Ethereum Exchange Reimburses Customer Losses After 'Flash Crash' (gdax.com) 74
An anonymous reader writes:
"The price of ethereum crashed as low as 10 cents from around $319 in about a second on the GDAX cryptocurrency exchange on Wednesday," reports CNBC, calling it "a move that is being blamed on a 'multimillion dollar market sell' order... As the price continued to fall, another 800 stop loss orders and margin funding liquidations caused ethereum to trade as low as 10 cents." An executive for the exchange said "Our matching engine operated as intended throughout this event and trading with advanced features like margin always carries inherent risk."
Though some users complained they lost money, the price rebounded to $325 -- and according to a report on one trading site, "one person had an order in for just over 3,800 ethereum if the price fell to 10 cents on the GDAX exchange," reports CNBC. "Theoretically this person would have spent $380 to buy these coins, and when the price shot up above $300 again, the trader would be sitting on over $1 million." Yet the currency exchange announced Friday that they're honoring everyone's gains, while also reimbursing customers who suffered losses. "We view this as an opportunity to demonstrate our long-term commitment to our customers and belief in the future of this industry."
Though some users complained they lost money, the price rebounded to $325 -- and according to a report on one trading site, "one person had an order in for just over 3,800 ethereum if the price fell to 10 cents on the GDAX exchange," reports CNBC. "Theoretically this person would have spent $380 to buy these coins, and when the price shot up above $300 again, the trader would be sitting on over $1 million." Yet the currency exchange announced Friday that they're honoring everyone's gains, while also reimbursing customers who suffered losses. "We view this as an opportunity to demonstrate our long-term commitment to our customers and belief in the future of this industry."
THIS is the danger. (Score:3, Interesting)
Manipulation without oversight distributed among all the different e-curencies, what a target rich environment for exploitation. SEC isn't going to investigate. Let these unregulated currencies get a foot in our REAL economy, and then watch the fireworks when these flash-crashes tank a REAL bank.
Re: THIS is the danger. (Score:1)
The real problem is the company behind it once again (this isn't the first time) rolling back transactions and reimbursing customers that "lost" money on their equivalent of the stock market. This kind of goes against everything a currency and a block chain stands for. If they'll do it for "these poor chaps" how will you find it when they do it for big corporations that are "buying into" the market.
These kinds of stunts is exactly why there are now multiple branches of the Ethereum network and why big compa
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First of all, this indicates they have the ability to which is a huge hole in any cryptocurrency system. Basically the company behind the currency has full power over the blockchain.
On the other hand, even if they won't change the records, they have to refund this money somehow, this will require inserting millions of dollars worth of value in the system that isn't backed by the traditional method of obtaining cryptocurrency.
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If the New York Stock Exchange shut down trading of currencies that wouldn't indicate you could not use those currencies to buy goods and services - including other currencies! on other exchanges! - outside of the NYSE. This is why you are able to spend dollars outside of the NYSE trading hours (Monday through Friday, 9:30 a.m. to 4:00 p.m).
You completely miss the point here. (Score:4, Informative)
These are rollbacks on exchange accounts. Those transactions never entered the blockchain. An exchange account is like an IOU while the exchange backs those IOUs with real coin in an internal wallet until such time as you send a coin transfer from your account to an external address. Only then do the transaction get recorded in the blockchain.
What GDAX is doing is simply restoring those IOUs for people whose IOUs got wiped out. At the same time, they allow the people who scooped up those IOUs for cheap to keep them, whether they are still there or not. Since part of their own assets are company owned coin (which is probably separate from the exchange hot wallet) all this means is that they suck up the financial hit for the sake of PR.
The blockchain was not altered in any way. There are no holes, and it is only possible for GDAX to reimburse the GDAX customers that were affected by the flash crash.
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That makes more sense, although it would be weird for true investors to invest in a market that has a weak transaction log, I can see where that may be useful. The problem is still, the company is inserting x amount of their own coin, either they are devaluing their company or more likely devaluing the money within the exchange.
I see it more as a regular stock exchange, if the government were to limit losses and reimburse people by simply printing or inserting more money into the market, this would eventual
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They're not devaluing the coin as such. The total amount is still the same. Only instead of them owning X, they now own Y and use the difference to reimburse those people. The total in circulation is not affected.
Personally, I think those who were stupid enough to configure stop loss orders at market price and margin calls, got exactly what they asked for. But there were rumblings of class action suit. Given that crypto exchange is currently unregulated (or at least not regulated in all aspects) the legal c
Re: THIS is the danger. (Score:2)
Re: THIS is the danger. (Score:1)
You can easily avoid this by not automating it and set your own price.
This is a solved problem (Score:5, Insightful)
Re:This is a solved problem (Score:5, Interesting)
Will exchanges go through all the teething problems that stock markets faced, or will they leverage what stock markets have learnt over the last few decades?
Considering that the exchange is both "honoring everyone's gains while also reimbursing customers who suffered losses", I'd say the person who had a 10 cent order for 3800ETH is also an operator of the exchange. So no, they're not going to leverage what stock markets have learned over the last few decades. They're profiting from it.
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Guy A sells $1 million coins for pennies, Guy B buys coins for pennies. The money has been transferred and laundered. Great for covering up the origins of criminal gains or just embezzling.
Re: This is a solved problem (Score:1)
I assume they charge a fee for the transaction. How much I don't know but say at 5% and a year+ of time...
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That's old economy. This is like apps and all that shit.
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The new economy is webscale. Mongodb wired into nodejs mining coins and buying star citizen spaceship gifs. Its the future man
Re: This is a solved problem (Score:3)
Apps guy, sing your tune!
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MongoDB would be great for building a PMIS; this is a financial exchange and will need synchronous, guaranteed, multi-step transactions with rollback capability. You want an RDBMS for that.
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Because circuit breakers are the coward's way out. If you believe in free market economics and the markets being the purest form of buying and selling, then you can't have circuit breakers.
Also, you will note these circuit breakers only go in one direction. You'll never see gains capped, only losses.
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"Why dont crypto currency exchanges learn from the history of stock markets? "
Cryptocurrency exchanges are favored by anticapitalists that don't know the difference between a free market and an unregulated market.
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Anticapitalists and anarchocapitalists are both insane. People want either rampant socialism (the government owns all means of production) or they want the evil socialism to go away and the government to stop doing anything. In that latter case--the anarchocapitalism case--you have no regulations, and end up with big businesses buying each other, buying all small competitors, and then leveraging their position to make it very expensive to switch to their competitors. Then the megacorporation effectively
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They want to pretend these are somehow a type of hard currency (commodity) and not a security.
This is similar to how people misrepresent the stock market as actual ownership of something or investment in a company. Many modern common stocks convey neither dividends nor voting rights(!), and so they're essentially worth nothing in their own right; buying stocks also doesn't give the company money, except at IPO. Stocks just represent trying to time it so that you buy something and then sell it to the ne
Excellent (Score:4, Funny)
People laughed when I said I was going to have two separate accounts ... well who's laughing now?
Big, big sofa (Score:4, Interesting)
No idea what the volume's like, but if one guy made a million buying on the dip that means somebody lost it, so they're on the hook for at least that. One guy, remember.
I wonder where an outfit that's basically a server and a domain name - and the former's probably rented - can find that kind of dosh.
Re: Big, big sofa (Score:1)
Both fiat currencies as real.
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Maybe they own a zillion "coins", that THEY got for being in at the ground floor. They just have to sell a few now.
If I invent a cryptocurrency at it goes to $300 a coin... I'd be "rich" too.
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Assuming that you don't get caught dumping them, sure. If you did, the value of the currency would probably plummet.
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Yeah, I was wondering the same, but this is probably it. If they are sitting on 12M coins because from the premine or because they got in early, they can afford it. If it keeps the trust in the coin (that they have a zillion of) from tanking, this payment is worth it for them.
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They'll pay it in Bitcoin.
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They didn't lose it. They willingly sold it for 10 cents.
If you buy something for $300+, then program a computer to sell it for 10 cents, and it does it, the problem isn't the computer. It's the fact that you programmed it to do something stupid. While it's nice that the exchange is reimbursing people for their losses, that's a bad thing in the long run. If stupid decisions don't come around to bite people in the butt, they f
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What losses? You just said they didn't lose it.
ground lug considered harmful (Score:1)
The everyday overreliance on this pathetic relish squee concerning the overriding eminence of naked incentive in dictating human behaviour patterns being one of those stupid, stupid, stupid things that just won't come out in the wash.
Welcome to Radiant City Third Rail, please watch your step.
This from the Mad Max prequel which explains, Enterprise-like, how Mad Max perfec
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Valuable or stable (Score:1)
AFAIC [slashdot.org] all cryptocurrencies not backed by anything solid (something tangible, whatever that is) are either stable or valuable but they cannot be both. They are traded as long as they are valuable, which makes them (and requires them to be) unstable, it is their instability that is valuable. If they are stable, the value disappears. Nobody wants to be in a stable cryptocurrency that is backed by nothing, that's because a currency backed by nothing only leads to inflation and loss of value, it cannot keep v
Volatility (Score:2)
Intrinsic value is a pretty difficult concept. If the moon were made of solid gold, it would almost certainly not be worth the trouble to mine it. What, then, can we say its intrinsic value is? Generally the concept of intrinsic value is a fallacious base for an argument. However (and it must be a cold day in Hell for me to say this) it's not that you're actually wrong about cryptocurrencies. It is a requirement of a currency that it be a stable store of value, and cryptocurrencies are still 3x-4x more vola
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I don't get you. It's not 'intrinsic' if it depends on external factors.
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If the moon had precious metals on it we would mine it today already, that much is certain.
There's at least a factor of 40 between the spot price of gold and the round-trip cost per kilo of materials on the moon. You're welcome to play around with numbers to see how you could make that profitable. However, whether the gold was in lunar orbit, at the bottom of the Marianas Trench, or in the Oort Cloud the same principle would still apply: value is a social and subjective construct which cannot be said to be intrinsic or inherent to anything. If we aren't mining something, it is actually valueless.
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You are a compulsory liar.
Why does the name sound familiar? (Score:2)
Oh that's right we only just discussed how Ethereum is the next big thing and everyone should be buying it or mining it or doing something awesome with it.
https://news.slashdot.org/stor... [slashdot.org]
https://news.slashdot.org/stor... [slashdot.org]
Re:Title wrong (Score:4, Informative)
Why don't you take your own advice? From the second link:
"We will establish a process to credit customer accounts which experienced a margin call or stop loss order executed on the GDAX ETH-USD order book as a direct result of the rapid price movement at 12.30pm PT on June 21, 2017. This process will allow affected customers to restore the value of their ETH-USD account to the equivalent value of their ETH-USD account at the moment prior to the rapid price movement. To clarify:
* For customers who had buy orders filledâSâ"âSwe are honoring all executed orders and no trades will be reversed.
* For affected customers who had margin calls or stop loss orders executedâS -- âSwe are crediting you using company funds."
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I don't seem able to edit or delete my comment[.]
You must be new around here.
No don't bail them anyone out (Score:2)
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Not too bright... (Score:2)
I'm gonna say - making these people whole is a BAD idea. People learn that they've done something stupid by having that stupid thing bite them in the ass, and playing stock market with this kind of currency and not thinking through all the edge conditions of your orders counts as doing something stupid.
There is NO one regulating this kind of exchange. There's no one to impose the use of 'circuit breakers' like the stock exchanges use. Making these people whole will NOT lead them to thinking carefully about
Frank Herbert called it (Score:2)
"In the classical times of several species, it was the custom of the powerful to nudge the power-counters (money or other economic tabulators, status points, etc.) into occasional violent perturbations from which the knowledgeable few profited."
- Comparative History, The BuSab Text, "The Dosadi Experiment" by Frank Herbert
So they tested their pump and dump scheme (Score:1)
And some people walked away with their ill-gotten gains, with the brokers in happy cahoots. It must be fun for them to do their criminal acts right out in the open.