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It’s fine if you have automated margin calls every 30 seconds and you can blow out somebody’s position quickly enough not to lose money. Which is what FTX alleg
by NotYourLawyer 4y ago
It’s fine if you have automated margin calls every 30 seconds and you can blow out somebody’s position quickly enough not to lose money. Which is what FTX allegedly had set up… for every trader except Alameda.
- HDThoreaun 4y agoNo it's not really. It would not have been possible to sell the shit coin collateral for the amount loaned against it at any point. By the time FTX had liquidated half the collateral the coins liquidity would be gone and the rest of the coins would be worthless. There was no point in time where these loans were solvent, they were just pumped so they looked solvent on paper.
- NotYourLawyer 4y agoYeah, true. They probably shouldn’t have been accepting illiquid shitcoins as collateral at any valuation above zero.
- wmf 4y agoThey could calculate margin based on the liquidation value of collateral given the current state of the order book instead of mark-to-market value but I don't know if they did that.
- HDThoreaun 4y agoBut the entire order book could be wash trades that disappear as soon as the loan is made
- skippyboxedhero 4y agoThe issue here was the risk-management system didn't work for this trader. What it sounds like, although it isn't totally clear, is that this guy worked out how to exploit their margin call system by running up an illiquid coin using FTX money, cashing out, and leaving FTX holding the bag.