Debt on the Bitcoin blockchain - BFX

[DGulari]

Does anyone else share the curiosity that comes with the BFX issue? 

That is $62million of 'debt' - or 'IOU's all traded directly on the bitcoin blockchain.  I'll bet not many people anticipated this kind of support for trading when thinking about the blockchain. 

Is the BFX issue the first debt issue - or are there others? 

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[mobnepal]

BFX is just a token distributed by bitfinex to compensate those 60 million USD lost but actually bitfinex is not holding any fund to backup those BFX price so when it will be open for trading we may see massive dump as people will be happy to go away with few bitcoin rather than lossing all they have. I think the one who become first to trade BFX can get his lost coin back with some loss.

[franky1]

cryptorush also done a similar "token" policy after their hack...

as for the maths of the debt and something to think about in regards to BFX, i said this elsewhere, but worth repeating

imagine the exchange had (simplified numbers for demo only)
$400k held in bitcoin
$200k held in altcoins
$400k held in dollar
totals $1m combined holdings (simplified numbers for demo only)

now imagine 36% of $1m total (combining of funds to spread the loss) was lost.
yet we know it was not other funds just bitcoin lost.. so that means $360k of only bitcoins are gone!!

thats basically most of the real bitcoin reserves ($400k holdings, $360k loss = only $40k bitcoin (10%) left in reserves )

those bitcoin customers which initially counted up as $400k total holdings were told they had $400k with 36% loss.. meaning they are WRONGLY being told that there solvent balance of 64%, which logically accounts to $256k of bitcoin.. when actually there is only $40k of bitcoin in the pot.

in simple terms $360k bitcoins LOST of $400k. bfx is saying to bitcoin holders, that they are solvent of bitcoins to a tune of $256k, yet physically only have $40k(in this demo)

they cannot magic the other $212k of bitcoin into existance out of thin air.
and that missing $212k is not even part of the 36% theft.. but the missing bitcoin of the "solvent balance, that has been offset by alts and dollar..
and needs to have bitfinex buy bitcoins on other exchanges to cover just that 64% solvent balance

so ofcourse there will be a bank run while bitcoin holders owed $256k(the 64% in my demo), try to fight to withdrawal the $40k bitcoin left in a few days.
as it will take alot longr for bitfinex to try to get the other $212k(demo number) from other exchanges.

in short (my demo amounts)
$40k actual reserves= circle hole 1inch diameter
$256k solvent balance = square peg 6inch wide

even after this.. if bitfinex manages to sort out the solvent part by obtaining bitcoin from other exchanges.. they then have to work on the 36% loss

[MingLee]

Does anyone else share the curiosity that comes with the BFX issue? 

That is $62million of 'debt' - or 'IOU's all traded directly on the bitcoin blockchain.  I'll bet not many people anticipated this kind of support for trading when thinking about the blockchain. 

Is the BFX issue the first debt issue - or are there others? 

It's probably the first issue, but I will say that it is making an interesting issue within the blockchain. It's kind of looking like some people are dabbling with fractional reserve lending, but I doubt this'll come to any sort of issue once everything is sorted out. I certainly didn't expect it, but considering that they're IOUs they'll be filled eventually, and the debt'll be cleared. If Bitfinex completely goes under, then the IOUs are worth $0.

[Jannn]

Nobody trusts BFX after this hack.

[unamis76]

That is $62million of 'debt' - or 'IOU's all traded directly on the bitcoin blockchain.  I'll bet not many people anticipated this kind of support for trading when thinking about the blockchain. 

This is the second thread referring the exact same thing: why do people think this token will be directly traded on the blockchain? As I've said before, this wouldn't even have success as an altcoin .D

[DGulari]

That is $62million of 'debt' - or 'IOU's all traded directly on the bitcoin blockchain.  I'll bet not many people anticipated this kind of support for trading when thinking about the blockchain.  

This is the second thread referring the exact same thing: why do people think this token will be directly traded on the blockchain? As I've said before, this wouldn't even have success as an altcoin .D

Maybe you don't understand how Omni works?  Every BFX transaction is a Bitcoin transaction on the blockchain.  Every transaction is backed by 1,461 Peta hash of the full Bitcoin mining network.  BFX is directly traded on the blockchain. Just like Maidsafe, Tether, Synereo, Agoras, others.  

It is not an 'altcoin'.  Those have their own blockchains.  

It is a debt issue.  By buying this debt, you are betting that one day bitfinex will be able to pay it all back.  Today, you buy at a discount (to be determined by market rates) and that rate reflects the common belief bitfinex will be successful in repaying.  

It is a pretty cool new concept.  Just pointing it out because it is a technically interesting twist we haven't really seen before.  There may be some other really cool ways to use the Bitcoin network/blockchain to manage debt issues.  It is time for the creative people to take this up.

[silversmith]

Bitfinex should be buying up these BFX tokens at a discount. They can pay off their debt at a 60-70% discount.

[DGulari]

Bitfinex should be buying up these BFX tokens at a discount. They can pay off their debt at a 60-70% discount.

Yep.  I think that is very likely indeed.  They will need some liquidity today to do that, but it is a good way for them to reduce their $62M liability fairly, and fairly quickly.

[franky1]

Bitfinex should be buying up these BFX tokens at a discount. They can pay off their debt at a 60-70% discount.

Yep.  I think that is very likely indeed.  They will need some liquidity today to do that, but it is a good way for them to reduce their $62M liability fairly, and fairly quickly.

firstly

64% of all reserves are held to users as "active balance" should users decide to cashout
36% is lost
bitfinex does not have this 36%

bitfinex gave users 36% of tokens (vapour, no value, no backing)
bitfinex has NOTHING LEFT OVER to actually "buy up" the tokens even at a discount..

if they had funds they could easily have decreased the overall debt to everyone.. obviously..

but
what would happen is other USERS will put up buy orders when the tokens are exchangeable, at stupidly low prices to buy the debt off people at a discount.
this is where for instance a user that supposedly has 1btc (now 0.64btc after hack) does not withdraw the 0.64btc but instead puts a low buy order to buy an example of atleast 584 tokens(equivalent of bfx valuation of 1btc debt (days ago but meaningless after that)) for 0.64btc..

which would give the user 1.3btc of debt tokens.(equivalent of bfx valuation debt (days ago but meaningless after that))
ofcourse people will try to get more tokens for less solvent bitcoins because the 'valuation of future repayment may be considerably different

it makes logical sense that some people will try to take advantage of a chance to buy debt cheap in the hope it reaps rewards later. its a risk, but as i said bitfinex wont initially by up the debt at a discount as they have nothing spare..

[TKeenan]

Bitfinex should be buying up these BFX tokens at a discount. They can pay off their debt at a 60-70% discount.

Yep.  I think that is very likely indeed.  They will need some liquidity today to do that, but it is a good way for them to reduce their $62M liability fairly, and fairly quickly.

firstly

64% of all reserves are held to users as "active balance" should users decide to cashout
36% is lost
bitfinex does not have this 36%

bitfinex gave users 36% of tokens (vapour, no value, no backing)
bitfinex has NOTHING LEFT OVER to actually "buy up" the tokens even at a discount..

if they had funds they could easily have decreased the overall debt to everyone.. obviously..

but
what would happen is other USERS will put up buy orders when the tokens are exchangeable, at stupidly low prices to buy the debt off people at a discount.
this is where for instance a user that supposedly has 1btc (now 0.64btc after hack) does not withdraw the 0.64btc but instead puts a low buy order to buy an example of atleast 584 tokens(equivalent of bfx valuation of 1btc debt (days ago but meaningless after that)) for 0.64btc..

which would give the user 1.3btc of debt tokens.(equivalent of bfx valuation debt (days ago but meaningless after that))
ofcourse people will try to get more tokens for less solvent bitcoins because the 'valuation of future repayment may be considerably different

it makes logical sense that some people will try to take advantage of a chance to buy debt cheap in the hope it reaps rewards later. its a risk, but as i said bitfinex wont initially by up the debt at a discount as they have nothing spare..

Wrong.  The 36% was calculated based on how much was stolen.  It did not take into account any consideration for bitfinex's stash of money which might actually be considerable.  You incorrectly imagined they put their entire stash into the debt pool before calculating the distribution?  Why would they do that?  Then they'd have no operating capital. Besides, the crooks didn't get to their money, just the customer wallets.  Bitfinex put their own money in a safe place.  They might have millions in that safe place.  Why do you think they'd put those millions into making the customer wallets whole again?  No way.  They will issue the token/ious and hope they can repay them later.  They did not give up all their own cash today. 

[JohnWick5]

Bitfinex should be buying up these BFX tokens at a discount. They can pay off their debt at a 60-70% discount.

At least they said, they wouln't touch bfx tokens. But they will eventually, at least to buy them cheap at some point.