Seen a lot of retroactive victory laps but not a lot of articles on people that successfully shorted this algorithmic stablecoins tire fire.
Wondering when the crypto “Big Short” book will inevitably arrive.
Wondering when the crypto “Big Short” book will inevitably arrive.
These stable coins are not long-term stable, the incentives around them are horrible. Every stablecoin custodian has huge incentives to spend the fiat until their coin is only partially backed, and then sooner or later there will be a run. They're all going to collapse.
Much like traditional banks in fact - there is no uncertainty that eventually they will go bankrupt. It is easy to predict what the mechanism will be. But maybe they'll last long enough to be useful.
And what do you mean by "much like traditional banks in fact - there is no uncertainty that eventually they will go bankrupt"? Are you saying that all banks eventually go bankrupt? When should we expect Barclays to go bankrupt, now after having existed for 300 years? When should we expect Bank of New York to go bankrupt, now after having survived for 250 years?
Also a company surviving for a long time is not an especially solid predictor of future lifespan. The list of financial institutions founded at the same time that didn't survive is so large nobody bothers to keep track and the management today is (in the style of the ship of Theseus) completely different from the historical decision makers.
Some bright spark will notice that they don't need all these untouched reserves and will do something with them, increasing the risk and, eventually, getting hit with a bank run.
There should be by then other mechanisms to get liquidity and that can represent the economic output of the world. It could be a basket of CBDCs from multiple countries, or tokenized (and legally standing) representations of bonds, titles and property. But the current system is far from the final design.
Basically every sizable payment processor for instance meets that bar and it’s incredibly rare to have a scandal with those institutions.
Fractional reserve banking isn't a scandal, it is routine business.
Convenience, security? The backing doesn't matter, your bank account is insured. Why do people keep cash in bank accounts instead of under their mattress.
Holding USDC yourself is risky, you expose yourself to hacks. Most people don't know how to manage their crypto keys securely.
Money in your account a debt the bank owes you. It's not money you can spend until after you withdraw it and the bank has liquidity to honor the withdrawal.
https://twitter.com/GiganticRebirth/status/15251100328950251...
https://www.coindesk.com/markets/2022/02/17/how-the-big-shor...
On a more retail scale you’re sort of gambling on the liquidity of an exchange, but if you want to hedge that buy puts on CoinBase or whatever.
The most liquid instrument in which you can go directionally short at retail size is a “perpetual swap”, which is kind of like a future but with important differences that are better explained elsewhere.
You can definity short XYZ coin if you want, and you can definitely hedge against the liquidity of the counter party at least roughly.
Any pointers?
If the derivative (“perp”) is trading above the underlying then longs pay shorts a fee on some cadence, making long positions progressively less attractive holdings and creating sell pressure. Vice versa.
This tends to push the derivative close to the underlying.
This has two big advantages and a shitload of problems. The two advantages are:
- short sentiment can be expressed without an up-front load, kinda like a put
- entering a position is much like a CME future, you don’t have to put up the whole price, just wherever geometric Brownian motion is likely to set you back (“implied leverage”)
Used responsibly this isn’t insane, but the ways it can be abused? Think housing never goes down in 2007.
I’m not aware of any law that stops you asking a friend to put a trade in on your behalf as long as you pay appropriate taxes.
Check with someone who knows before doing it though because I could be totally wrong!
Borrow the coin you want to short, then sell it, and you now have a short position on that coin.
Great way to lose a lot of money fast if you don't know what you're doing.
If anything, the modern round of coins with smart contracts are probably uniquely suited to shorting, or enabling the shorting of other coins.
Decentralized platforms like DyDx offer leveraged longs/shorts on a lot of popular pairs as well
Another way to theoretically short a coin is to borrow a lot of it against a stable asset on any asset lending platform like AAVE
[1] https://www.ledgerinsights.com/hedge-fund-makes-short-wager-...
Insider trading securities is illegal in US, but probably not in Bahamas, where FTX is located.
Sure, he also made a lot trading, but that's not how he became a billionaire.
Also, US has a long arm, this is why foreign exchanges forbid US citizens.
Insider trading has a very narrow scope, typically equities. To my surprise I learned that there is no such thing as insider trading in forex (from a legal point). But there are other laws that might apply to the client trading data you mentioned.
This event has enormous ripple effects across the whole ecosystem, and they will continue for quite some time.
I do not think it would be in his interest to make 2 top 10 coins collapse spectacularly. He would have shot himself in the foot.
I'm a Bitcoin only person for a reason: the devs prioritize system security over adding new features.
You can't really "Big Short" a manipulated market where there are no rules whatsoever and you don't have transparency.
An intentional massive short of Luna and UST at the same time could have had disastrous effects (since UST needed Luna for collateralization).
https://coinmarketcap.com/currencies/terra-luna/ https://coinmarketcap.com/currencies/terrausd/
So if you can flood UST and LUNA with enough volume to drop the price, you could send LUNA into a massive selloff. UST would then start to flood LUNA with shares which would accelerate the sell off.