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A simple way to mitigate this is to set up the BTC exchange like CBOE like NYSE, where all of the members are broker/dealers and have clearing brokers and real-

A simple way to mitigate this is to set up the BTC exchange like CBOE like NYSE, where all of the members are broker/dealers and have clearing brokers and real-time margin requirements. So suppose, I'm WantToBeBTCBillionaire.com broker and want to offer my customers outlets to trade, I have to pay for a seat to Internet Board of Bitcoin Exchange (IBBE), a non-profit which funds their compliance staff which will audit my finances to make sure that I'm sufficiently capitalized to take on the risks on my and my clients' option books. Also each trade I execute on behalf of my client will deducted a fee to ensure the operation of BBE. In addition, I have to have a clearing broker, BitApex Clearing or Bitman Bachs Executions LLC whose sole role is to provide capital reserve necessary in case I default on my contracts. They'll also take a fee to ensure for each trade. And all trades that take place during the day, will be transmitted electronically to their virtual clearing house and settled T+3 days. In addition, I as a broker will enforce strict margin calculations on all of my clients, e.g., (https://www.interactivebrokers.com/en/index.php?f=margin&p=opt https://www.interactivebrokers.com/en/index.php?f=margin&p=o...) and enforce margin calls/liquidation and force my clients to wire money overnight in case they exceed their margins. Isn't BTC suppose to be without fees though? What a scam! EDIT: For 2), I will use the MtGox mid between bid/ask as the settlement price as a few months ago, all of bitcoin exchange display this as the most authoritative. To avoid underlying price manipulation, I'll make an esoteric settlement price that is the volume weighted average of all BTC traded prices across major exchanges at a special random time on settlement day. For 3), I will also open WantToBTCBillionaire.com as a bank where all of my depositors have to sign an electronic signature allowing me to lend their BTC out temporarily to BTC punters for short selling purpose/lending facility. The daily bank interest will be determined at the market price at which the BTC punters are willing to bid for, with me as the broker skimming a few pips to make money as well.

JumpCrisscross 13y ago
> A simple way to mitigate this is to set up the BTC exchange like CBOE like NYSE You are referring to mutualisation, and I agree it is a good idea. In a de-mutualised system, like Derivabit, if my counterpart farts then I alone get stuck with the downside. In a mutualised system, like the NYSE, when one counterparts fails the losses are distributed. Mutualised systems are stronger than de-mutualised ones. Liability sharing incentivises members to watch and regulate the financial condition of their peers. And for the same reasons a diversified portfolio is safer than a concentrated one, they are more robust. Yet they also restrict who can and cannot trade (e.g. only NYSE members can trade on the NYSE). Strong members build the foundation of a mutualised system. Having a party of Mt Goxes does nothing for market stability. Mutualising losses across the holders of an expiry seems like a reasonable middle ground. For example, if 10% of writers of options expiring on 25 March 2014 defaulted, Derivabit would not stick it to a random 10% of holders. Instead, all holders would receive a 10% "haircut" on the amount they are credited. Selling insurance on this haircut could be a future business. > Isn't BTC suppose to be without fees though? What a scam! There is no such thing as a free lunch.

JumpCrisscross 13y ago

> A simple way to mitigate this is to set up the BTC exchange like CBOE like NYSE You are referring to mutualisation, and I agree it is a good idea. In a de-mutualised system, like Derivabit, if my counterpart farts then I alone get stuck with the downside. In a mutualised system, like the NYSE, when one counterparts fails the losses are distributed. Mutualised systems are stronger than de-mutualised ones. Liability sharing incentivises members to watch and regulate the financial condition of their peers. And for the same reasons a diversified portfolio is safer than a concentrated one, they are more robust. Yet they also restrict who can and cannot trade (e.g. only NYSE members can trade on the NYSE). Strong members build the foundation of a mutualised system. Having a party of Mt Goxes does nothing for market stability. Mutualising losses across the holders of an expiry seems like a reasonable middle ground. For example, if 10% of writers of options expiring on 25 March 2014 defaulted, Derivabit would not stick it to a random 10% of holders. Instead, all holders would receive a 10% "haircut" on the amount they are credited. Selling insurance on this haircut could be a future business. > Isn't BTC suppose to be without fees though? What a scam! There is no such thing as a free lunch.