Please understand there is no "insurance" in the normal sense of the word. If the market crashes/BFX gets hacked/exploited/etc., and the losses for lenders are higher than the reserves of BFX (which, as they indicated are about $1.5 millions), then money are lost for good and nobody will give them back to you. The recent announcement was basically a (poorly worded) justification to remove the "insurance pool" of $50k, which btw one might also argue that was no insurance at all due to our inability as users to actually check that those $50k were in an account in the first place.

Also, i don't think the drop in lending rates has anything to do with the newly announced "insurance". Do you really believe that people who use their brains assumed that their money are somehow now magically safeguarded by the Bitcoin FairyGodmother, and went on a "lending spree"?

What you might want to take into account is the opportunity costs. As a lender, the money you have at BFX are "stuck" there, compared to let's say an FX platform where you can trade any of the many, many pairs or CFDs. With BFX you have a binary choice: lend at the prevailing market rates or don't lend at all. As such, in the short term, the logical (and financially optimal strategy) is to always lend your money, even at very very low rates. 1$ pe day is better than no dollar at all.

Sure, some people will kid themselves that instead of lending at 0.05%/day it's better to wait for a few days and then lend at 0.2%/day. You do the math and see that you can wait up to 4 days without lending and you'll still do the same benefit (actually a bit less if you're compounding). But, that is speculation on the interest rate movement so an identical behavior to trading, and something that i would venture to assume lenders don't want to do as a principle (otherwise it makes more sense to just trade on margin with your funds).

Yes, in the long term, if rates drop dramatically, the lenders will pull out their money and move them somewhere else. But, for the money that are in BFX at any point in time, the optimal financial strategy is to lend them out at whatever rate you can. Thus the reason for "auto lend" option and the prevailing use of the Flash Rate rate to auto-lend the money on a recurring basis.

If you take all that i've said before into consideration, you will see why very low lending rates are possible and even probable, and such a situation can only improve/reverse if BFX takes active steps in limiting the minimum rate.


But i would worry less on the above and more on the fact that the lending cost is being hiked by 50% whenever desired....curious how many of the lenders did the math on that one. Not that it matters anyways

Thanks for the reply Giancarlo. I know that you are a very straight talker, but please be aware that the more BFX grows, the more you need to watch the phrasing of your communications, especially an official announcement to your customers. Based on previous experience, and looking at what Gox is going through now, i would suggest you take some proactive steps to save BFX costly future legal battles:

1- As per regulation in most developed countries, customers have to have prior notice of any changes to the terms and conditions, as the T&C is considered a legal binding contract, and no contract can be changed unilaterally. The amount of time for the notice can depend, but i suggest a minimum of 2 weeks.

2- Also, please have us "Accept" again the new T&C when we log-in next time on the platform after the T&C changes, as that is the only legal proof that we have been notified and accepted the new conditions.

On the discussion of the insurance, i understand that BFX has more or less $1.5 million in reserves, and this is what you meant by "insurance", the fact that you will reimburse any losses up to that level. Please be aware that using words like "insurance" when you actually mean a very different thing (partial reimbursement of TOTAL losses for open SWAPS, up to $whatever number) can be seen as deceitful and again, will be a legal issue. As we've seen recently, you guys took steps to be legally compliant (e.g. renaming Loans to Swaps), so i trust you will give the same serious thought to my advice above. And just to set things straight for everyone, please make it clear here that you are not insuring the swaps, but simply doing a best-effort attempt at minimizing the losses in case of a crash.

On the discussion of "an extra 5% cut" on Swaps, you have increased the fee, percentage wise by 50% (FIFTY PERCENT). That a major increase, and again, it is not justified by your argument in the communication. So let's please not try to downplay the scale of it by using absolutes.

Again, i'm perfectly fine with the fact that this is not a democracy, that you are talking to us here only because you want to know our thoughts and not necessarily to consult us, and that basically you guys can do whatever you want. But, in case those $16+ millions on BFX are not concentrated in the hands of a few people (which you can convince with a telephone to absorb the increased fees), please try to manage in a better way such major changes from a PR/communications point of view. As a customer i feel deeply upset, and I'm sure you would not be happy if one of your service providers would increase their fees by 50% over night, using an argument that is not provable.

BFX team, i'm sorry for having to criticize but you guys are making some very brusque moves with apparent nonchalance.

1- Introduction of a "0.10% fee on all withdrawals and deposits" is a major milking of the Lenders, as i'm basically paying you 0.2% for a round-trip of deposit+withdrawal, for basically the exact same service? There's no risk for you, just paying the salary of a person who reconciles bank accounts. Don't you find this new fee a bit excessive?

2- 50% increase of the fees for Swap Liquidity providers....i understand that you might want to take a bigger part of the cake, but seriously, 50% hike with one simple email?

3- "Effective insurance of swaps" is a term that sounds very fishy, like the banks telling us they are using the best "risk assessment tools" and then going bankrupt when the first big crash happens. Please be so kind and explain to us how are you "effectively" insuring the swaps? It's like being pregnant: you either are or you aren't...you can't be "effectively" pregnant....

And i would like to stress on this point. If you have indeed found a financial institution willing to insure 16+ million dollars, please share with us the good news. Otherwise, if you are just relying on your ability to halt trading fast enough, or if you have a rich investor who "promised" to bear some of the losses, then we should know. That's a beaten path to getting a Black Swan event and wiping us all out. And the reasoning you are using to justify this increase is a Straw-man argument; what's the connection between your "reserves" (which for an un-audited company can mean anything) and the insurance you say you're providing?

You're a private company and can do whatever you like in this unregulated market, especially now with Mt. Gox gone. I can appreciate that, and the fact that you're just telling us about the changes and not consulting us at all (which is your right). Even so, i find this latest email a bit offensive in terms of the rate of fee hikes.

Should we expect another email in May with a 100% increase in the fees due to "effective" changes?

so, i guess with the new Mt. Gox announcement we won't see a run on BTC right?
is everyone getting bullish again?

random question: what would you guys consider as a "large" position in LTC on BFX?

I would disagree with that: it should not, under any preventable circumstance (from shutting down the trading engine to shutting down the platform completely) be allowable to have the lenders lose money. I'm not sure how many of the people here commenting about losing money have actually been faced with the prospect of losing tens or hundreds of thousands of your hard-earned dollars. I'm not talking about BTCs that you bought 3 years ago at a fraction of the cost and you sold recently for huge profit, i'm talking about money that you earned through months and years of hard and value-creating work.

Then again, i'm sure very few people posting these comments have actually tried to convince other people to put up their money in their platform for unknown and unverified traders to play around with on margin....


Anyways, it seems we keep beating this horse after it's long dead. BFX has made it clear what their strategy is, and i'm sure most if not all the lenders (of USD as well as BTC and LTC), as well as the majority of the traders, support it.

As a trader for years in FX i also agree fully with you, and i feel for all those who had as a core strategy to bet on big swings in the price. They got unfairly screwed this time, and will most likely do so in future occasions. But we all need to understand and adjust our expectations that, going forward, it's in the best interest of BFX to preserve the integrity of the Lender's money in the detriment of "proper trading etiquette". They have made this clear several times, and we need to accept that they are simply too young, too small and working in too volatile a market to be able to satisfy all sides of the trade.

So perhaps those of us who are trading for the big moves should take appropriate steps, including moving part of /all of the funds to other exchanges that allow you to trade your strategy properly. None the less, i think there are also some of us who take comfort in knowing that trading will be halted whenever the market goes crazy. Of course, this will work ONLY in case the market recovers...if not then i guess the whole BTC world will crash and burn and our discussions here (and our money) will become irrelevant

On a different note: i hope BFX is ramping up their servers and the team for the inherent demise of Mt Gox. I'm envisioning a mass-migration of the late adopters there (those still there who were too lazy/trustful to move until now) to BFX.

Similar to what happened when Google shut down GoogleReader and all its competing RSS services were suddenly flooded with new users..

Welcome to the club
It's nice to see there are people on this forum willing to change their mind when given reasonable arguments.

And THAT is exactly the reason you need to protect the Lenders before you protect the Traders: the Lending game is a losing one by it's nature: competing to get the least amount of money you can; very ironic if you think about it. So whoever decides to risk his hard-earned cash should come before whoever decides to speculate with other people's funds.

On a side note, this used to be the attitude on Wall Street as well before the 90's, and we all know what happened when things changed.

If you think about it, the insurance funds, by their very DEFINITION, cannot be at the same level as the lent funds.
Otherwise, if BFX would have 16 million lying around, they would be smarter to trade or lend them than to insure your funds right?

Also, let's assume in 1 year they have 160 millions lent...how will that be insured?

In the regulated markets, money for margin trading is provided at a cost by the banks to the trading platforms, and that cost is reflected in your spread.
You need to be regulated by the financial authorities though, in order to get such a treatment from the banks as a trading platform. And that ain't gonna happen soon for the BTC exchanges.

So, taking your argument further, when a trader has more than 14% profit per day (not uncommon in this market), we should call it "Predatory Profit-making"?

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 (and manageable with a Stop Loss), 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 (the insurance pool is almost always depleted, as it's just $50k+ vs the 18+ MILLION in lent funds recently), 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 opinion 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 sellers.
Pragmatically speaking, they can find short sellers (Traders) any time they want, whereas if they lose 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.

....and the margin calls are just amplifying the move down...

I'm not sure you guys should be trading, considering that you don't fully understand the risks you are taking.

This is basic Trading 1-1:

1- Settlement Risk: this is the risk that, when i said that i will sell you 1 BTC for 800USD, someone makes sure that both the BTC and the USD exchange hands for the value agreed

2- Counterparty Risk: this is the risk that both of us are going to actually pay to each other what we said we will pay, and none of us will run away without paying

3- Slippage Risk: this is the risk that, when you put an order in the market @800, you will actually get it filled at 800 and not at 795

4- Volatility Risk: this is the risk that the exchange rate will move from 800 to 10 in one second

5- Liquidity Risk: this is the risk that, even if you bought 2.000 BTC at 10USD, and now the price is 800USD/BTC (which just make you a virtual millionaire), there's someone on the other side willing to ACTUALLY buy those 2.000 BTC for USD

6- Notional Risk: this is the risk that the "pixel" fiat money you have in your BFX account on the computer screen can be actually transformed into hard cash that you can smell and use to buy a Porsche

And these are just the major ones. Have a look at ANY respectable Forex trading platform, and you will see a comprehensive list of the risk you are facing whenever trading something through an exchange. That goes for everyone, and the reason why all the exchanges sanctioned by the states are so heavily regulated and controlled.

Maybe we should give a little credit to the Bitfinex team, and to all remind ourselves that we're trading cryptos BECAUSE of the high volatility, BECAUSE it's risky and BECAUSE it's still a legal and regulatory "no man's land".

can anyone with experience have a look at the LTC blockchain, to know/guess if the LTC really moved out of BFX?
i'm assuming there should be some major, out of the ordinary movements happening during that time-window...

can you please be so kind to let me know the channels you are using in IRC for BFX news?

any guesstimates on whether those 7k+ are coming from a margin-call on someone's account, or it's a platform error similar to the 10k BID order on BTC ?

i'm trying to buy them at 14, but the platform is not matching my order...

If I might humbly suggest, you could add to the "Swap Return Calculator" math the option to account for compounding.

So perhaps you might want to specify there that the interest is "not accrued by default", so that people don't get confused. And maybe add a check-box called "compound interest", to calculate the field "Return whole period" based on the compounded interest formula << Future Value = Present Value ( 1+ interest rate )^number of periods >>.