Quote:
Originally Posted by PokerPlayingDunces
I'd be interested to know the exact mechanics, there could well be some things in place that prevent "Mary" going into a big negative balance, but off the top of my head I can't think how.
5 seconds later, I just thought of one!........
If for example the average amount of paper, at any given time, on the buy side for ETH is a bid for a quantity of 10000 ETH, Coinflex might be automatically limiting the sum of all of the clients on the exchange, who are long, so all added together, to a fixed percentage of 10000, e.g. 20%, or 2000 ETH.
This way, that queue I referred to, the queue to auto sell is much smaller, plus even if the whole queue get filled after a big gap down in price, the total dollar amount that CoinFlex are under collaterised by is greatly reduced.
The negative of having this type of control in place is that you are vastly restricting the volume of trading and the size of positions that clients can have which sort of defeats the object of having a trading exchange.
The obvious and more sensible solution is of course to not give clients a ridiculous 250x trading margin multiple.
Something like 10x or maybe 25x instinctively feels much more sensible to me.
I understood the explanation provided by the poster you are quoting, and I think most would agree with your take on this.
I am no finance expert, I dabble with financial instruments that I understand within my own appetite for risk. It doesn't go much further than look for value, buy, hold, unload after I profit. So if my analysis or questions regarding this topic are too simple, or naïve, whatever, feel free to correct me where I am wrong.
Every financial market is a zero sum game. There is X amount of money that can come in, Y amount of money that can go out. Some people win, some people lose, but there is a finite amount of money in play when trades are settled.
Given the example provided ITT regarding "Mary Smith" --- someone, somewhere, in this series of trades, has lost a boatload of cash. Let's take the Mary Smith example and let's say Mary makes millions with 250x margin. Someone, somewhere, is losing... I'm not saying it's CoinFlex, but someone or some entity in the crypto community is having to pay the piper so that Mary can bank her millions.
So then Mary makes her millions... and the cash (Actual US Federal Reserve Notes) is deposited into her account after she banks her big win.
So Mary banks her big win, at someone else's expense. Those who bet against Mary lost, Mary's money is now in US-FRNs, and now you have a bunch of money withdrawn from cryptoworld. Mary has taken her win, went on about her life, and whoever took the L... has also lost their initial capital, which was originally purchased using fiat.
My point being, this sounds like a game of music chairs where chairs keep getting removed and someone, be it coinflex or someone in the futures market, someone is going to be on the losing side of the bet and they will be left without a chair.
So if that's correct, the promise of high yields only seem possible as long as new money keeps coming in or
if CoinFlex is flawless in hedging and leveraging. I bolded the last part, because this seems impossible to me. Okay, but let's rephrase it, CoinFlex has be right, more times than it's wrong, to pay a high yield.
I suppose my bottom line is this: Since November 2021, coinmarketcap says that 1.8Trillion US dollars has left the crypto world. That is an indisputable fact. When that much capital leaves a market, how can coinflex mathematically be right, more times than they are wrong? It seems impossible.
Not only that, Coinflex has money that people have deposited, that they aren't letting people withdraw... and now they are asking for more?
Even coinbase backed ventures like Vauld are now suspending withdrawals. The whole crypto-credit crisis seems like one gigantic ponzi scheme that only continues if the caveat the everyone in the world dumps national reserve currency and uses crypto for their everyday life. That's the only way to stop cash from leaving the system and causing what has happened.
I don't know, at the end day, someone's always left holding the bag. It's one thing to deposit 100k --- lose 50k and withdraw your remaining 50k and take the L.
It's another thing to deposit 100k, lose 50k, be unable to withdraw your remaining 50k, and be asked to deposit more money, which, is what is happening to coinflex members if I understand correctly.