Quote from: Coinfan on July 14, 2014, 10:48:04 PM

Quote from: Newbie1022 on July 14, 2014, 09:41:09 PM

What I don't quite comprehend is how exactly would they lose money on a flash crash? For one, there is no market regulation so what is to stop them from trading or having a proxy trade on the exchange to scoop up coins on the cheap? Also, the parties who are overleveraged will have already paid their fees -- there may be an issue if they cannot liquidate for enough wherein there'd be massive losses, but again, this could be offset by buying coins on the cheap. And finally, wouldn't there be a flood of volume in the race back upwards to a respectable price?

In a nutshell... how would this event not just be a redistribution of wealth as opposed to [much of a] destruction of wealth? Furthermore, if it is a destruction of wealth wouldn't the exchange still make the difference back on increased near-term volume. OR... would people shuffle their newly acquired cheap coins off Bitfinex for fear that it would collapse before they had a chance to use them?

Bitfinex raised the fees on the interest received by lenders promising in return to compensate lenders in case of losses because of a crash bigger than 40% (in this case borrowers won't have collateral enough to payback the principal to lenders because of the ratio of leverage of 1:2.5).

If bitcoins crashes to 100 usds or even 200, Bitfinex won't have money to compensate all the lenders that loss money because traders/borrowers were forced to sell at 100 and now can not return the lent money. And in case of a serious crash it won't stop at 100.

Even if Bitfinex bought coins at the same price, probably it wouldn't have profit enough to pay all lenders their principal.

Anyway, until now, Bitfinex never recognized having any bid orders in their own orderbook. Maybe it has some, maybe not.

Makes sense. Yea, I definitely wouldn't want them to be trading on their own platform regularly because, obviously, they'd have an edge not really being subjected to their own fees and that would be wanton market manipulation. At the same time, I think it'd be smart for them to have some bids in low, in case of a crash, which they could then liquidate on another market (or on their own if there is a quick bounce back) so that they could cover their obligations to their lenders. This, itself, is not a perfect solution and is a bit screwed up, but it seems much more proper than just freezing trading because some people gambled too hard. If I were them, that's what I'd do, but this is doubtful.