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 Author Topic: [GLBSE] (discontinued) Anti-Pirate: Bonds for negative BTCST investments  (Read 8444 times)
Sukrim
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 April 19, 2012, 01:28:25 PM

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?
As far as I understand it, you are betting that it will take less than 10 weeks for pirate to default. (0.93^10 = 0,483982307)
If it takes longer, you would've been better off keeping your BTC - if it takes shorter, you make a profit.

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copumpkin
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I'm actually a pineapple

 April 19, 2012, 01:35:32 PM

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?
As far as I understand it, you are betting that it will take less than 10 weeks for pirate to default. (0.93^10 = 0,483982307)
If it takes longer, you would've been better off keeping your BTC - if it takes shorter, you make a profit.

Sorry, the "you" in my question was Meni I just wanted to clarify that I understood the motivations for this offering, as they seem to be different from Mircea's (not that I fully understand his, either).
brendio
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 April 19, 2012, 01:42:17 PM

If Meni invests the proceeds from sale of anti-pirate bonds into pirate, he will come out ahead so long as default doesn't happen in the next 5 or 6 weeks.

Sukrim
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 April 19, 2012, 01:45:12 PM

If he manages to sell another few thousand PUREMINING shares @0.4 or even higher instead (by buying mining hardware or mining bonds with the anti-pirate income), he might make much more than investing in Pirate...

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BurtW
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All paid signature campaigns should be banned.

 April 19, 2012, 01:55:08 PM

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.

I have finally figured out what PR stands for.  It is "Pretty Rude".  Am I correct?

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Meni Rosenfeld
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 April 19, 2012, 02:01:26 PM

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?
As far as I understand it, you are betting that it will take less than 10 weeks for pirate to default. (0.93^10 = 0,483982307)
If it takes longer, you would've been better off keeping your BTC - if it takes shorter, you make a profit.
Basically yes, but that's not accurate. You need to consider this with respect to a complete model of the default time probability distribution.

If I believe that Pirate has a probability of p to default, and that the time of the event in this case is exponentially distributed with mean m, then the expected amount I will have to pay per 1 BTC face value worth of bonds is

$2p \int_0^{\infty} (1/m)\exp(-t/m)(1-r)^t dt = 2p / (1 - m\ln(1-r))$

Sorry, the "you" in my question was Meni I just wanted to clarify that I understood the motivations for this offering, as they seem to be different from Mircea's (not that I fully understand his, either).
Mircea's offering is basically just like PPT, but with some tweaked terms, some more precise description of terms, and where they are issued without being backed by actually depositing funds in BTCST (which is relevant only for the issuer, not for investors).

The main difference with Anti-Pirate is that they are exact opposites. PPT are positive, Anti-Pirate is negative. Buying Anti-Pirate can be compared to selling PPT, and vice versa. MPOE-PR has made a big deal in this thread out of the fact that these can be sold, borrowing as necessary.

The issuer of an asset always takes the opposite position of a buyer of an asset; if his desired position is neutral, he will have to seek an alternative means to take the same position as buying the bond. For mining bonds this is generally buying hardware; for PPT this is depositing funds in BTCST; etc.

The 2nd difference is that Anti-Pirate is perpetual while PPT has a set time. As the one who first mentioned the term "perpetuity" in the PureMining thread you can surely appreciate that, but anyway think what would it be like if instead of offering PureMining I would offer PureMining.March, PureMining.April, PureMining.May...

Finally, Anti-Pirate is an original (individually at least, globally until shown otherwise) methodology to provide perpetual negative bonds. Not that the idea is groundbreaking, just a correct application of some concepts to the issue at hand.

EDIT: I'm not sure you can deduce my personal motivation for (considering) offering the bond, since its place in my entire investment portfolio needs to be considered.

If Meni invests the proceeds from sale of anti-pirate bonds into pirate, he will come out ahead so long as default doesn't happen in the next 5 or 6 weeks.
I will not comment on whether I did or will invest funds into Pirate. I will say however that availability of funds is not really much of a problem as far as such investment is concerned, only default risk (and possibly, lack of storage demand).

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copumpkin
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I'm actually a pineapple

 April 19, 2012, 02:53:36 PM

One issue I encountered when I was trying to work through the details of writing CDSes was trust. How do you plan on preventing a pirateat40 sockpuppet (not saying he would create one, but just hypothetically) from buying insurance against himself, thus increasing his own incentive to default.
mcorlett
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 April 19, 2012, 02:55:13 PM

One issue I encountered when I was trying to work through the details of writing CDSes was trust. How do you plan on preventing a pirateat40 sockpuppet (not saying he would create one, but just hypothetically) from buying insurance against himself, thus increasing his own incentive to default.
This is extremely difficult, if not impossible.

copumpkin
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I'm actually a pineapple

 April 19, 2012, 03:00:57 PM

One issue I encountered when I was trying to work through the details of writing CDSes was trust. How do you plan on preventing a pirateat40 sockpuppet (not saying he would create one, but just hypothetically) from buying insurance against himself, thus increasing his own incentive to default.
This is extremely difficult, if not impossible.

We'll find a BTCST-PR poking around on the forum, soon
farfiman
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 April 19, 2012, 03:23:16 PM

[

I'm rather sure OP is not Pirate. But if he is, wow, just wow.

Thats even funnier then when someone said burt=shakaru

"We are just fools. We insanely believe that we can replace one politician with another and something will really change. The ONLY possible way to achieve change is to change the very system of how government functions. Until we are prepared to do that, suck it up for your future belongs to the madness and corruption of politicians."
Martin Armstrong
Meni Rosenfeld
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 April 19, 2012, 03:26:24 PM

wow, OP you are in my top 5 list of bitcoin people I respect. You just keep coming up with epic stuff. I'm in awe.
Come on, with all this respect, at the very least you could use my name...

One issue I encountered when I was trying to work through the details of writing CDSes was trust. How do you plan on preventing a pirateat40 sockpuppet (not saying he would create one, but just hypothetically) from buying insurance against himself, thus increasing his own incentive to default.
Is the failure mode Pirate offering such bonds, or buying them?

Assuming he plans to default, by buying bonds he is essentially encouraging me to effectively invest funds into his program. There's some profit to be made here but this doesn't seem catastrophical to me. I doubt anything can be done to prevent this.

If he's issuing bonds, I don't think he has any advantage over anyone else issuing bonds without intending to fulfill his obligations. Obviously whoever is issuing the bonds should be trustworthy.

One issue I encountered when I was trying to work through the details of writing CDSes was trust. How do you plan on preventing a pirateat40 sockpuppet (not saying he would create one, but just hypothetically) from buying insurance against himself, thus increasing his own incentive to default.
This is extremely difficult, if not impossible.
I'm rather sure OP is not Pirate. But if he is, wow, just wow.
My words exactly. (imagines self as Pirate) Wow.

Ask anyone who has met me in NYC or Prague (or in Israel for that matter) if I look anything like a pirate.

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copumpkin
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I'm actually a pineapple

 April 19, 2012, 04:03:37 PM

I don't really think it'll happen, but given that the people buying these at least have some degree of uncertainty about him, it's conceivable that some people might be worried about it.
Meni Rosenfeld
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 April 19, 2012, 04:31:57 PM

What do people think about renaming from Anti-Pirate to Antimatter? Less descriptive, but way cooler.

I don't really think it'll happen, but given that the people buying these at least have some degree of uncertainty about him, it's conceivable that some people might be worried about it.
The people buying these bonds will want Pirate to have additional incentive to default.

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Sukrim
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 April 19, 2012, 04:50:03 PM

The "classical" antagonist to a pirate is still a ninja! (http://knowyourmeme.com/memes/pirates-vs-ninjas)

Alternatively you could be the http://en.wikipedia.org/wiki/East_India_Trading_Company (see "Pirates of the Caribbean")...

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copumpkin
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I'm actually a pineapple

 April 19, 2012, 04:50:50 PM

What do people think about renaming from Anti-Pirate to Antimatter? Less descriptive, but way cooler.

I don't really think it'll happen, but given that the people buying these at least have some degree of uncertainty about him, it's conceivable that some people might be worried about it.
The people buying these bonds will want Pirate to have additional incentive to default.

They will? I assumed they would primarily be used as part of a hedging strategy. I guess it then incentivizes pirate lenders to buy up all the bonds to prevent pirate's sockpuppet account from doing it first, lest he have perverse incentives
Meni Rosenfeld
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 April 19, 2012, 05:00:41 PM

What do people think about renaming from Anti-Pirate to Antimatter? Less descriptive, but way cooler.
I don't really think it'll happen, but given that the people buying these at least have some degree of uncertainty about him, it's conceivable that some people might be worried about it.
The people buying these bonds will want Pirate to have additional incentive to default.
They will? I assumed they would primarily be used as part of a hedging strategy. I guess it then incentivizes pirate lenders to buy up all the bonds to prevent pirate's sockpuppet account from doing it first, lest he have perverse incentives
That's not a likely use case. Every Anti-Pirate bond negates an equivalent pirate investment. People who invest in both will make no returns and will just have to provide collateral and a fee for the privilege of getting nothing.

It's a stretch, but maybe it can be used to move up a Pirate tier, or enable other special Pirate offerings. For example someone who wants to risk only 1500 BTC with Pirate, can deposit 2000 BTC and buy 500 BTC face value worth of anti-pirate bonds. The increased interest rate just might be able to compensate for the costs.

The intended use case is for people who really want to be short on Pirate.

The "classical" antagonist to a pirate is still a ninja! (http://knowyourmeme.com/memes/pirates-vs-ninjas)

Alternatively you could be the http://en.wikipedia.org/wiki/East_India_Trading_Company (see "Pirates of the Caribbean")...
Not a fan, but will consider this.

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copumpkin
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I'm actually a pineapple

 April 19, 2012, 05:48:06 PM

That's not a likely use case. Every Anti-Pirate bond negates an equivalent pirate investment. People who invest in both will make no returns and will just have to provide collateral and a fee for the privilege of getting nothing.

It's a stretch, but maybe it can be used to move up a Pirate tier, or enable other special Pirate offerings. For example someone who wants to risk only 1500 BTC with Pirate, can deposit 2000 BTC and buy 500 BTC face value worth of anti-pirate bonds. The increased interest rate just might be able to compensate for the costs.

The intended use case is for people who really want to be short on Pirate.

Fair enough Sounds like something Mr. Popescu would really like to have, then
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 April 19, 2012, 06:34:55 PM

I liked the idea at first.

But now it sounds like Pirate could default, run away with all of the deposited funds and make extra money from the options (held by a collaborator or fake account).

Now I think this is a very bad idea as it encourages default.

Meni Rosenfeld
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 April 19, 2012, 07:23:08 PM

I liked the idea at first.

But now it sounds like Pirate could default, run away with all of the deposited funds and make extra money from the options (held by a collaborator or fake account).

Now I think this is a very bad idea as it encourages default.
The currently intended scale of the offering will be such that the additional incentive, compared to Pirate's existing holdings, is negligible. If Pirate isn't planning to default now, it is highly unlikely that buying this bond will convince him to do so.

But that's not even the main point, there's something much more basic that you're missing. Suppose I want to take a long position of X BTC on Pirate. I can do this by either depositing in his program or by offering X BTC worth of bonds. Assume the worst case that Pirate buys them all. Then this increases his incentive to default by X BTC, and if I deposited in his program I would also have increased his incentive by X BTC. So choosing to offer these bonds has no effect on the incentive to default, and that's assuming the worst case - if people other than Pirate buy bonds, his incentive to default decreases (when compared to the case that I obtained my position by depositing).

What you're really saying is that depositing in Pirate's program is a very bad idea as it encourages default. Which may be true, but has nothing to do with this. This bond allows people to deposit negative amounts which discourages default, unless pirate deposits a negative amount in his own program which makes this neutral.

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MPOE-PR
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 April 20, 2012, 07:21:28 AM

Quote
Ok, now I know you're just trolling.

Let me point out to you, Meni Rosenfeld, that throughout this thread I have been speaking as to facts. You have been speaking as to persons.

Quote
But now it sounds like Pirate could default, run away with all of the deposited funds and make extra money from the options (held by a collaborator or fake account).

Now I think this is a very bad idea as it encourages default.

Exactly. A very well run scam, benefiting from the naivite of a circlejerk made out of people who misrepresent (especially to themselves) both their skills and their reach. This is in fact a texbook case of how a well run Ponzi goes.

Quote
Affinity fraud includes investment frauds that prey upon members of identifiable groups, such as religious or ethnic communities, language minorities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are â€“ or pretend to be â€“ members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme, by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster's ruse.