BitMEX’s “Hookers and Blow” Insurance Fund

BACKGROUND

To those unaware or new to crypto it might come to a shock that BitMEX up until last summer vehemently denounced the use of high leverage in BTC trading products as well as the socialized loss system they came to finally implement and embrace — they weren’t just skeptical of the system but had VERY strong feelings and arrogance that they had a full understanding of what would be ultimately successful in this market — take a look at some of the outrageous posts for yourself from BitMEX CTO Samuel Reed (/u/STRML) on Reddit :

 

BitmexPivot1To be fair to BitMEX after months of next to no volume and waving their hands around like some desperate fat chick hoping to get a pity fuck from someone rubbed the wrong way by OKCoin they finally capitulated and embraced the power of the degenerate gambler as their PRIMARY customer… the sacrosanct BitMEX was no more as 100x birthed on October 12 2015

Notice the rise in turnover at 100x inception as they became a more attractive fat chick:

photo444920610451204802

THE ISSUE

BitMEX has posted some Settlement and DPE data (Dynamic Profit Equalization) ie their way of rebranding the stigma associated with “socialized losses” since June 1st 2015 and can be found HERE. What has been missing up until recently is the Insurance Fund data similar to how OKCoin displays it HERE. The Insurance fund is a result of the salvaged BTC of a position that goes into forced liquidation — so for example:

1 BTC at 100x fixed margin leverage gets liquidated when only 50% or 0.5 BTC remains as collateral, once in forced liquidation the prevalent market conditions will determine how much if any of the remaining 0.5 btc is recovered and placed in the Insurance fund.

On WCHangout a little over a year ago CEO Arthur Hayes put forward the vision of BitMEX in the following:

“We hope to demonstrate through a track record of honesty and transparency in doing what we are saying we are going to do….” -Arthur Hayes, CEO of BitMEX

Unfortunately, the actions and follow through to bring about more transparency after very clearly being made aware of it has not been manifested:

bitmextransparency

in fact they aren’t even near the level of transparency of industry leading OKCoin, an exchange they criticize and despise so much that their troll box will convert “OKCoin” to “The Woodchipper” when you message them in chat. Let’s take a quick look comparison of OKCoin VS BitMEX as far as transparency goes:

OKCoinVSBitMEXAlso I should add that I am betting most are unaware that the BitMEX Insurance fund is pooled from all of BitMEX’s contracts which means ETH, FACT, and the A50 contract both contribute and draw from the same Insurance fund that all the BTC contracts (I just refuse to say XBT) are apart of. The documentation on the site is almost completely useless in articulating this point — I was however able to get a cagey answer from Sam on the trollbox. I don’t have a particular issue with this if it is properly disclosed and in the documentation but some users that ONLY trade BTC may find that they are unknowningly subsidizing these other futures products — we don’t have the data but I am fairly confident that these other alt products draw more BTC from the fund then they contribute. This pooled fund gives BitMEX the ability to crank up the leverage on these alt products as optically they can report 0% losses even though there are actually system losses but they don’t disclose them because the Fund is covering them (mostly from BTC traders).

tldr: what if OKCoin used the BTC insurance fund to cover losses on LTC without telling you ? 

This is not exactly what I would expect to see from a chest thumping “professional” exchange claiming to be the “Goldman Sachs of Bitcoin”

 

BitMEX aims to be the Goldman Sachs of Bitcoinrerere
megalomanic much ? 

 

 

Approximately 4 weeks ago we had Arthur and Wally of BitMEX on WCHangout and I spoke of the dangers and assumptions that come from not being transparent with the data of this fund. /u/btcdrak also requested that ALL data both current and historical be made available and both Arthur and Wally agreed and this was currently on their road map.

Essentially the danger that comes with selective transparency (or lack of transparency) is that it inevitably leads to doubt, doubt breeds skepticism as to why this information is not being provided or withheld, and then when pressed on the issue if the data isn’t then made available bitcoiners will begin to fill in the blanks with their own ideas. From a PR perspective as an exchange in the space the last thing you want is bitcoiners playing fill in the blank as it quickly goes to “omfg GOX!!” — and although that might be extreme when money is at risk the users have the right to bring those accusations even though they might be ridiculous in nature…

 

streetparty“Colombian Street Party”

WE THE COMMUNITY

As a community we really have very little legal recourse against exchanges misbehaving and operating in the wild west culture that is bitcoin trading, that doesn’t mean we are powerless though and although they may taunt us with their lawless domiciles

ArthurSeychelles

It is up to us as the community to demand transparency from those we engage in business with and more so to hold them accountable to their OWN standards that THEY first set out establishing like Sam on trust and transparency transcribed from the WCHangout:

“We believe that we are being…  well we ARE being fully transparent to what the rules are, how the market operates and how it is cleared… in a socialized losses environment not only are you accepting some variable amount of loss depending on the volatility, how liquidations were handled and how well they were handled  … you are trusting them to be honest with what those numbers are in the first place there in no guarantee of that at all basically — they say they lost x amount and they need to claw back from those accounts — I am not saying anyone is lying I have no idea but blind trust — you have no insights into what actually happened you have no insights what their books looks like so you have to trust them much more than you have to trust us because you are trusting them to be honest with those end of the month numbers” -Samuel Reed, CTO of BitMEX

The point I am trying to make is that these aren’t transparency standards that I have concocted but words that have quite literally come out of Sam’s own mouth that I am attempting to hold BitMEX to — and I find that more than fair

Although according to Arthur we are all children

-Bitcoiners are a bunch of children and they get treated that way    Bitmex CEO Arthur Hayes   Album on Imgurevveev

but that doesn’t mean they should ignore our requests or in some paternalistic way know what is “best for us” when we demand transparency, after all we are still their customers and this is the business THEY choose to be in.

I also want to clarify that unlike the conspiracy theorists I DON’T believe BitMEX is insolvent/scamming/etc, quite the contrary as I believe they are making decent money now (or WERE), also they aren’t overt crooks but they are surely being slippery & slimy on some profound questions when it comes to transparency and their claims of being “fully transparent”…

“You, sir, are neither a businessman nor a priest”hvC9KUx

 

 

~~Faith can move mountains, Faith can move markets~~

 

 

 

 

 

 

BitMEX’s “Hookers and Blow” Insurance Fund

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