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Author Topic: [GLBSE] (discontinued) Anti-Pirate: Bonds for negative BTCST investments  (Read 8433 times)
Meni Rosenfeld
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April 19, 2012, 08:50:09 AM
 #1

tl; dr: Each Anti-Pirate bond has a face value that starts at 1 BTC and decays by 7% (multiplicatively) every week. If Pirate defaults, the bonds will be purchased back for twice their face value. Bondholders have the right to sell bonds for their face value at any time. The asset is currently inactive.

Asset page: https://glbse.com/asset/view/ANTI-PIRATE


Introduction. For the past several months, forum member pirateat40 has offered the recently renamed Bitcoin Savings and Trust program (website), allowing investors to deposit funds and receive insanely high interest payments in return. The program is widely suspected to be a HYIP scam, though it has still attracted much interest from investors who believe that, even if the program will eventually default, they will make back their investment by then.

No doubt there are other people who believe that default is imminent and wish to take the opposite side of the bet. So far there hasn't been an effective way to do this. One possibility that comes to mind is borrowing pass-through bonds such as PPT and selling them, but there is no standard platform for this, and this is made cumbersome by the terms of the specific offerings.

The Anti-Pirate bonds offer a streamlined method to short BTCST, and are equivalent to depositing a negative amount in the program (where the payment for the bond acts as collateral, much like when selling on margin). If you believe that investment in BTCST has a net negative expected value, then an Anti-Pirate bond, bought at an appropriate price, will have a net positive expected value.

Method of operation. Bonds will have a face value which starts at 1 BTC and will be sold at a price which is somewhat higher than the face value. The face value of all Anti-Pirate bonds will decay by 7% per week (at 03:30 UTC on Tuesday), multiplicatively (after X weeks, the face value will be 0.93^X BTC). The bond represents a perpetual obligation by the issuer to be bought back, if the BTCST program defaults, at a price equal to the maturity value, which is twice its face value at the time of default. The faster Pirate defaults, the higher will be the return on investment; conversely, if Pirate never defaults or only after a very long time, the investment will be lost entirely.

The issuer is also obligated to buy back bonds at any time, at the request of a bondholder, for their face value at the time. Taking all this into account, buying Anti-Pirate bonds with total face value of 1 BTC is completely equivalent to the following:

1. Depositing (-1) BTC in Pirate's BTCST program at the 7% weekly interest tier;
2. Instead of receiving 1 available BTC, depositing 1 BTC as collateral;
3. Each week, withdrawing 7% of the balance (making the negative balance closer to 0), and correspondingly withdrawing 7% of the collateral;
4. Paying an advance, non-refundable fee for the service equal to the difference between the traded price and the face value. For bonds bought from the issuer, the fee represents a compensation for the risk in offering this bond.

This is because depositing 1 BTC creates a profit of 7% per week, where a default causes a loss of 1 BTC; while buying Anti-Pirate bonds causes a loss of 7% per week (represented as a depreciation in the face value of the owned bonds), a default would cause a gain equal to the negative balance, the scale of investment is reduced by 7% unless new bonds are purchased, and the position can be closed at any time allowing withdrawal of the collateral.

The pricing of any future bonds offered will take into consideration the reduced face value. The asset can be used indefinitely, but requiring ever growing quantities for a given value.

Details on the current face value of bonds is available at http://bitcoinantipirate.com/. This website is informational only and is in no way binding.

Determining a default scenario. The contractual payment in the scenario of a BTCST default will require a community consensus that a default has taken place. A partial default will count as a default for this purpose; on the other hand, a single person claiming he is unable to withdraw funds is not sufficient evidence. The time of default for the purpose of determining the effective face value is the time that real evidence first comes to light, which in retrospect will lead to a conclusion of default. Any isolated incident will not count for the purpose of locking the face value.

The issuer can also choose at any time to buy back the bonds at the maturity value (equal to twice the face value), even if there is no default.

Timing. The issuer will keep as reserves, in either a local machine or a GLBSE balance, an amount of bitcoins equal to at least the face value of all outstanding bonds. Should any loss or theft of the reserves occur, the issuer will make a best effort to quickly replenish them.

The issuer will maintain bids on the GLBSE platform for the bonds, at a price equal to at least their face value, in a quantity which is expected to be sufficient for the demand to sell back bonds. If the bids are executed, the issuer will make a best effort to place new bids quickly, which will usually take no more than 2 days. Contacting the issuer can help expediting this.

The issuer is not obligated to keep in immediately available reserves the due payment for a case of BTCST default. However, the issuer has more than enough assets to be able to cover the obligation, and these will be liquidated as necessary to fulfill the obligation. Said liquidation is expected to take several days.

Trustworthiness. I, Meni Rosenfeld, am issuing the Anti-Pirate GLBSE asset, and committing to fulfilling the terms of the bond as described. I am a veteran of this forum and other Bitcoin communities, and own a Bitcoin business. I am using my real name which can be linked to my identity via my extensive online presence, and I have verified my identity with GLBSE.

The only way I can conceive not honoring the terms is if a malicious cracker hacks into my GLBSE account and issues new bonds on my behalf. The obligation thus created is arbitrarily high and there is no way to commit to it (of course, if the damage is within reason I will absorb the losses). I am using a strong password for GLBSE and keeping my computing environment reasonably secure, but cannot absolutely preclude this scenario. Do not buy newly issued shares unless I announce them on the forum, and in case of suspicious activity you would do well to verify via additional channels. Going forward I will look for robust ways to limit the plausibility of this scenario.

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April 19, 2012, 08:50:30 AM
 #2

(reserved)

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April 19, 2012, 08:50:54 AM
 #3

The above is still a concept; I have not made a final decision whether I would like to offer these bonds. I am writing this to hear any thoughts about the idea and learn if anyone would be interested in buying such bonds.

A face value equal to half the maturity value was chosen mainly because this leads to an effective interest rate equal to the decay rate, which is intuitive. A greater maturity value can be used, which will allow making an investment with a lower collateral (essentially a higher margin ratio), but this will mean that the decay rate needs to be higher for a given effective interest rate, which is less robust.

The asset as described can be cleanly equated to a negative deposit against collateral. There is an alternative offering I am considering: Dropping the right to sell the bonds at face value (and replacing it with a compensation clause for a scenario that the BTCST program changes materially without defaulting). This allows more flexibility with the pricing, but makes it harder to compare directly with BTCST deposits, except for the fact that this is a bet on an imminent default. Opinions on the preferred variant are also welcome.

Update: No longer just a concept. For now I went with the sell option, 200% maturity variant.

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April 19, 2012, 09:55:23 AM
 #4

Yes, this was announced in principle two days ago and is now trading on MPEx.

To piggyback you have to be faster and more decided than that.

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April 19, 2012, 10:08:22 AM
 #5

What will your anti-pirate bond do in the event of a change in interest rates offered?

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April 19, 2012, 10:44:34 AM
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Can you call it "Ninja insurance"? Cool

I don't get the MPEx spam lately - paying 20 BTC just for signing up is a big no-go for me personally. Until you earn THAT amount of money back, you need a lot of time and effort - not showing volumes in BTC but in amounts of shares sold also gives me personally the impression that it shall be viewed more liquid than it actually is. You can maybe show how many PPT-insurance shares I need to buy on MPEx with a 20 BTC signup fee but a 2% trading fee (that I don't have to pay on GLBSE either as buyer) to have better conditions there. I guess it's a quite large amount...

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April 19, 2012, 10:50:51 AM
 #7

Yes, this was announced in principle two days ago and is now trading on MPEx.

To piggyback you have to be faster and more decided than that.
I beg your pardon?

I'm assuming you're referring to this.

Even if this was announced two days ago as you say I had no knowledge of this when I devised the asset being offered, or when I wrote this post.

More importantly this is completely different. You have basically copied the PPT bond, which is a positive Pirate deposit, and merely stated that it can also be sold short. My offering is the exact opposite, each bond represents a negative investment, in a way which is original (maybe similar instruments exist in the financial world at large, but I have not seen anything like it here). It is much more streamlined and easier to use than any short position that can be taken utilizing PPT or your copy of it.

All that said, both our offerings are valid and investors can choose which they prefer, if any. I just wish my competitors would have a bit more sportsmanship.

What will your anti-pirate bond do in the event of a change in interest rates offered?
In the bond described in the OP, this will have no effect. If investors believe this is indicative of a different default risk (likely reduced), they can react by exercising the right to sell bonds, or to refrain from buying more bonds. And I will also take this into consideration when pricing any newly issued bonds.

Edit: It is also possible that the interest rates would become so low that the bond no longer makes sense; in this case, no new bonds will be issued, and bonds that are not sold back will decay peacefully until they are forgotten. A new type of bond may be offered with a lower effective interest rate.

In the no-sell variant, it is likely that any material change any BTCST will offer bondholders a temporary right to sell bonds. This variant is more flexible wrt pricing, so whatever the new interest rate is, it can be issued at a price that makes sense with the predefined decay rate.

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April 19, 2012, 10:55:57 AM
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There's a very simple path to sportsmanship: Announce your foregoers so that they do not have to do it for you.

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April 19, 2012, 11:16:40 AM
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There's a very simple path to sportsmanship: Announce your foregoers so that they do not have to do it for you.
I don't know what kind of bubble you live in, but people don't go daily to check Mpex. Bitcointalk announcement or it didn't happen. I did browse this forum and GLBSE to make sure nobody has made a similar suggestion. You announced this here after my own post. When I saw it I thought about giving it a mention, but decided against it because there was no real innovation in your offering - you can do with it exactly what you can do with PPT. And I did mention PPT.

If you must know, I came up with the idea while driving to the train station on my way to work yesterday. Of course, the rigorous mathematical modeling had to wait until I got home. If you are suggesting that I did in fact have knowledge of your own offering while I was making this post, then you are calling me a liar, and I will not tolerate such accusations.

Once again, you are not my foregoer. PPT offered a timed positive bond, you offered a timed positive bond, I offered a perpetual negative bond.

If you must take credit, it is true that I was somewhat inspired by your recent comments in the BTCST thread predicting a default.

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April 19, 2012, 11:23:58 AM
 #10

Meni can you create a negative MPEx bond instead? That is, a bond allowing us to short the continued existence of MPEx. I would invest heavily in such a bond
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April 19, 2012, 11:26:00 AM
 #11

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I don't know what kind of bubble you live in

If your defense is "oh but I didn't know cause I don't read the forums or mpex or go on IRC or anything else" that means YOU are the one in the bubble. Good luck with that.

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April 19, 2012, 11:31:16 AM
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I don't know what kind of bubble you live in

If your defense is "oh but I didn't know cause I don't read the forums or mpex or go on IRC or anything else" that means YOU are the one in the bubble. Good luck with that.
I read the forum plenty, please direct me to a place where you announced your offering prior to my own proposal, preferably in a relevant section.

You may be right that I am missing out on IRC, but it doesn't seem like a very productive medium to me. I can usually be found in #bitcoin-il though.

I don't follow mpex closely, nor do I see a reason why I should.

Meni can you create a negative MPEx bond instead? That is, a bond allowing us to short the continued existence of MPEx. I would invest heavily in such a bond
That's... Interesting, I guess.

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April 19, 2012, 11:36:50 AM
 #13

https://bitcointalk.org/index.php?topic=76594.msg855299#msg855299

And you can tell the sockpuppet above that provided he manages to get an OTC rating of any weight or otherwise makes a deposit he can easily borrow MPOE shares to sell short on MPEx.

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April 19, 2012, 11:46:23 AM
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Yeah, I see how that could pass for an announcement. But you did not even mention then that you intended for this to be used as a vehicle for other people to short. All you said is that you would offer a naked issue comparable to PPT as a way for you personally to short.

For all I know, you only added a comment about the possibility to short your asset after I suggested that there is demand for this.

Edit: And by the way, sportsmanship also means not making a scene when your competitors don't offer you free advertising. I know I didn't waltz in to every mining bond thread and demand they pay tribute to PureMining.

I'm really not trying to provoke you or anything, I think the thread has been hijacked enough. I just wish you to be a bit more civil.

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April 19, 2012, 11:53:31 AM
 #15

What will your anti-pirate bond do in the event of a change in interest rates offered?
In the bond described in the OP, this will have no effect. If investors believe this is indicative of a different default risk (likely reduced), they can react by exercising the right to sell bonds, or to refrain from buying more bonds. And I will also take this into consideration when pricing any newly issued shares.
So, if, say, pirate decreases rates to 5% per week, the face value of these anti-bonds will still decay at 7% per week?

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April 19, 2012, 11:59:31 AM
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What will your anti-pirate bond do in the event of a change in interest rates offered?
In the bond described in the OP, this will have no effect. If investors believe this is indicative of a different default risk (likely reduced), they can react by exercising the right to sell bonds, or to refrain from buying more bonds. And I will also take this into consideration when pricing any newly issued shares.
So, if, say, pirate decreases rates to 5% per week, the face value of these anti-bonds will still decay at 7% per week?
Yes. See also my edit to my previous answer.

The point is that the decay rate does not need to correspond to pirate's interest rate. In principle, the effective interest rate is (ry)/(1-y), where r is the decay rate and y is the ratio between the face value and the maturity value. In the no-sell variant, the "face value" does not need to be predefined and is de facto determined by the traded price. In this case the price can change to match whatever pirate's interest rate is.

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April 19, 2012, 12:09:31 PM
 #17

Subscribing.

And you can tell the sockpuppet above that provided he manages to get an OTC rating of any weight or otherwise makes a deposit he can easily borrow MPOE shares to sell short on MPEx.

MPOE-PR,

You are trying to run and business yet your attitude on these forums is a bit, well, shit. I would like to suggest that your reputation on these forums will be a key factor in whether your MPEx venture is successful or not.

As it stands now, your attitude is pretty much dooming you are your business from any real success.

Meni is correct that your offering is nothing like what he has stated in his OP.

Best,
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April 19, 2012, 01:11:34 PM
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The above is still a concept; I have not made a final decision whether I would like to offer these bonds. I am writing this to hear any thoughts about the idea and learn if anyone would be interested in buying such bonds.

A face value equal to half the maturity value was chosen mainly because this leads to an effective interest rate equal to the decay rate, which is intuitive. A greater maturity value can be used, which will allow making an investment with a lower collateral (essentially a higher margin ratio), but this will mean that the decay rate needs to be higher for a given effective interest rate, which is less robust.

The asset as described can be cleanly equated to a negative deposit against collateral. There is an alternative offering I am considering: Dropping the right to sell the bonds at face value (and replacing it with a compensation clause for a scenario that the BTCST program changes materially without defaulting). This allows more flexibility with the pricing, but makes it harder to compare directly with BTCST deposits, except for the fact that this is a bet on an imminent default. Opinions on the preferred variant are also welcome.

So this offering, if does happen, is an indirect statement that you believe pirateat40 will not default, right?
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April 19, 2012, 01:20:05 PM
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Meni is correct that your offering is nothing like what he has stated in his OP.

We agree on that, in the sense that what he has stated in his OP is not an offer. However, it purports to (maybe, one day) be what the MPEx offer actually is, hence the contention.

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April 19, 2012, 01:21:34 PM
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The above is still a concept; I have not made a final decision whether I would like to offer these bonds. I am writing this to hear any thoughts about the idea and learn if anyone would be interested in buying such bonds.

A face value equal to half the maturity value was chosen mainly because this leads to an effective interest rate equal to the decay rate, which is intuitive. A greater maturity value can be used, which will allow making an investment with a lower collateral (essentially a higher margin ratio), but this will mean that the decay rate needs to be higher for a given effective interest rate, which is less robust.

The asset as described can be cleanly equated to a negative deposit against collateral. There is an alternative offering I am considering: Dropping the right to sell the bonds at face value (and replacing it with a compensation clause for a scenario that the BTCST program changes materially without defaulting). This allows more flexibility with the pricing, but makes it harder to compare directly with BTCST deposits, except for the fact that this is a bet on an imminent default. Opinions on the preferred variant are also welcome.

So this offering, if does happen, is an indirect statement that you believe pirateat40 will not default, right?
Yes, offering this bond lengthens my Pirate position. But that doesn't mean I can't seek ways to hedge this risk.

Quote
Meni is correct that your offering is nothing like what he has stated in his OP.
We agree on that, in the sense that what he has stated in his OP is not an offer. However, it purports to (maybe, one day) be what the MPEx offer actually is, hence the contention.
Ok, now I know you're just trolling.

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