NuShares Futures

beachlurker 2014-12-18 01:10:29 UTC #1

Contrary to proof-of-work cryptocurrencies, proof-of-stake coins offer interest to their holders in exchange for securing the network. This means direct, and decentralized, ownership of the private keys is much more important in proof-of-stake networks. This is even more so in the Nu network since ownership also acts as a way to vote on motions, interest rates, custodian grants and to receive dividends equal to your voting power in the network.

For this reason, I think it would be very prudent to investigate the set-up of a NuShares (non-deliverable) futures exchange* so that the NuShares spot price can be speculated upon, with USD, CNY, BTC and NBT, without allowing exchanges to control large portions of the underlying NuShares private keys.

I myself would be willing to code up such a project and I am wondering if this is the kind of proposal that could receive NBT / NSR “funding” with a motion or custodian grant vote from the Nu network. If so, I would write up a more formal proposal and submit here for review before a vote could begin.

*Note: these are the types of contracts currently offered on sites like Okcoin, BitVC, and 796. All of which have seen tremendous growth in trading volumes in the last couple of months. I believe trading volumes for bitcoin will continue to shift to bitcoin futures as the trading fees are cheaper, margin is easier to provide, and traders are already giving up one of the main advantages of holding bitcoin itself, lack of counterparty risk, by trading on any exchange to begin with.

[Passed] First deposit to FLOT NSR address

tomjoad 2014-12-18 02:12:30 UTC #2

I absolutely would encourage you to submit a formal proposal. Any project that increases the utility of Nu (and I think this certainly qualifies because of the security it offers NuShareholders) will be seriously considered.

beachlurker 2014-12-18 02:28:46 UTC #3

Thanks for the feedback. Now that I think about it, it would also be useful to include Peercoin futures on such an exchange as they are the proof-of-stake coin that NuShare dividends are distributed in and, to my knowledge, there is no futures product on the market yet for PPC.

If proof-of-stake is the future (whether the kind implemented in PPC and Nu or the research being done by Vitalik on proof-of-stake Ethereum or pojects like Tendermint and Pebble) then I strongly believe a futures infrastructure to support these coins needs to be built up as soon as possible.

mhps 2014-12-18 02:39:03 UTC #4

The reaction of the community to the kind of future tradings done by the exchanges has been a mixed bag. BitVC took traders’ profit to cover its own loss of 3000 BTC in future trading. The industry is full of clueless players and operators. Such dodgy behavior has to happen.

Future trading certainly drives up speculation and incentive of market manipulation. Nu’s solvency could eventually tied to nushare prices. The small market cap of nushares makes it easy for players with a deep pocket to control the market. My attitude to nushares future is somewhat negative at this point.

beachlurker 2014-12-18 04:35:31 UTC #5

Another possibility would be to see if an exchange like Excoin, which seems to be new, innovative, and open to ideas from the Nu community, would be interested in implementing something like this. It certainly would make the initial engineering go much quicker. However, Excoin would probably need some monetary incentive to take this risk, so a custodian grant for their company could still be in order. @Excoin any thoughts on this? In addition, once the exchange is set up, I would be more than willing to submit a custodian grant to provide some initial liquidity as a market maker for the contracts.

Even further, some trustless futures contract system could be developed using Ethereum or Counterparty. However, since traders prefer liquidity, low fees, and high speeds relative to decentralization, I think a centralized, trusted service could see the most adoption in the marketplace.

miner 2014-12-19 10:40:18 UTC #6

I will second that. The market is still too young and could be easily manipulated. I witnessed the whole drama of bitvc incident and the whole thing made me sick.

beachlurker 2014-12-19 16:51:27 UTC #7

Because of the arbitrage properties of futures contracts relative to the spot market, futures would bring more liquidity and activity to the NuShares market and make it LESS easy to manipulate. This is a basic tenet of financial derivatives theory.

thExit 2014-12-19 22:55:29 UTC #8

I’m pleased to see new developments within the Nu realm, but futures bring many hazards. They’re arbitrary in nature, can be structured in various ways, not always clear to clients. They’re (mostly) efficient only in a mature enough market, and from my experience, BTC futures, with multiple parties trying to provide services, aren’t mature enough at this point. It might seem fine on the surface, if the stake is low, but if you try to hedge 1m USD in BTC, it turns out that not many “safe” options are available. I’m a conservative person, but I’m not ashamed to say that I love NuBits and all the work that is done around the Nu network, but if BTC can’t get decent futures contracts at this point, then I’d be for withholding NBT futures, not only because of the comparison to BTC, but also for reasons that @mhps brought up.

beachlurker 2014-12-20 04:04:46 UTC #9

You mention NBT (NuBits) futures in your post, but I am proposing NSR (NuShares) futures - which are only for speculating on the NSR spot price, not for doing anything with maintaining the peg. Maybe it was just a typo on your part…

thExit 2014-12-20 23:23:27 UTC #10

It’s about NSR obviously, NBT futures would be a nonsense, my mistake. But still such futures contracts wouldn’t generate enough interest, or in other words, there wouldn’t be a reasonable economic incentive to carry on such a service. I might be wrong, but my reasoning is that if BTC market cap is around $ 4,500,000,000 and you can’t get a decent contract when you put $ x00,000, then who would be interested in NSR futures at this point. If you can’t match the two sides of the contract, then you’ll need to take the risk yourself to provide such a service, can you still be profitable taking the risk yourself? Do you have the funds necessary to do it? I hate examples like Huobi, where "bad’ leveraged trades affected all traders (with profitable trades used to cover Huobi’s loss/a**). For hedging I examined GABI, Teraexchange, Nadex (in the process of making), Coinarch (more suitable for speculators), BTC-SX, Hedgy (in the process of making, doesn’t require you to send them your funds), BitMEX (where “bad” trades are supposed to be covered by BitMEX). It’s getting better, but you still can’t count on high-worth futures in BTC. As I said, I’m all in for Nu, but it’s too early for Nu related futures.