Hacker News Reader

Comment by nodesocket | Hacker News Reader

Wait I'm confused... The market moved dramatically and quickly, which can happen dealing with something as speculative as cryptocurrency, and yet they are refunding people? Did I miss something? Isn't this part of the risk investing?

View on HN

It takes a few hundred ETH to have worthwhile leverage.. so they probably risked losing a substantial amount of trade volume and liquidity with the fiasco aside from loyal customers and early adopters. It wasn't just the natural market forces. They directly manipulated the market by stopping trading, and indirectly during and after the event with a variety of system issues that are not comforting.

IMO this move to replenish traders was a mature business decision that many tech companies would have failed at let alone crypto companies. There is massive money in the long game for Coinbase/GDAX, and providing real and imaginary assurance could cement them to become the Visa of the next decades.

There wasn't market manipulation here on GDAX's part. The people they are compensating are those who got wiped because they were trading on margin (if anyone is not familiar, this adds much more risk). These people already had their portfolios auto-liquidated via the margin call so stopping trading afterwards had no impact. Same with stop loss orders, although there's a different mechanism at play there.

From GDAX's point of view the tradeoff boiled down to whether to invest in PR / brand today or risk a moral hazard problem in the future (users expecting bailouts so they take more risk).

That's the rub with BTC: technical and security problems have historically plagued BTC companies with huge amounts of money lost. GDAX giving a FDIC-lite guarantee sets them far apart from the rest, even if their customer service and interface is inferior.

i dont think that will work. wait until real sums are involved and see what happens. its not a business model to pay users for their own mistakes unless the system is rigged in some way anyway. just my opinion.

My immediate thought was whether someone might be able to induce the behavior. That combined with self-dealing (owning both the buying and selling accounts) could extract significant profits from an exchange that is willing to make its customers whole.

I would never do such (I consider it unethical, but more to the point I have neither the capital nor risk tolerance to pull it off), but I wonder if someone might. Or perhaps already has.

Agreed. People who trade on margin know they are taking a risk and if they don't know then they need a lesson. They are gambling with someone else's money.

Problems:

1) Flash crash 2) Horrible customer support 3) Delayed Ethereum widthdrawals when the network isn't under stress

They have a lot of problems. They may be happy to spend the money to clean up one of them.

Unless it's an issue with the trading platform itself and they think this is cheaper than a class action lawsuit.

It is probably also illegal for them to compensate some customers and not others. There are FINRA regulations against that.

If people could get refunds in the US stock market because of flash crashes, algo trading, that sort of doesn't make the market a balanced market anymore.

See 2010 flash crash. "Procter & Gamble in particular dropped nearly 37% before rebounding, within minutes, back to near its original levels. The drop in P&G was broadcast live on CNBC at the time, with commentator Jim Cramer commenting."

Exactly. There are a lot of problems with compensating customers who lose money. This is why it is unethical for Financial Advisors to do that.

They are derisking speculation by offering a bailout to the losers. This will increase risk tolerance and lead to wilder speculation. Until the next crash when no one is bailed out and investors cry foul.

Reply on news.ycombinator.com