Quote:
Originally Posted by DontBanMePlz
yes a majority of this is wrong i guess ill take the time to explain since you seem genuine in your comments, but im bad at quoting stuff on forums
"No one knows whether everything was fine on the exchange, before Ver's alleged position went underwater, unless there's proof that Coinflex are disciplined and stay delta and gamma neutral themselves on their own book at all times. And I don't get, that if (as you suggested might/could be the case) they were holding BCH that Ver had lodged with them as collateral against his other long positions that were going down the drain, why they just didn't liquidate (sell) some of the BCH and top up his margin with the cash achieved from the sale. Surely BCH isn't so illiquid that they couldn't sell some, even if doing so in small amounts but very frequently. Okay, so let's say that BCH is very illiquid and the act of selling it artificially drives its price down, well that is just tough on Ver, he should have thought of that before lodging the BCH as collateral"
coinflex is an exchange not a fund or trader not sure what you are even talking about with staying delta/gamma neutral. positions are opened/closed with other counterparties on the exchange not the exchange itself. and yes im speculating that he held collateral in bch but also talk about how their risk management was bad and they should have started liquidating the position far earlier given the side, not sure how you missed that repeated several times.
"Also, correct me if I'm wrong, but the means by which FlexUSD coin holders earn interest is purely as a percentage share of futures/other products trading fees and a percentage share of repo rates paid by borrowers, borrowers who typically borrow USD short term by depositing their Bitcoin (or other coins) as collateral. There appears to be no mention on Coinflex of FlexUSD being lent out at massive daily interest rates so that the borrower of the coin can short it, FlexUSD, in a falling market, or as an arbitrage against an opposite position that they hold in FlexUSD elsewhere. And if the Repo borrower did want to aggressively short something, or go short or long of the future or the perp as an arbitrage against a position elsewhere, they can do so in a highly leveraged way by simply depositing their Bitcoin on Coinflex, where it will convert into FlexUSD and then margin trading with the FlexUSD"
pretty sure they don't get a % of any fees just get paid the funding when the basis trade exists. if it doesn't then they don't get paid anything. anyone with a position opened by borrowing usd is net short usd to begin with no idea what you are even getting at. like if roger opens a postion in bch/usd, borrow usd to buy bch hes short usd vs. bch and profits when usd loses value vs. bch. honestly don't even get what you are saying here its pretty clear how flexusd works and the rates aren't guaranteed if there's no market for the trade then the apy for holding it would be 0.
"it seems to me that you are applying the 10% in a day lending Luna example, to Coinflex, when Coinflex don't have this option, to try to justify Coinflex's business model, which in my opinion is very dependant on it being a bull market to be sustainable. Sure, in a bear market there will still be some futures trading but there will be less generally than in a bull market and there will definitely be a lot less repo borrowers in a bear market."
if there are less borrows then the apy goes down and it becomes less attractive to supply and the supply likely goes down. don't require any type of market to be sustainable, if demand is lower then there will be less people supplying until it reaches an equilibrium. and again no idea what you are saying with the luna example, you get 10% a day supplying luna on ftx/binance etc when demand for that trade is high, yet the average 40iq people here will think "thats a scam" no way you get paid 10% a day on something. theres no coinflex luna market, but thats not the point of the example, which is you can't look at an apy rate and think its a scam by the % alone.
"Plus, correct me if I'm wrong (as I have spent no more than 8 hours lifetime looking into Crypto in general and into Coinflex), but aren't there exchanges where you can trade Crypto where you still hold the keys to your wallet, e.g. Binance? Also, platforms such as e Toro where you can trade Crypto (or at least a market that mirrors Crypto), and have FCS protection against being rugged by them? So if I am right about Binance and e Toro, then what exactly is the point of Coinflex?"
yes this is wrong, you don't hold your keys using binance, they hold your keys. etoro doesn't have fcs protection besides if the company goes into liquidation i think. this is like asking what is the point of any exchange existing, why wouldn't everyone just only trade on binance since its the biggest exchange, what is the point of your local credit union when you can just use jpmorgan chase.
"Then you have John or Mary Doe, who aren't traders at all, but simply deposit money or Crypto into Coinflex to get FlexUSD to earn let's say 12% interest p.a., and are probably oblivious to the fact that they can be rugged at any moment if the people running the company are dishonest, or Coinflex can go under at any moment through poor risk management."
yes this is true for literally any exchange you use on unless you only trade on dex, you will always have counterparty risk and its your job to determine how big it is.
Well, we're in agreement on that point, that if Roger Ver lodged BCH or any other collateral with Coinflex as emergency collateral, for want of a better term, they should have sold it to convert it into USD margin funds as soon as Ver's account was in unanswered margin call territory.
For FlexUSD to be "pegged to the dollar" and a "stable coin", Coinflex 100% have to be Delta and Gamma neutral on their own book, exactly for the reason that they are not a fund or a trader.
To simplify this point, on day 1 of them opening, if their first ever client deposited 10 Bitcoins with them and the Bitcoin price was $50,000, Coinflex would immediately convert the Bitcoin into 50,000 FlexUSD coins, each of which has a $1.00 price, and a $1.00 value. The $1.00 price cannot ever change within the client's account. They can earn interest and a share of other clients' trading fees but this will increase the number of FlexUSD coins that they own, it won't change the value from $1.00, because the price is pegged to the dollar.
The only exception to this is on a secondary market where FlexUSD can trade at a different price to $1.00 for reasons of market speculation, e.g. speculation that there is going to be a rug pull or an insolvency.
So coming back to Coinflex's position on their book. They have given the client $500,000 worth of FlexUSD fixed at a price of $1.00, but Coinflex are now the owners of 10 Bitcoins.
If Coinflex do not either immediately sell those 10 Bitcoin to realise $500,000 of USD, or hedge their holding of Bitcoin by selling 10 Bitcoin futures contracts to another one of their clients,
or on a different trading exchange as a futures trade, and then the price of Bitcoin halves to $25,000, and then that first ever client of their's liquidates their $500,000 worth of FlexUSD, Coinflex have now only got $250,000 worth of Bitcoin (10 x $25,000), so Coinflex as a company are now $250,000 in the red.
Delta neutral as I'm sure you know, means when one is not in that position, where if one is given a position of long 10 Bitcoin by a client, you immediately sell those Bitcoins or do an exact hedge to effect a neutral (or flat) book, where you have no exposure to any price movements, up or down.
I mentioned Gamma neutral too, even though it is really a traded options hedging term, because it does apply to Coinflex, in the sense that if in the scenario above, Coinflex's first ever client deposited 10 Bitcoins when Bitcoin is priced at $50,000, and a split second later, a new client deposits $500,000 of "cash" (Fiat) and immediately buys 100 XYZcoin from Coinflex on the exchange (just using a random coin name to demonstrate a point), that is priced at $5,000 per coin, then Coinflex now
appear to be Delta neutral, because they are long of $500,000 of Bitcoin on their book, and simultaneously, short of $500,000 of XYZ coin.
However, it is often the case that one coin reacts differently to sharp overall Crypto market moves than another, i.e. if Bitcoin falls 10%, XYZ might fall only 5% or it could fall $20%, so being Gamma neutral within a certain small margin of certainty/error is very important, and there is, or at least should be, historical data on every established Crypto coin as to its estimated market movement relative to a market movement in Bitcoin. So it is not good enough just to hedge solely based on aggregated current market price dollar holdings on your book, Gamma also has to be taken into account.
Thanks for clarifying that 10%
in a day on Coinflex is basically impossible, but I think you are incorrect that it is only a portion of Repo borrowers' 8 hourly interest, over and over, that FlexUSD holders receive every 8 hours. Coinflex's web site says that 10% of Repo interest is burned each time and distributed among FlexUSD coin holders and 10% of all trading fees are also burned and given to FlexUSD coin holders, although for the latter I am not sure whether the distribution is added to FlexUSD's holder's number of coins owned, or if it is just a 10% rebate on their trading fees, should they decide to trade with their FlexUSD, because on Coinflex's web site it also says that a benefit of owning FlexUSD is getting 10% off your trading fees.
I stand corrected, that you don't hold your own keys on Binance. As I said, I am very experienced in various financial trading, but only just started looking into Crypto and Coinflex for the first time when the Coinflex/Doug Polk story broke a few days ago.
And it appears that all other Crypto trading exchanges are the same in this respect, as you correctly said.
Regarding Doug Polk's promotion of Coinflex as an exchange, again, this should have been mentioned as a disclaimer by him, that there is no investor protection against the exchange defaulting, unlike for many other non Crypto trading exchanges which are regulated.
In the case of the UK, where I am based, retail trading firms (exchanges) that are regulated by the Financial Conduct Authority (FCA) are all part of the Investors Compensation scheme, which protects investor's funds up to £85,000 per firm that you have your money deposited with.
I also dug deeper into e Toro, and it is kind of in the middle, between no protection of client funds, and some protection, so for me it appears a safer option to trade Crypto on than Coinflex, or Binance, or exchanges like Binance.
From e Toro's web site:
How are the funds in my eToro Money account protected?
Whilst the eToro Money Account are not covered by the Financial Services Compensation Scheme, we do safeguard customer funds in a regulated bank account, which is separated from any company money and held in trust. This means that if eToro Money went into liquidation or bankruptcy, no third-party would have a claim over it and it would be returned to you. Please see our Terms and Conditions (can be found on
https://www.etoro.com/money/) for further information.
I had never heard of Dex (a Decentralised Exchange), so it's great that you have pointed that out, because that seems to be the safest option, albeit it won't likely have the ability to margin trade on it, but at least you always hold your own keys.
Thank you very much for answering my points.
Your viewpoints and assertion about the variable rates that can be achieved on yield earning coins, and as it turns out, the fact that all or most Crypto exchanges have counter party risk , not just Coinflex, are all valid viewpoints and assertions.
But I will add that look how so many people ITT appear to not, as yet, have grasped the point about variable rates of return, and also look at how much time and research I had to put into establishing, with your great help, that all/most Crypto exchanges have a clear counterparty risk, and all of this does demonstrate IMO that when Doug Polk was promoting Coinflex, that these factors should have been clearly explained by him to potential depositors/investors, and with relevant warnings and disclaimers attached.
Regarding Doug Polk's potential liability, or not.
On the one hand you could argue that he didn't spell out the risks of using Coinflex as an interest paying coin (and as a Crypto trading coin.)
On the other hand you could just as easily argue, and be in no small part backed up by this whole thread, which has the type of potential people (poker players, many of whom are very experienced in investing and finance and own or have owned Crypto, and that Doug Polk was actively promoting to), that even "we" experienced poker players have had great difficulty in understanding some of the very important details and factors regarding Coinflex, how it works, and all and any associated risks, so therefore the same could be said about Doug Polk having the same difficulty, which supports his defence somewhat, but possibly not entirely, that he was relying on what Coinflex told him, which he assumed was in good faith.
Last edited by PokerPlayingDunces; 07-04-2022 at 04:45 AM.
Reason: Tidying up grammar.
