MPOE Bonds. The largest loaning operation in BTC.

[MPOE-PR]

I. How it works, user side. In order to buy a bond you need to:
a) email stating how much you're sending, what interest you seek and to what address interest and capital should be paid;
b) send your capital to 1JPvucRfu3ZzEvfBUQTJwsxMrZjeTqD6zR making sure the 6th, 7th and 8th digit are 8. Example: 100.00000888 BTC.

That's it. Your bond counts starting with the next month, you will be receiving monthly interest payments. On request you will receive your capital as well, but only on a month's end (4th weekend in any month).

II. How it works, MPEx side. Every month's end (4th Friday of each month) the capital needs for that month are calculated. For January 2013 this came to 60,807.41 BTC. Then, all the bonds are sorted in ascending order by their demanded interest rate, up to the fulfillment of the capital needed. All accepted bonds receive the same interest, equal to the highest asked.

For instance, in January this came up to:

198xX3n8ov4ejgEsWjt3SpPRkDuieL3EHA 120.00000888
1D7YtrxnyK3ug3Rvp9jX66T8kVzWww9Jr8 4`478.46233504
1Mn65Q9Xm6NBoPdF8ppS3AzgRLt92ZKtTq 100.00000888
16yqE5GW2iLnXvCX3SHe6r5UbRFAuARond 2`261.23910617
1swAzHw1zTWqoi5184VinvUxLWnBskPVW 3`708.33297766
1CqQiHmp2T3TWXZx3J7yueDxH5rVnZ9A94 1`726.89016169
1A2hqHVSUERAT3t1yJ7ggYCQccvH6pZGZm 1`904.91150845
Mircea Popescu 46`507.57389323

In this case all bonds were accepted and MP added more capital, because the total capital needed exceeded the bonds deposited. The interest paid was 9.99%, equal to the highest interest asked (by the guy with the 1,904.91150845 BTC).

In December, on the other hand, needed capital was only 7,292.03 BTC. As a result fewer bonds were accepted:

16yqE5GW2iLnXvCX3SHe6r5UbRFAuARond 2`261.23910617 BTC
1D7YtrxnyK3ug3Rvp9jX66T8kVzWww9Jr8 4`478.46233504 BTC
1swAzHw1zTWqoi5184VinvUxLWnBskPVW 552.32855879 BTC

Thus the interest paid was lower (4.99%). That latest guy only had part of his total deposit accepted, because only part was needed.

In the cases where the MPOE bot makes a loss, however, that loss will be applied to bonds capital, like for instance what happened in November:

Loss applicable to bonded capital : 1`961.31822035 BTC
Loss per BTC : 0.04754425.

While the interest paid was 9.9%, so a guy with 1,832.00000888 deposited received 181.36800087 in cash, the loss meant his bond capital retained for next month lowered from 1,832.00000888 to 1,744.89894245 (a 87.1010664 BTC loss on capital partially offsetting the 181.36800087 gain realized on interest).

III. In January bonds were paid a total of 6,074.660259 BTC. That's certainly the largest chunk of change paid out as interest by anyone in January, and I'd venture the guess that if you added up all the interest paid by anyone and everyone, plus all the revenue from PMBs and other such quasi-lending operations, you still won't come close to 6k BTC. If anyone can prove otherwise I'd certainly very much like to see it.

A large chunk of that 6k went to MP, because there weren't enough bonds on hand to cover the sudden surge in options trading that happened on the 24th. This literally means that if you were keeping your BTC somewhere else than in MPOE bonds you missed out, and if you made less than 10% you indeed realized a loss.

Obviously it is not always the case that MPOE bonds pay that much or that well. Here's a survey of their performance over the ~year they have been available to the public.

There are no fees whatever associated with this, but there is a 100 BTC minimum required to participate directly. You may however bypass this by buying some indirect managed instrument, such as for instance are available on Bitfunder.

If you have questions I'll be glad to answer, paste them below.

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[danieldaniel]

What are you using this money for?

[BCB]

is this transsexual another Pirateat40 or Nefario?

Debate....

[Raoul Duke]

What are you using this money for?

Trading options with a bot?

[MPOE-PR]

You recall, it covers the MPOE options bot.

[danieldaniel]

You recall, it covers the MPOE options bot.

Oh, ok.  Thanks!

[bitcoins5411]

Hi,

Some questions:

Is it possible to lose money with this? Can the bonds default? Is there any guarantee?

On the page you provided I saw a big red line with a 4000% loss... what's that about? Shouldn't that have wiped everyone out?

Let's say I wanted to participate and I asked for 5% monthly interest. If everyone else asked for 10%, do I get the 10% rate or do you pay out each person what they asked for?

Could I be guaranteed a position by just asking for 0% and then take the market rate (whatever the auction comes out to)?

If my funds are not accepted in the auction, when are they sent back to me? What are the timeframes like?

Do I need to be an MPEx member to participate (i.e. the 30 BTC fee)?

[LoweryCBS]

Hi,

Some questions:

Is it possible to lose money with this? Can the bonds default? Is there any guarantee?

On the page you provided I saw a big red line with a 4000% loss... what's that about? Shouldn't that have wiped everyone out?

Let's say I wanted to participate and I asked for 5% monthly interest. If everyone else asked for 10%, do I get the 10% rate or do you pay out each person what they asked for?

Could I be guaranteed a position by just asking for 0% and then take the market rate (whatever the auction comes out to)?

If my funds are not accepted in the auction, when are they sent back to me? What are the timeframes like?

Do I need to be an MPEx member to participate (i.e. the 30 BTC fee)?

I asked some similar questions, and I might be able to help with a few of those:

"Let's say I wanted to participate and I asked for 5% monthly interest. If everyone else asked for 10%, do I get the 10% rate or do you pay out each person what they asked for?"
 -- You'd get the 10%

"Could I be guaranteed a position by just asking for 0% and then take the market rate (whatever the auction comes out to)?"
 -- Yes. For a smallish bond, this seems to me to be a smart strategy
      (since your bond won't likely be the one to determine the final rate anyway)

"If my funds are not accepted in the auction, when are they sent back to me? What are the timeframes like?"
 -- They remain with MPEx.

"Do I need to be an MPEx member to participate (i.e. the 30 BTC fee)?"
 -- No.

Disclaimer: These answers are simply my interpretation of the process.

[John (John K.)]

Hi,

Some questions:

Is it possible to lose money with this? Can the bonds default? Is there any guarantee?

On the page you provided I saw a big red line with a 4000% loss... what's that about? Shouldn't that have wiped everyone out?

Let's say I wanted to participate and I asked for 5% monthly interest. If everyone else asked for 10%, do I get the 10% rate or do you pay out each person what they asked for?

Could I be guaranteed a position by just asking for 0% and then take the market rate (whatever the auction comes out to)?

If my funds are not accepted in the auction, when are they sent back to me? What are the timeframes like?

Do I need to be an MPEx member to participate (i.e. the 30 BTC fee)?

I asked some similar questions, and I might be able to help with a few of those:

"Let's say I wanted to participate and I asked for 5% monthly interest. If everyone else asked for 10%, do I get the 10% rate or do you pay out each person what they asked for?"
 -- You'd get the 10%

"Could I be guaranteed a position by just asking for 0% and then take the market rate (whatever the auction comes out to)?"
 -- Yes. For a smallish bond, this seems to me to be a smart strategy
      (since your bond won't likely be the one to determine the final rate anyway)

"If my funds are not accepted in the auction, when are they sent back to me? What are the timeframes like?"
 -- They remain with MPEx.

"Do I need to be an MPEx member to participate (i.e. the 30 BTC fee)?"
 -- No.

Disclaimer: These answers are simply my interpretation of the process.

Thanks for the clarification. I'm still confused by the bolded part though....Does this mean you're not getting your funds back? 

[DutchBrat]

You only get your funds back if/when you ask for them.

In months where you set the interest too high, your funds are an interest free loan to MPOE

Leads me to another question: can you give any transparency as to how this capital need is calculated.

Is it a capital need for the past month or for the month to come, it makes more sense if it is for the past month, but how bondholders verify that their capital was not at risk in the case they don't get interest for that month....

[LoweryCBS]

Hi,

Some questions:

Is it possible to lose money with this? Can the bonds default? Is there any guarantee?

On the page you provided I saw a big red line with a 4000% loss... what's that about? Shouldn't that have wiped everyone out?

Let's say I wanted to participate and I asked for 5% monthly interest. If everyone else asked for 10%, do I get the 10% rate or do you pay out each person what they asked for?

Could I be guaranteed a position by just asking for 0% and then take the market rate (whatever the auction comes out to)?

If my funds are not accepted in the auction, when are they sent back to me? What are the timeframes like?

Do I need to be an MPEx member to participate (i.e. the 30 BTC fee)?

I asked some similar questions, and I might be able to help with a few of those:

"Let's say I wanted to participate and I asked for 5% monthly interest. If everyone else asked for 10%, do I get the 10% rate or do you pay out each person what they asked for?"
 -- You'd get the 10%

"Could I be guaranteed a position by just asking for 0% and then take the market rate (whatever the auction comes out to)?"
 -- Yes. For a smallish bond, this seems to me to be a smart strategy
      (since your bond won't likely be the one to determine the final rate anyway)

"If my funds are not accepted in the auction, when are they sent back to me? What are the timeframes like?"
 -- They remain with MPEx.

"Do I need to be an MPEx member to participate (i.e. the 30 BTC fee)?"
 -- No.

Disclaimer: These answers are simply my interpretation of the process.

Thanks for the clarification. I'm still confused by the bolded part though....Does this mean you're not getting your funds back? 

You send your funds in before the start of the month, along with your quoted rate-request.

Towards the end of the month, if your funds were utilized as capital (due to your rate-bid being sufficiently low) then you get paid interest. If your funds were "not needed" (your rate-bid was too high) then you get no interest.

In either circumstance, you may request your funds be returned. By default, they'll remain with MPEx for possible inclusion the following month.

Disclaimer: These answers are simply my interpretation of the process.

[MPOE-PR]

Is it possible to lose money with this? Can the bonds default? Is there any guarantee?

Yes. If the option bot makes a loss, the bonds' capital covers it. If the option bot makes a gain but it is less than what the bonds are due in interest, the bonds' capital covers the difference.

Some (fictional) examples to understand things better:

A. Bot makes a 100 BTC loss on 500 BTC of capital at 5%. Bonds are paid 25 BTC in interest. 125 BTC loss is distributed to 500 BTC of capital, resulting in a 0.25 loss per BTC. This means that if someone had 100 BTC in a bond they will now have 75 left.

B. Bot makes a 10 BTC gain on 500 BTC of capital at 5%. Bonds are paid 25 BTC in interest. 15 BTC loss is distributed to 500 BTC of capital, resulting in a 0.03 loss per BTC. This means that if someone had 100 BTC in a bond they will now have 97 left.

On the page you provided I saw a big red line with a 4000% loss... what's that about? Shouldn't that have wiped everyone out?

That wasn't a percentile loss but an absolute figure loss. The results for August 2012 (pirate month) were: gross receipts 10,110.90263456 BTC; expenditure 14,651.32416421 BTC (of which 466.66966642 BTC interest owed on 9,333.58 BTC capital at 4.9999%.

Thus the net was -4,540.42152965 BTC, resulting in a loss per BTC of 0.48646087. (~48%).

Let's say I wanted to participate and I asked for 5% monthly interest. If everyone else asked for 10%, do I get the 10% rate or do you pay out each person what they asked for?

You get the same interest as everyone else, equal to the highest interest asked for an accepted bond. Some examples to illustrate this. Suppose the bonds are as follows: A 100 BTC at 1%; B 100 BTC at 2%; C 100 BTC at 3%; D 100 BTC at 4%; E 100 BTC at 5%.

If the capital needed is 185 BTC, then A gets 2% on his 100 BTC = 2 BTC interest, and B gets 2% on 85 of his 100 BTC = 1.7 BTC interest.

If the capital needed is 435 BTC, then A, B, C and D each get 5% on their 100 BTC = 5 BTC interest for each. E gets 5% on 35 of his 100 BTC = 1.75 BTC interest.

If the capital need is 600 BTC then A, B, C, D and E each get 5% on their 100 BTC = 5 BTC each, and MP (creditor of last resort) contributes the remainder (600 - 500 total = 100) at the same interest (5%). (There is an exception in that if the previous month interest was higher than 5%, in which case everyone gets that last month's interest.)

Could I be guaranteed a position by just asking for 0% and then take the market rate (whatever the auction comes out to)?

Yes.

If my funds are not accepted in the auction, when are they sent back to me? What are the timeframes like?

Funds are never sent back to you unless you ask for them. If your funds are not accepted in the auction they just sit there and wait the next month. This works as insurance for you, because if the funds aren't accepted this also means they aren't at risk. Revisiting the examples above, in the case where capital needs were 185, if the bot actually made a loss then C, D and E would still have their 100 capital untouched, wheras A and B will have paid whatever shortfall from their capital.

This is how the incentives for bond holders balance: on one hand, they have an incentive to ask for as little interest as possible, to make sure they make it into the auction. On the other hand, they have an incentive to not ask for less interest than the fair market value of the risk they undertake is. Because of this, bondholders are actually required to price risk, and because of this market effort the calculated MPBOR is a valuable signal for the entire lending market.

Do I need to be an MPEx member to participate (i.e. the 30 BTC fee)?

No.

Also, thanks to all others who have answered. The answers offered were correct and helpful, but I wanted to make a full pass through the OPs post to have the record clear. Most of this stuff was stated long ago in the article which introduced the entire thing, back in February 2012, and which is to this day the chief reference point for pretty much everything to do with MPOE/MPEx.

[John (John K.)]

Thanks for the clarifications, everyone.

PS: I can't seem to access the polimedia site. I'm getting:

Forbidden

You don't have permission to access /trilema/2012/sa-ne-jucam-de-a-investitiile-n-bitcoini/ on this server.

Additionally, a 404 Not Found error was encountered while trying to use an ErrorDocument to handle the request.

The site works through a proxy, though.

[MPOE-PR]

Leads me to another question: can you give any transparency as to how this capital need is calculated.

Originally, the capital need was calculated simply as the sum of all CALLs sold + all PUTs value. Thus if during a month MPOE sold 100 CALLs and 50 ATM PUTs the capital need would be 150 BTC. This formula was significantly overstating needed capital (for intance, on the most current month it would have resulted in capital needs of over 200,000 BTC), and in April 2012 it was amended, as follows:

The calculation of capital reserves is changed as follows :
At every point a momentary capital reserve requirement is calculated, equal to the total amount paid for bought contracts minus the total amount received for sold contracts plus the largest sum possibly necessary to cover delta.

The capital reserves requirement for any month will equal the largest of all momentary capital reserves requirements calculated during that month.

To illustrate by example : if MPOE bought 100 CALL @5.0 paying 20 BTC and 200 PUT @6.0 paying 30 BTC, while at the same time it sold 200 CALL @4.0 for 50 BTC and 100 PUT @5.0 for 50 BTC then momentary capital reserves required are 20 + 30 + 200 - 100 = 150 BTC. The 200 figure comes from the maximal sum possibly necessary to cover delta (in the case BTC/USD -> infinity the cost of the 200 CALLs is 200 BTC).

For another example, if MPOE bought 100 CALL @5.0 paying 20 BTC and 200 PUT @6.0 paying 30 BTC, while at the same time it sold 200 CALL @4.0 for 50 BTC and 1000 PUT @5.0 for 500 BTC then momentary capital reserves required are 20 + 30 + 1000 - 550 = 500 BTC. The 1000 figure comes from the maximal sum possibly necessary to cover delta (in the case BTC/USD -> 0 the cost of the 1000 PUTs is 1000 BTC).

This change is imperiously required to allow for the functioning of MPOE in the future, or otherwise capital requirements far above the total BTC in existence will hamper the market. The new model more accurately reflects the actual capital needed than the hack previously employed.

Because of the way capital needs are constructed, it is impossible for MPOE to lose more BTC than the total bonds it retains. The probability distribution of loss % should very rapidly approach 0 as the loss % increases, at least if the mathematical models are worth twopence. In practice the only time losses approached 50% was also the one time we kind of suspect the market was being tampered with (you can read all about that in the August 2012 statement Miscellanea section). In any event the 50% level *should be* pretty much an absolute limit to what may be lost in one month.

Is it a capital need for the past month or for the month to come

For the past month.

but how bondholders verify that their capital was not at risk in the case they don't get interest for that month....

Maybe I'm not exactly understanding your question, but it is trivial to verify: if a bond isn't accepted then the address associated with that bond does not show in the bondholder list published in that month's report. If the bond's address isn't shown then that bond can't be allocated losses. If a bond isn't allocated losses then it's not changed. No?

[DutchBrat]

Thanks for the explanation

So even if the maximum delta position is only necessary for 1 day out of the month, the bondholders get paid as if the risk on their BTC was there the entire month. It's not time weighted.....

Thats mighty generous I must say! (and I am not trolling)

[MPOE-PR]

Thanks for the explanation

So even if the maximum delta position is only necessary for 1 day out of the month, the bondholders get paid as if the risk on their BTC was there the entire month. It's not time weighted.....

Thats mighty generous I must say! (and I am not trolling)

The formula is being refined as time goes by, and possibly a time weighing might in the future be added.

The thinking is that it's better for the capital pool to be slightly larger than what is strictly needed because that allows eventual losses more cushion. The upper bound on that slightly is of course the total BTC available, as it's not practical to lock down too high a % of it in MPOE's trade.

[MPOE-PR]

Thanks for the clarifications, everyone.

PS: I can't seem to access the polimedia site. I'm getting:

Forbidden

You don't have permission to access /trilema/2012/sa-ne-jucam-de-a-investitiile-n-bitcoini/ on this server.

Additionally, a 404 Not Found error was encountered while trying to use an ErrorDocument to handle the request.

The site works through a proxy, though.

It sounds like you are IP banned. This is almost always because that IP has been sending comment spam. I recommend running a strong anti-virus to find any trojans/rootkits/etc on your system after which please PM me your IP.

[John (John K.)]

Thanks for the clarifications, everyone.

PS: I can't seem to access the polimedia site. I'm getting:

Forbidden

You don't have permission to access /trilema/2012/sa-ne-jucam-de-a-investitiile-n-bitcoini/ on this server.

Additionally, a 404 Not Found error was encountered while trying to use an ErrorDocument to handle the request.

The site works through a proxy, though.

It sounds like you are IP banned. This is almost always because that IP has been sending comment spam. I recommend running a strong anti-virus to find any trojans/rootkits/etc on your system after which please PM me your IP.

My ISP is a dynamic IP provider, so there might be problems like this. Are you banning the entire Malaysia region in your IP tables? I'll PM you my IP too - half of my computers here run on Linux, the other quarter Mac and the last quarter PC. The two of my Windows PC's are always running in VM mode so a cold reboot clears everything, not to mention the scanners present.
My coins would be the first to go on the event of a security breach. 

[BCB]

Mp. Why is you pr woman handling support requests. Hmmm.

[ciuciu]

Mp. Why is you pr woman handling support requests. Hmmm.

It is because there is no PR woman. It is the pornographer himself. Read the MP post on OTC-assets, it is the same writing style.