Quote from: jbssm on February 10, 2014, 03:20:58 PM

Quote from: aragalie on February 10, 2014, 03:18:24 PM

Quote from: CambioBTC on February 10, 2014, 02:52:27 PM

Lenders profit from the incredibly high interest rates they charge and now would appear to
also be at very little risk themselves, one would think that the equation is that they are able
to charge such high interest rates because of the risk that they take, if that risk is going to
be minimized now by BitFinex everytime the market crashes then it would only be logical to
also put a cap on the interest rates that the Lenders are able to charge.

Otherwise it would behoove of all of us to quit being Traders and all become "Lenders" with
the un-equaled amount of "Protection" that BitFinex is affording to it's Lenders.

Unfortunately one will not function without the other, actually Traders can trade without Lenders,
but Lenders can't lend it they don't have an Traders willing to take their loans.

I'm not sure if you are aware, but there IS a cap on the profit of the lenders: it's at 14% per day. Try it yourself to put an offer higher than that and you will see.

Also, the risk of the Lender is not the same as the Trader's, and they should not be compared. What you want to compare is the risk PROFILE.
To explain: as a Trader, when you put a long or a short you have the theoretical opportunity to have unlimited profits (if the price goes up), or an extremely high but none the less limited opportunity if it goes down (to 0.00001). So your risk is quantifiable, whereas your profits can grow very, very much. Whereas for a Lender, you have ALWAYS a limited profit opportunity (the rate you charge, with a max at 14% per day), whereas your risk is more or less complete loss of funds, at any point in time when and if the market crashes.

If we were in a regulated market, the lenders would be protected, and your costs for funding would also be lower. But, as we are in an unregulated market, the Lenders are actually, from a business POV, MUCH MORE important to protect, keep and increase their numbers than are the Traders. Put another way: there are lots of Traders around, but very very few Lenders.

So, my humble opponions is that BFX did the right thing by stopping the trading momentarily. Of course, the right thing for their business and for the Lenders. But not the right thing for the short seller, of course.

Pragmatically speaking, they can find short sellers (Traders) any time they want, whereas if they loose 16 million USD from Lenders, their platform will be dead tomorrow.

Hope it makes sense for everyone on this forums, especially for those amongst us bickering over pennies lost here and there in "potential" winning trades.

What's the point in offering an insurance for the lenders then? If BifFinex it's not enforcing it, it means they are just pocketing the money the lenders pay for insurance... together with the other million dollar a months that comes from their trading fees.

I guess the lenders are still exposed to risk of default from trader, as a trader may have a negative balance in an event like this. The trader may just go away with a negative balance account.

I guess this makes the difference on offering insurance (btw, the amount of insurance funds are actually very small when compare to the total active swaps)