I have a suggestion:
From what i understand running out of BTC on bitstamp was what lead to the cascade. How about next time this happens, and the order book moves more than 5% out of sync with bitstamp, that bfx pauses *sell orders*.
So its similar to halting trading, but *limit buy* orders are still allowed.
What will happen is the traders and bots will start to fill in the depleted order book. Eventually sell orders are restored again once the order book depth reaches some predetermined value, like say 1000 Btcs to the bitstamp price. let the sell orders trickle in and if the depth is depleted again and goes 5% out of sync with bitstamp, you once again halt *sells* and resume when the depth rebuilds enough. Meanwhile, you're also sending more BTCs to bitstamp.
This is like a circuit breaker but allows a controlled sell off. The advantage is that because its slow, forced liquidations won't cascade to zero because there will always be buyers willing to fill in with more bids when they see the bitstamp/bfx order books go out of balance. Also i think the number of forced liquidations will be reduced because they are stopped at 5% below bitstamp and only resumed when the bids fill in. eventually there will enough bids to repay lenders and stop the cascade.
The point of halting trading i think is to stop a cascade and destroying the lenders. By still allowing *buy limit orders* placed, we're still giving the lenders their money (since its coming out of the buyers).
If there aren't enough buyers then no worries, the depth never refills and trading is not resumed until the extra BTCs get to bitstamp. This system won't be any worse than the current system of halting all trades until btcs get to bitstamp... at least i don't think it's worse.
This "half-breaker" works both ways, If the opposite happens somehow, you can stop buy orders in the other direction.
Anything wrong with implementing a half-breaker?
The only difficulty i can see is that extra computing power is needed to check if the above conditions are met after every trade. After a sell occurs, check if there is still enough btc in bistamp, if not, check if the last trade pushed the price to 5% below bitstamp price, if true, STOP SELLS.
For very large sells of thousands of BTC you'll also have to break up the transaction into smaller pieces and implement the checks after each piece.
Anyway, could this idea work?
I like that idea.
Some automatic breaker, with the rules published in advance, and a clear message on every page of BitFinex in such a condition.
Please, everybody who still complains, take it to BitFinex email, as they themselves asked for. Or open a thread in "scam accusation", whatever. I don't want to hear it again and again for pages and pages.
To everybody making suggestions here: This sounds like we really can come up with a good plan here. And, as was stated by BitFinex/Giancarlo several times, people who make good suggestions will get some goodies. They are listening to us, lets make the platform go out stronger from this!
Ente
I'm not sure why so many people think a volatility cap is a good idea for any exchange. To a certain extent I guess I agree, but half of us only trade crypto because of the volatility.
Most of us coming from forex/stock markets and any trader with 'more than 3 neurons' (as the BFX devs put it) would immediately abandon BTC markets if a strict cap similar to other markets was every put in place.
Its really a risk/reward problem, even trading bitcoin comes with the inherent risk that your exchange will just run off with your money not to mention the sort of problems people have discussing here with 'halted' trading. In addition if you have an experience with forex/stock exchanges/brokers trading bitcoin is like stepping back into the dark ages. The fees are insane, there's no regulation, support for the trading platforms in pitiful by comparison, none of your funds are insured.
My forex account is not only insured for 2 million but I also earn interest just on the deposit (not for lending just for having money on the exchange). In addition most brokers offer ninjatrader, metatrader, or some other kind of support (the working version I might add), along with a number of other custom trading tools.
If the volatility is gone the traders will be too.
I also might add most of the markets mentioned as a precedent for such a policy have brokers that offer 300:1 leverage or more.