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Thanks! You're showing a lot more curiosity and honesty than JumpCrisscross. >Doesn’t this just move the counterparty risk away from the exchange and onto anot

by SilasX 4y ago

Thanks! You're showing a lot more curiosity and honesty than JumpCrisscross. >Doesn’t this just move the counterparty risk away from the exchange and onto another participant in the crypto ecosystem? They have to set the money aside for the (cash-secured) put they're writing, out of their control, so no, you don't depend on any later solvency of that counterparty to honor the put. And, as above, customer access to these assets survived even the FTX bankruptcy, since they're not recognized as exchange assets in the first place. >Why would someone be a counterparty to this trade? It seems like they are trading a lot of downside risk to get cash equivalents upside. Same reason anyone else sells cash-secured puts. >I’m sure I’m not understanding something about this setup but it certainly seems worse in all ways than an exchange actually enabling more traditional shorting. Except that you, the person taking a short position (by buying puts) actually get a payout in the worst-case scenario, and have effectively no counterparty risk. That's at least one way that it's better. Also, I don't know what's "non-traditional" about buying puts as a means of establishing a short position. It seems that, like JumpCrisscross, you're being sloppy about the difference between short-selling (borrow an asset to sell) and a short position (any position that increases in value as the underlying decreases). Edit: Also, one thing that bothers me here is the lack of a coherent model behind the objections. On the one hand, you both want to claim something is impossible, but when I show it is, you want to insist that that way is "worse in every way". What?

JumpCrisscross 4y ago
> have to set the money aside for the (cash-secured) put they're writing, out of their control, so no, you don't depend on any later solvency of that counterparty to honor the put There is no legal mechanism for them to insulate that cash from creditors.
- SilasX 4y ago
  I guess I can't say I'm surprised by yet another confidently wrong claim on your part. This is one of the most high-profile cases of bankruptcy, where very determined creditors are hellbent on pulling out every penny from a very obvious fraud. And in this case, we already know that -- right in line with my claim -- depositors at one arm of the debtor did in fact have their deposits legally insulated from the (very extensive) creditor claims. And yet you are claiming, in this very instance, that that is not possible, even as it already happened. You couldn't be more wrong on the facts here. Perhaps you could have limited yourself to a lesser claim that, under specific conditions, that you enumerate from actual knowledge, depositors can't step ahead of other creditors. By being open and honest, and revealing the full basis of your belief, you could have said something at least true, even if you were (very honorably) wrong about the applicability to this particular case. You didn't take that route. You instead went with the tried-and-true "if I say it confidently enough, I have to be right". Sigh. In the other thread[1], you claimed I'm upset at you for your views on crypto. This is childish and false. I love to hear meaningful corrections to my worldmodel. Your comments aren't doing that. You're instead finding the most solid parts, and baselessly asserting things about them that are demonstrably false. I can't actually learn from that sophistry or meaningfully update my beliefs. No one can. [1] https://news.ycombinator.com/item?id=35559836 https://news.ycombinator.com/item?id=35559836
  - kasey_junk 4y ago
    You are really missing what he's saying. That this particular default was subject to a bankruptcy judge means a few things that would bring alarm bells to any professional risk manager. Its not a _good_ thing, its just not the worst thing. A few off the top of my head: It went to bankruptcy at all. With more forceful regulatory regimes (eg banking/brokerages) they skip bankruptcy proceedings for the most senior debt holders entirely. The regulator steps in and disburses the funds much faster. The judge had discretion, there was no legal insulation to LedgerX's creditors. They just had maintained enough arms distance to satisfy a bankruptcy judge to rule in one set of creditors favor over another's. His point is that unlike in other regulatory regimes, nothing in the law, says that deposits at a CFTC exchange are more senior to any other liability. And the precedence on clearing house default is not extensive. Most risk managers would view the fact that this judge ruled in their favor as the saving grace to a mistake on the risk management side. Also, you are on tilt here. Statements like "You couldn't be more wrong on the facts here." are pretty embarrassing when you are misconstruing things so dramatically.
kasey_junk 4y ago
Ah, I misunderstood what you were saying. I thought you were suggesting that the counterparties were passing money between each other. Instead, this _is_ a traditional short position. The counterparty is setting aside the cash, with LedgerX, who is actually a registered CFTC clearinghouse so does have oversight and is (theoretically) watching their operations and they are therefore using properly applied risk management for "other peoples money". But the counterparty risk remains with LedgerX. It hasn't gone anywhere and is still something that would need to be managed. Its been a few years since I did risk management for a CFTC derivative exposed firm but at the time clearing house default procedures were very much up in the air. Dodd-Frank allowed for clearing houses to be declared as systematically important but only CME, ICE and OCC were designated as such. Has that changed? Other than that, I'll be honest I don't remember what the debt claims were with regard to clearing houses. Is there some special provision of the bankruptcy law that makes "LedgerX doesn't own those Bitcoin or the customer deposits and never did." true? Because typically this would be up to a bankruptcy judge to decide (as opposed to say custodial assets at a brokerage or deposits at a bank which have senior claims by law). That doesn't look to be what has happened in this case by the way. In this case it looks like a bankruptcy judge looked at the books and said "yep these assets/liabilities balance appropriately so its an easy win to just sell the clearing house to someone else". Which is precisely what 'JumpCrisscross said. So, I'm not put off by this, because its a message board. But maybe you should look at some of your statements to see if they meet your own standards. You've made a few claims that set my alarm bells ringing as someone who has actively worked in this space. A few examples "actually get a payout in the worst-case scenario, and have effectively no counterparty risk" which is not true. "LedgerX doesn't own those Bitcoin or the customer deposits and never did" which is up to a fairly complicated legal disposition to figure out. "customer assets are held separately from their own assets and would be available for withdrawal" which is an article of faith. Generally speaking, "no counterparty risk" is impossible in finance. With traditional finance there is a lot of law, regulation and precedence to help mitigate it but even then actors in the space manage counterparty risk as a matter of course, including by managing their clearing risk. When crypto is involved I think it would be charitable to be even more patient with people who are incredulous about that statement, even in cases like this where it is falling back on normal finance.
- 4y ago

by SilasX 4y ago

JumpCrisscross 4y ago

> have to set the money aside for the (cash-secured) put they're writing, out of their control, so no, you don't depend on any later solvency of that counterparty to honor the put There is no legal mechanism for them to insulate that cash from creditors.

SilasX 4y ago
I guess I can't say I'm surprised by yet another confidently wrong claim on your part. This is one of the most high-profile cases of bankruptcy, where very determined creditors are hellbent on pulling out every penny from a very obvious fraud. And in this case, we already know that -- right in line with my claim -- depositors at one arm of the debtor did in fact have their deposits legally insulated from the (very extensive) creditor claims. And yet you are claiming, in this very instance, that that is not possible, even as it already happened. You couldn't be more wrong on the facts here. Perhaps you could have limited yourself to a lesser claim that, under specific conditions, that you enumerate from actual knowledge, depositors can't step ahead of other creditors. By being open and honest, and revealing the full basis of your belief, you could have said something at least true, even if you were (very honorably) wrong about the applicability to this particular case. You didn't take that route. You instead went with the tried-and-true "if I say it confidently enough, I have to be right". Sigh. In the other thread[1], you claimed I'm upset at you for your views on crypto. This is childish and false. I love to hear meaningful corrections to my worldmodel. Your comments aren't doing that. You're instead finding the most solid parts, and baselessly asserting things about them that are demonstrably false. I can't actually learn from that sophistry or meaningfully update my beliefs. No one can. [1] https://news.ycombinator.com/item?id=35559836 https://news.ycombinator.com/item?id=35559836
- kasey_junk 4y ago
  You are really missing what he's saying. That this particular default was subject to a bankruptcy judge means a few things that would bring alarm bells to any professional risk manager. Its not a _good_ thing, its just not the worst thing. A few off the top of my head: It went to bankruptcy at all. With more forceful regulatory regimes (eg banking/brokerages) they skip bankruptcy proceedings for the most senior debt holders entirely. The regulator steps in and disburses the funds much faster. The judge had discretion, there was no legal insulation to LedgerX's creditors. They just had maintained enough arms distance to satisfy a bankruptcy judge to rule in one set of creditors favor over another's. His point is that unlike in other regulatory regimes, nothing in the law, says that deposits at a CFTC exchange are more senior to any other liability. And the precedence on clearing house default is not extensive. Most risk managers would view the fact that this judge ruled in their favor as the saving grace to a mistake on the risk management side. Also, you are on tilt here. Statements like "You couldn't be more wrong on the facts here." are pretty embarrassing when you are misconstruing things so dramatically.

kasey_junk 4y ago

Ah, I misunderstood what you were saying. I thought you were suggesting that the counterparties were passing money between each other. Instead, this _is_ a traditional short position. The counterparty is setting aside the cash, with LedgerX, who is actually a registered CFTC clearinghouse so does have oversight and is (theoretically) watching their operations and they are therefore using properly applied risk management for "other peoples money". But the counterparty risk remains with LedgerX. It hasn't gone anywhere and is still something that would need to be managed. Its been a few years since I did risk management for a CFTC derivative exposed firm but at the time clearing house default procedures were very much up in the air. Dodd-Frank allowed for clearing houses to be declared as systematically important but only CME, ICE and OCC were designated as such. Has that changed? Other than that, I'll be honest I don't remember what the debt claims were with regard to clearing houses. Is there some special provision of the bankruptcy law that makes "LedgerX doesn't own those Bitcoin or the customer deposits and never did." true? Because typically this would be up to a bankruptcy judge to decide (as opposed to say custodial assets at a brokerage or deposits at a bank which have senior claims by law). That doesn't look to be what has happened in this case by the way. In this case it looks like a bankruptcy judge looked at the books and said "yep these assets/liabilities balance appropriately so its an easy win to just sell the clearing house to someone else". Which is precisely what 'JumpCrisscross said. So, I'm not put off by this, because its a message board. But maybe you should look at some of your statements to see if they meet your own standards. You've made a few claims that set my alarm bells ringing as someone who has actively worked in this space. A few examples "actually get a payout in the worst-case scenario, and have effectively no counterparty risk" which is not true. "LedgerX doesn't own those Bitcoin or the customer deposits and never did" which is up to a fairly complicated legal disposition to figure out. "customer assets are held separately from their own assets and would be available for withdrawal" which is an article of faith. Generally speaking, "no counterparty risk" is impossible in finance. With traditional finance there is a lot of law, regulation and precedence to help mitigate it but even then actors in the space manage counterparty risk as a matter of course, including by managing their clearing risk. When crypto is involved I think it would be charitable to be even more patient with people who are incredulous about that statement, even in cases like this where it is falling back on normal finance.

4y ago