0 sats \ 3 replies \ @koty OP 12 Jun 2022 \ parent \ on: 🚨 New features live on http://lnmarkets.com: ♻️ On-chain #Bitcoin deposits! bitcoin
Yes, we act as counterparty to every trade on the platform.
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0 sats \ 2 replies \ @jeff 12 Jun 2022
Any plans to change that? If so, when?
This is not sustainable, and I'm worried you will blow up in an ungraceful way.
There is no scenario I can see where all three of these are true in the fulness of time:
  1. You stay the only counterparty
  2. You scale the business
  3. You don't lose user's funds (or at least their pnl)
It can work if you stay small (and can afford the losses internally). It can work (well, function, temporarily) if users lose funds. It can work if you stop being the only counterparty.
It can also work longer, if you're structurally padding contract prices with an arb-like pricing spread in your favor. If you're doing this, the internet will catch you eventually and it could end your business when you least expect it.
If I'm wrong, happy to be enlightened on whatever mechanism you're using. Maybe there is something I haven't reasoned about. Maybe you have some kind of insurance contract. Maybe you have a market-making deal somewhere with a deep-pocketed exchange. Would also be happy to jump on a call to consult to help you fix it. I legit, would rather help you fix it, than sit here and play chicken-little.
Hope I'm wrong, wishing you and team the best.
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0 sats \ 1 reply \ @romain_rouphael 22 Jun 2022
Hey Jeff,
Sorry, just saw your message!
Yes, we act as counterparty to every trade on the platform. I should have also added added that we hedge all our risk in the market. So we have no directional exposure whatsoever. In that sense, we follow the classical broker dealer model.
We chose the broker dealer model because the value proposition of LN Markets is on instant trading, straight from your wallet, and we wanted to ensure no liquidity issue, which could be the case when you bootstrap an exchange. However, we have sufficient liquidity on our platform to think about moving to an order book model, a move we might make later.
What do you mean by "It can also work longer, if you're structurally padding contract prices with an arb-like pricing spread in your favor. If you're doing this, the internet will catch you eventually and it could end your business when you least expect it." ?
Does that make sense to you? Thanks for your concern and sure, we would be happy to arrange a call to discuss further.
All the best, Romain
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0 sats \ 0 replies \ @jeff 22 Jun 2022
hedge all our risk
How?
Can you walk me through the steps you take on the other side of an options trade?
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