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What exactly is a "rates market"? Can you provide an example of a market that fulfills this function?

by csense 13y ago

JumpCrisscross 13y ago
Rates markets let one borrow and lend capital. Whether that capital is in U.S. dollars or Bitcoin is irrelevant so long as one can freely convert between the two. The deepest and most reliable rates market is the U.S. Treasury market. This can act as a proxy for Bitcoin - I can borrow U.S. dollars and convert them to Bitcoin. The risk of the BTC/USD slipping while I convert my dollars to Bitcoins would comprise the extra risk to Bitcoin borrowing. Collateral markets would let one borrow and sell the underlying, in this case Bitcoins. The deepest and most reliable collateral market is the U.S. Treasury repo market. U.S. equities stock borrow markets, which enable short selling, are another example. Collateral markets are critical to a functioning options market. Not being able to borrow Bitcoins means not being able to short. Not being able to short means not being able to convert calls into puts. It may be possible to account for this bias by dynamically adjusting the call and put margin requirements. Done improperly that risks mutating a structural risk into a counterpart one. None of these problems are insurmountable. There are clever ways of accommodating, both in how the contracts are structured and how the market is built. This takes time and every market is different. Derivabits is, for now, in the "play and speculation" versus "serious risk management instrument" bucket. Does that clarify my thoughts?
- runeks 13y ago
  So is Bitfinex' "liquidity swap market" [1][2] a rates market? It's basically just people with either USD, BTC or LTC deposited with the exchange, offering to lend it out at a certain rate, and borrowers bidding to borrow it. [1] https://www.bitfinex.com/pages/features#swap https://www.bitfinex.com/pages/features#swap [2] http://charts-bfxdata.rhcloud.com/bitfinexLiquidityBTC.php http://charts-bfxdata.rhcloud.com/bitfinexLiquidityBTC.php

What exactly is a "rates market"? Can you provide an example of a market that fulfills this function?

by csense 13y ago

What exactly is a "rates market"? Can you provide an example of a market that fulfills this function?

Rates markets let one borrow and lend capital. Whether that capital is in U.S. dollars or Bitcoin is irrelevant so long as one can freely convert between the two. The deepest and most reliable rates market is the U.S. Treasury market. This can act as a proxy for Bitcoin - I can borrow U.S. dollars and convert them to Bitcoin. The risk of the BTC/USD slipping while I convert my dollars to Bitcoins would comprise the extra risk to Bitcoin borrowing. Collateral markets would let one borrow and sell the underlying, in this case Bitcoins. The deepest and most reliable collateral market is the U.S. Treasury repo market. U.S. equities stock borrow markets, which enable short selling, are another example. Collateral markets are critical to a functioning options market. Not being able to borrow Bitcoins means not being able to short. Not being able to short means not being able to convert calls into puts. It may be possible to account for this bias by dynamically adjusting the call and put margin requirements. Done improperly that risks mutating a structural risk into a counterpart one. None of these problems are insurmountable. There are clever ways of accommodating, both in how the contracts are structured and how the market is built. This takes time and every market is different. Derivabits is, for now, in the "play and speculation" versus "serious risk management instrument" bucket. Does that clarify my thoughts?

runeks 13y ago
So is Bitfinex' "liquidity swap market" [1][2] a rates market? It's basically just people with either USD, BTC or LTC deposited with the exchange, offering to lend it out at a certain rate, and borrowers bidding to borrow it. [1] https://www.bitfinex.com/pages/features#swap https://www.bitfinex.com/pages/features#swap [2] http://charts-bfxdata.rhcloud.com/bitfinexLiquidityBTC.php http://charts-bfxdata.rhcloud.com/bitfinexLiquidityBTC.php