I think the reality is that Bitfinex is more concerned about the traders than the lenders.  We are not their primary customers, probably more of a necessary evil from their point of view.  This is pure supposition on my part but I would wager that if Bitfinex could provide the 20m-30m in swaps themselves they would drop the swap program immediately.

I would not agree that the swap market has matured for two reasons. One, the fact that the FRR exists, and two, the investors in the market.  Bitfinex has promoted that swaps are virtually risk free and attracted money that should be bound for an insured bank account, not used to fund highly speculative trading.  It would be interesting to see what would happen if an event occurred that caused the lenders to lose all of their principal.  Instead of dealing with a hundred people who new the risk and were prepared to accept it, they would probably be facing a class action suit to get the 'safe' money back.

What is currently bothering me the most right now is two fold, first that mjr seems to have abandoned this thread of discussion.  He came in cheerleading for the FRR, and when he met with differing opinions he disappeared.  That does not speak well for Bitfinex's professionalism.  Second, and more importantly, mjr does not seem to understand that the FRR, with over 10% of the market capitalization, is the market maker.  He seems to think that since the FRR is based on the average of the the non-FRR active swaps it reflects the current state of the market while not understanding that the non-FRR swaps have been priced to compete with the FRR.  This shows a complete lack of understanding of statistics and does not bode well for any intelligent changes to be made to the FRR.
 
It would be nice to get all the lenders to pull their money for a week and cause Bitfinex's margin trading seize up, but that is not going to happen.  We can only hope that someone at Bitfinex is tracking this discussion and is willing to make some reasonable changes.

I suppose it depends on how you define limiting the FRR.  The total amount in the variable rate fund would not be limited, only the amount of offers at the lowest tier.  As more was added, it would create new tiers at a higher interest rate.  As the lower tiers are consumed, and after a set time period, the higher rate tiers would propagate down to the lowest FRR tier.  Calculating a percentage of the total swaps would not be difficult as it would be done at the time the tier is created.  The FRR auto-renew is not affected since there is no limit on the amount of money in the FRR; the auto-renew money might not be offered at the lowest rate but then that is the point.

As for ending the FRR being a bad idea, I would disagree and I think I have made my (belaboured) point in prior posts.  That being said, you are probably correct on who is participating in this discussion.

I don't think I can fully agree with the statement that the system is biased in favour of the borrowers.  The nature of margin trading dictates the basic rules.

What do you think of the other ideas I put forward?  Do any of them appeal to you?

I provide only "small money" at flash return rate for 30 days, using the automatic settings, and my money is usually lent out.
I don't really feel that "wall" problem you're talking about. o_o

Very sophisticated post. I've been a liquidity provider on BFX for quite some time managing a medium six figure position and I too vouch for either the complete removal of the FRR or the implementation of variable rate that tracks the current order book much more closely. The FRR seems very inelastic towards upward movement but gets drawn down quickly by downward pressure. There have been several very peculiar incidents involving the FRR that left me with sour taste.

A huge FRR wall of 3m+ has surpressed the swap rate for weeks slowly moving down like the sword of Damocles until it was finally chewed up in the 0.04% region leading to an immidiate violent upward spike. What's really unfortunate about that is that most of the FRR offers don't even get taken swiftly in a situation of increasing supply but contribute to the downward movement by building up this huge FRR wall. Then there have been incidents where after a huge chunk of orders the lowest available offer lies at 0.6% or something very high a 150k FRR offer gets posted at below 0.1% only to be immidiately slurped up. I feel the one using the FRR was screwed the most in that situation.

If you want to enable an automatic system that ensures sensible offers that get taken quickly you should orientate the FRR at the current offer book. For example let the system post the FRR just a pip below the current lowest offer of course adjusted to volume and offer size so that single small fake offers doesn't pull the rate down. This would ensure minimal influence of the FRR to the current order book and swap rate discovery.

In my personal opinion though no FRR is needed at all. The swap market is now mature enough and every player should finally understand that this is no savings account. Active management of one's own position should be encouraged not hindered.
The swap market is in a natural downtrend as BFX grows because increased visibility of the attractive conditions drags people's money onto BFX. The rate we should be looking at in the future is not 0.1% per day or even 0.05% but something along the lines of the prime interest rate only adjusted by the default risk of BFX, magnitudes lower than it is now.
No FRR used by lazy lenders is needed to fasten this downward spiral.
Logging into BFX 10 times a day for a minute to take a look at the book and post one's offers is not inhumane and should be the standard imho for the premium interest lenders are enjoying here.

Correct. And this is absolutely how it should be. Someone who lends out $500 should have no real say on this because whether he gets 10% or 50% per year doesn't matter. It's pocket change either way while he contributes through lazy FRR lending to people with significant funds losing life changing amounts of money.

I am a liquidity provider and I won't delude myself. I want the rate as high as possible but I am reasonable and see how a rate of 1% per day is unwarranted and unhealthy (unless BFX has a huge default risk or we are in an epic bubble bullrun). As I laid out before the swap market is in a natural downtrend anyway and will be in the future for obvious reasons. All upward trends where merely achieved by reckless (and clever) manipulation.

Is there any update about this?

Limiting the size of the FRR is a bad idea.  The total number of swaps has increased by 5-10% in some weeks.  So allotting a fixed amount to the FRR won't work. Limiting the FRR to a percent of total swaps would also be tricky.  A limit would mess up people who use FRR auto-renew.

Ending the FRR is a very bad idea.  Some people have small amounts lent out and don't want to micro-manage.  My guess is these suggestions will be dominated by people with larger amounts and/or people who like to micro-manage.

What problems are there?
1. FRR slow to adjust - could shorten the period that the rate is based on.  Especially noticeable in the long downward trend of the FRR where I knew it was heading to 0.04% - but it took a long time.  However this is also the responsibility of people who had $4 million not lent out for not reducing their rate.  You don't want to shorten this period too much or the rate will vary too much, be prone to manipulation, and hurt borrowers.

2. Swap system is biased in favor of borrowers.  They can cancel loans and take better offers. Not sure how to fix this.  A possible limit to this is that lenders can move their money into another investment or go long themselves.

Another thing I don't understand:
- ~10 BTC and ~20$ sits in my trading wallet
- I have no open orders or positions, my tables are all clean
- I tell the trading engine that I wish to buy 25 BTC at market price
- My order shows up as partially filled
- I manually refresh and find that my oder got closed but I have a position with something like 10.1234312 BTC or so

Is this normal?
- Should market orders automatically close as partially fulfilled after a short timeout?
- Is there a hardcoded limit on how far the price can reach out from the base?
- Are market orders supposed to pick up one matching order but not more (not even with the same price)?
- Are market orders supposed to pick up the orders with the closest price tag (with any number of underlaying orders) but not more orders from other price tags?

Does anyone else see their swaps churning?  A swap gets taken for an hour or so and then closed?

The same seem to be happening to the FRR bucket, it starts to be depleted to 70-80k and then refills to 250k or so.