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Author Topic: "Shorting" altcoins  (Read 2494 times)
markm
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July 19, 2012, 04:41:05 PM
 #21

Trust-free betting in the sense of not having to trust your counterparty should be very possible using "oracles", but you have to trust the "oracle", which is basically a "smart contract". You'd bet on what a script in the contract is going to say, with the script doing something like scrape the sports page of a certain online newspaper, or scrape the top five such newspapers to see if any three of them agree or something like that.

Open Transactions does have "smart contracts" so if those can be authorised to use a website scraper (libcurl type thing) betting on things one can predict the newspaper's format for reporting should be feasible.

If there is no delivery of the stuff you shorted you maybe aren't really shorting it; if it doesn't hit the market you are maybe really just doing some kind of option or non-delivery-future rather than a genuine "short"?

-MarkM-

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Ukigo
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July 19, 2012, 07:00:12 PM
 #22

Thanks for your interesting thoughts about semi-non-human betting with OT !
Quote
If there is no delivery of the stuff you shorted you maybe aren't really shorting it; if it doesn't hit the market you are maybe really just doing some kind of option or non-delivery-future rather than a genuine "short"?
IMO the answer is -- Yes and no.

Yes <-- this is not "usual" shorting action ( like, say with stocks, which you own ).

No <-- but, trader , who is selling future contract is effectively shorts underlying asset,
and will profit from asset's price decrease.

So in this scheme, price discovery can go both ways,
 without bias towards price increase (like it could be without possibility to go short ).

I think , that more important part in "shorting" is exactly  this well-balanced price discovery.
And the exact method of "shorting" in this sense is far less important.
---------------------------------------------
I personally qwestion the nature of leverage in future trading.
From where this leverage is really coming ?!
Credit, given by the bank ? Accounting "trick" ?
Or this is sort of legit scam ?  Smiley

On the other hand -- honest man can always arrange all things good way.
----------------------------------------------
Future market is simplier to understand, than options
and can attract more players.
Even without marketmakers in game.

The biggest risk in marketmaker business with very risky assets( like all our stuff )
is, perhaps high volatility and possibility of strong price move, which can
 easily destroy all marketmaker's "working capital"
If i was running my own OT server, i would  not be myself a marketmaker.  Smiley



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markm
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July 19, 2012, 07:19:36 PM
 #23

Actually shorting something you do not own, that is, selling something you do not own, has to involve leverage to do it right now, even if the leverage is only a fraction not a multiple. Basically you have to borrow the thing you want to sell.

If you are not selling it now but in the future, I can see that maybe being able to avoid leverage (borrowing), maybe, if there is to be no guarantee that you will ever actually be able to get hold of the thing you claim you will at some future time sell.

To actually guarantee that what you will have to buy in the future will actually be available for you to buy in the future, some has to be put aside, reserved, to ensure it will be avilable for you to buy come the time you want to buy it.

However if you set up your contracts in such a way that they leave you an emergency penalty clause allowing you to pay some penalty in some other currency or asset if you fail to deliver the asset the contract is really about, then presumably this problem of whether what you will be owing will be available to you come the day your debt comes due can be sidestepped. I think in normal trading fiat comes into it for that, since all debts have to be willing to accept settlement in fiat.

I think if a system of leverage (borrowing) is set up, shorting can take care of itself. If no one is willing to loan you the thing you want to short, tough, you maybe aren't offering them enough interest on the loan, try making a better offer.

So maybe the thing we need to solve is how to secure loans of arbitrary assets by arbitrary users to arbitrary users. That sounds like something that should be possible using smart contracts. It is probably just a matter of designing a contract that both parties find agreeable.

-MarkM-

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Ukigo
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July 19, 2012, 07:55:54 PM
 #24

Quote
To actually guarantee that what you will have to buy in the future will actually be available for you to buy in the future, some has to be put aside, reserved, to ensure it will be avilable for you to buy come the time you want to buy it.
Yes, i agree some collateral or reserve is needed
maybe also to minimize counterparty risk
and risk of OT server's operator and/or token "issuer".

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July 19, 2012, 08:06:01 PM
 #25

There is another problem when using an Open Transactions server, and that is the number of tokens actually available on that server.

For example right now there are no litecoins issued onto my server as DigiLitecoins (dLTC), only 10,000 ixcoins issued as dIXC, only 20,000 i0coins issued as dI0C, only 200 bitcoins issued as dBTC, and only 1150 namecoins issed as dNMC.

Thus the problem of not having enough available to buy to pay back what you borrowed can be very real. For example if you borrow 10,000 dIXC and short them (sell them), who-ever bought them then has the only dIXC on the server. How are you going to pay back the loan? Buy them back from the guy who bought them from you? Convince them to loan them to you to "short" again, thus making the problem worse but pushing it into the future? Or send in some actual real on the blockchain ixcoins for the server to stash away in their cold storage vault so that more dIXC can be issued onto the server?

-MarkM-

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July 19, 2012, 09:05:28 PM
 #26

I still don't see much interest in this yet...

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markm
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July 19, 2012, 09:14:35 PM
 #27

I still don't see much interest in this yet...

Maybe altcoin values aren't going down a whole lot lately or something? It seems quite possible that a lot of the interest in shorting is not really an intent to drive down the value but just to profit from the already lowering value. So maybe it is more a feature for opportunists than a feature for those who actually want to try to drive down the value of something.

Part of the interest in it on my server is from debtors. They heard that shorting can somehow sometimes drive down the price of something, which got them interested in trying to drive down the price of whatever their debts are denominated in so as to make the debts easier to pay off.

-MarkM-

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markm
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September 28, 2012, 07:36:49 PM
 #28

Maybe focus on shorting "altcoins" is too limited, since really what this is about is shorting assets, where assets might represent bitcoins, altcoins, bonds, shares, gold, silver, or whatever.

I guess why I thought of altcoins was I thought shorting was kind of a way to put your money where your mouth is, thus that all the people who mouth of about this that or the other altcoin being doomed could short it.

But one could just as well short bitcoins, they too are just another asset.

I think the crucial thing needed regardless of what someone wants to short is a system for collateral, so that whatever other assets they have that they are willing to put up as collateral can be evaluated as to how much of what they want to short the loaner is willing to loan them based on the assets offered as collateral.

-MarkM-

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