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Author Topic: Selling Credit Default Swaps on imsaguy  (Read 5437 times)
copumpkin
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March 29, 2012, 06:19:42 AM
 #1

Hi all,

I thought I'd get the ball rolling on credit derivatives (because everybody loves credit derivatives, right?) by offering to sell 1000 bitcoins worth of 6-month CDSes with imsaguy's Open-Ended Investment Opportunity (https://bitcointalk.org/index.php?topic=60117.0) as the underlying reference entity.

This offering will be structured as ten 100-coin contracts. Buyers will pay me monthly fees for the contracts, and if imsaguy defaults on his debt, I will pay the buyer the value of the contract. The contract will also cover the less extreme credit event of imsaguy being more than 48 hours late on any payments due to his investors, in which case it will pay less than the full 100-coin liability.

If a buyer misses the monthly CDS payment by 48 hours, I shall consider the contract terminated and will offer no default protection beyond that.

I have contacted nanotube, the founder of the IRC OTC channel and one of the most respected people in the bitcoin community, to act as a neutral arbiter for deciding whether a credit event has occurred.

This offering will be held as a Second Item Auction (sometimes called a Dutch Auction; see http://en.wikipedia.org/wiki/Dutch_auction#A_second_item_auction), so anyone who wants these should just post how many contracts they're interested in and what percentage they're willing to pay as a fee. Bids should be phrased as a percentage, which represents what fraction of my liability you pay me in fees per month. I set a reserve of 1% (100 basis points, if you prefer finance lingo) on the contracts, so bids must be greater than or equal to 1%. To avoid too much clutter, let's do bids in increments of 10 basis points. As the wikipedia page explains, winning bids will pay whatever the lowest eligible bid was. The bidding will run for a week after I post this. Sold contracts will provide coverage for 6 months from that day, with monthly payments on the same day of every month.

As far as my own creditworthiness, I have a good reputation on the WOT (http://bitcoin-otc.com/viewratingdetail.php?nick=copumpkin), and am well respected on these forums. I've also signed a statement on this forum linking my WOT identity with this one: https://bitcointalk.org/index.php?topic=66313.msg769294#msg769294. I have "lots" of coins (significantly more than I am accepting liability for in this CDS offering) and even in the unlikely even that those are somehow lost, I have other assets and a real job.

I will compile GPG-signed (with my WOT identity) contracts outlining all the terms so that buyers may use them as recourse against my reputation in the event of a dispute. To avoid creating perverse incentives for imsaguy, I cannot let him purchase CDSes against himself, and must require that bidders be reasonably well established either here or on the WOT.

So, if you want to hedge your investment with imsaguy (starting at just 10 btc a month for 1000 btc of protection!) or you just want to speculate on him defaulting on his investors, feel free to bid here. Or if you get nothing else out of all of this, you can see this as a monetary vote of confidence in imsaguy's creditworthiness Smiley

Free free to ask questions and I'll be happy to answer whatever I can. I'm also open to suggestions on adjusting the specifics of the contract. I can't say I have much experience actually dealing in CDSes, so some things might be a little funny.

Edit: I'll elaborate later on precisely what constitutes a default and what will happen if one happens, but I don't have time to write it out now.

tl;dr: there is no tl;dr Smiley Read what I wrote above. This stuff isn't going to cost you much money (but could cost me a lot of it), but it isn't trivial, so make sure you understand how it works.
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koin
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March 29, 2012, 09:15:37 AM
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bitcoin has already seen its Charles Ponzis, Frank Abagnale Jr.s and Hunt Brothers, but there's not yet been any AIGs.   yet.

crazy stuff.
jamesg
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March 29, 2012, 10:21:17 AM
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Interesting.
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March 29, 2012, 12:22:22 PM
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Really? This is great!

copumpkin
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March 29, 2012, 12:51:28 PM
 #5

Love the idea.

Would you consider doing the same for pirate's scheme ?


Thanks! I would, but I need to think about what degree of exposure I'm comfortable about some more. I'm also hoping, as I said, that I get the ball rolling and other people start offering these too (hey, it's free money until it isn't! what's not to like? Tongue).
imsaguy
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March 29, 2012, 12:56:04 PM
 #6

I bid 10% for all 10 contracts. sub

Coming Soon!™ © imsaguy 2011-2013, All rights reserved.

EIEIO:
https://bitcointalk.org/index.php?topic=60117.0

Shades Minoco Collection Thread: https://bitcointalk.org/index.php?topic=65989
Payment Address: http://btc.to/5r6
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March 29, 2012, 01:02:28 PM
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Interesting idea.
Waiting for the first person to offer insurance for copumpkin's liabilities  Grin

imsaguy
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March 29, 2012, 01:04:59 PM
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Interesting idea.
Waiting for the first person to offer insurance for copumpkin's liabilities  Grin

Not insurance, CDS

Coming Soon!™ © imsaguy 2011-2013, All rights reserved.

EIEIO:
https://bitcointalk.org/index.php?topic=60117.0

Shades Minoco Collection Thread: https://bitcointalk.org/index.php?topic=65989
Payment Address: http://btc.to/5r6
pirateat40
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March 29, 2012, 02:00:20 PM
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I don't understand what any of this means...Who do I send my money to?

That's the point... make them so hard to understand that you just make money!!!

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March 29, 2012, 02:15:28 PM
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I don't understand what any of this means...Who do I send my money to?

That's the point... make them so hard to understand that you just make money!!!
If we issues CDS' on Pirate debt would Pirate get to buy his own CDS' ?  He is a Pirate after all Smiley

Our family was terrorized by Homeland Security.  Read all about it here:  http://www.jmwagner.com/ and http://www.burtw.com/  Any donations to help us recover from the $300,000 in legal fees and forced donations to the Federal Asset Forfeiture slush fund are greatly appreciated!
copumpkin
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March 29, 2012, 02:47:54 PM
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I don't understand what any of this means...Who do I send my money to?

That's the point... make them so hard to understand that you just make money!!!
If we issues CDS' on Pirate debt would Pirate get to buy his own CDS' ?  He is a Pirate after all Smiley

Nope. We really don't want to give anyone an incentive (or lower the disincentive) to default Smiley
copumpkin
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March 29, 2012, 03:07:59 PM
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Interesting idea.
Waiting for the first person to offer insurance for copumpkin's liabilities  Grin

I'll sell you CDSes on myself, but you'd have to be pretty stupid to buy them Smiley
imsaguy
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March 29, 2012, 03:13:04 PM
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I'll sell some cdses on Copumpkin.

Coming Soon!™ © imsaguy 2011-2013, All rights reserved.

EIEIO:
https://bitcointalk.org/index.php?topic=60117.0

Shades Minoco Collection Thread: https://bitcointalk.org/index.php?topic=65989
Payment Address: http://btc.to/5r6
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March 29, 2012, 03:21:18 PM
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I'll sell some cdses on Copumpkin.
Cross CDS'  Hmmmm.

Our family was terrorized by Homeland Security.  Read all about it here:  http://www.jmwagner.com/ and http://www.burtw.com/  Any donations to help us recover from the $300,000 in legal fees and forced donations to the Federal Asset Forfeiture slush fund are greatly appreciated!
copumpkin
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March 29, 2012, 03:39:22 PM
 #15

I don't understand what any of this means...Who do I send my money to?

That's the point... make them so hard to understand that you just make money!!!
If we issues CDS' on Pirate debt would Pirate get to buy his own CDS' ?  He is a Pirate after all Smiley

Nope. We really don't want to give anyone an incentive (or lower the disincentive) to default Smiley

It's just a matter of making the chain long enough
until it's too hard to see it.


Next up, CDOs (and synthetic ones!). Let's see if we can replicate the mortgage crisis, guys Smiley
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March 29, 2012, 03:46:31 PM
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I don't understand what any of this means...Who do I send my money to?

That's the point... make them so hard to understand that you just make money!!!
If we issues CDS' on Pirate debt would Pirate get to buy his own CDS' ?  He is a Pirate after all Smiley

Nope. We really don't want to give anyone an incentive (or lower the disincentive) to default Smiley

It's just a matter of making the chain long enough
until it's too hard to see it.


Next up, CDOs (and synthetic ones!). Let's see if we can replicate the mortgage crisis, guys Smiley

I only have one question. Who's going to bail you out when you are too big to fail?
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March 29, 2012, 05:19:17 PM
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lol he even allows the purchase of naked CDS.

I think the most secure default protection is the people loaning money to become so big that at all the loaners combined are pissed off enough to come and claim their money on default (or let a third party do that with some brutes).

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March 29, 2012, 05:20:55 PM
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I haven't seen this link posted yet in this thread.  Copumpkin wrote:

 "Why you might want to sell Credit Default Swaps"
 - http://bitcointalk.org/index.php?topic=74586.msg826093#msg826093

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March 29, 2012, 05:59:21 PM
 #19

-----BEGIN PGP SIGNED MESSAGE-----
Hash: SHA1

I have provisionally agreed to be the event occurrence arbiter, subject to the creation of, and my agreement to, more specific definitions of credit events for the contract, which are currently being worked on.
-----BEGIN PGP SIGNATURE-----

iEYEARECAAYFAk90oroACgkQ5/k4vslVlLIahACdEZwW7CByJwETP58kX88HH5x6
yu8An0GAo2uI2x5pz0R4jUAaq94GoVRu
=Ii36
-----END PGP SIGNATURE-----

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copumpkin
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March 29, 2012, 07:33:19 PM
 #20


If I buy CDS from you, can I trade them  ?  Cool


Sure, if you can find someone to trade with. If this becomes "a thing", we'd probably want to agree on some standardized contract amounts and dates, though.
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