Re:Show HN: Bitcoin derivatives – call and put options
by JumpCrisscross on Monday March 24, 2014 @07:20PM
(#7462486)
> 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!
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.