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Offline Permie

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Shareholders want whales to come into the ecosystem and get it kick started. I think there is an alternative method where the shareholders pool funds together to capitalize a Super Whale that gives the profits back to the shareholders who funded them by way of a UIA.

There are lots of arbitrage opportunities between bitAssets and bts across various exchanges and I've been thinking of a way to profit from it by capitalizing traders and sharing the profit with them.
By pooling money with other shareholders and employing traders to take advantage of these arbitrage opportunities holders can profit at the same time as contributing to a fund that aims to provide liquidity to the BitShares internal exchange and contribute to keeping the peg between bitAssets as tight as possible.

The issue comes with who manages the UIA and can be trusted to manage the fund and distribute funds amongst traders.
A quorum of delegates could issue and manage a UIA. By purchasing the UIA the user provides funds that are then pooled and distributed in small sections to several competent traders who promise to look for arbitrage opportunities and other low risk trades to grow the value of the fund. The traders are rewarded with a healthy portion of the profits to incentivize them to increase the value of the fund.
Like in micro-lending, the fund should be split up among as many traders as possible to decrease the variance in the profit earned and reduce the impact of fraud or loss.
Checking up on every individual trader will be very expensive and time consuming. Instead, each trader could only be allocated a portion of the fund that the fund could afford to lose. So long as a particular percentage of traders can be trusted to make a target profit, then other losses can be absorbed.

This means that delegates would not be needed to chase down traders and monitor their progress in any detail. The shareholders could decide on certain goals that must be met to remain a trader, and if they are not met then they are automatically frozen out and can no longer access the fund.
The only duties of the delegates involved would be to sign multi-sig transactions from the fund to approved traders and manage the UIA. The managing delegates could receive the UIA trading fees.

How should I proceed with getting this started?

I'm thinking of posting job listings for crypto-traders. Their resume would have to demonstrate that they can be trusted to trade for steady profit sufficiently to the shareholders before they could access the fund.
How can potential traders be asked to prove themselves?

I expect in the beginning this fund will be very small and may only be able to attract one or two amateur day-traders as the profit potential would not be enough to sustain any more.
However, a trustworthy reliable amateur who grows the fund every day is at least as good as I would be, trading myself. If these amateurs could grow the fund and attract new investment through demonstration of steady growth, then the fund can employ more traders to reduce the risk and streamline the process.

I want to get something like this going, where do I start?

EDIT: Perhaps individual day traders could be encouraged to issue UIA's that represent a share in the fund that they trade. More successful traders will grow the value of their UIA and attract more investment.

The shareholder hedge fund could purchase a basket of trader UIA's, after analysis of the trading success of each UIA.

New traders could be required to provide 110% collateral for the funds they are trading with, with a decreasing scale once the trader has an established track record.
I want to avoid a situation where the fund is too large for a day trader to be expected to provide 100% collateral to.
Unless the fund could employ so many traders that each trader holds a small enough amount.
But why would a trader lock up his own capital just to be able to trade with an equal amount of someone elses? 100% collateral isn't going to work long term unless there can be significant advantages to trading with the fund. Are there any incentives that can be offered? Perhaps a share of the UIA trading fees for x amount of time if they trade for the fund and provide collateral.

A percentage of all UIA trading fees for life could be the incentive. The tiny % of UIA fees for life given away to each trader in exchange of 1 day of work could be set so that the fund can employ millions of work-days before 100% of the UIA fees are allocated.

x% of fees on this fund for life could be quite a good incentive, particularly if this hedge fund is endorsed by the shareholders and is expected to grow in size.

EDIT 2: Traders could be incentivized to reinvest their share of the profits back into the fund by using them to buy a higher % of the UIA fund fees forever. There could be a free floating market between fund profits % and fund fees forever %.
Or traders could be awarded a bonus amount of UIA shares in the fund in return for reinvesting their trading profits into the fund.

If we could demonstrate a financial instrument that has steady daily growth only accessible on the BitShares exchange then we can create yet another reason to make an account and use the network.
Once we have this one hedge fund UIA up and running others will surely pop up in competition. Like MPA (market pegged assets) serve as a demonstration for privatised bitAssets; this fund can demonstrate the business case of a BitShares UIA hedge/trading funds.
« Last Edit: June 06, 2015, 05:43:39 PM by Permie »
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Offline Permie

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Re: UIA Hedge fund to employ traders and provide "whale" liquidity
« Reply #1 on: June 06, 2015, 05:53:39 PM »
Are there any prominent crypto-traders that could be contacted about issuing a UIA that represents what they think is a sensible holding of various coins with the aim of making profits by whatever method they describe to shareholders of the UIA they issue.
Perhaps the UIA issuer could change the % of each cryptocurrency the fund holds simply by updating a GUI-interface in-client. The fund would then use metaexchange and others to alter the % holdings of the fund.

This way end-users can hold the portfolio as recommended by their favourite "expert".
The experts receive all the UIA fees, and so have incentize to make accurate predictions to grow the fund, and thus the demand for the fund, to increase the transaction fees earned.

If it can be as easy as changing a few numbers to alter the portfolio of a UIA fund, then lots of traders will issue one. Other than the start-up UIA fee there is no downside.

The traders could stream over twitch or streamium for some accountability.
« Last Edit: June 06, 2015, 06:29:39 PM by Permie »
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Offline BunkerChain Labs

Re: UIA Hedge fund to employ traders and provide "whale" liquidity
« Reply #2 on: June 07, 2015, 01:04:46 AM »
The more likely approach to this is to create an MIA and have a feed developed based on the parameters of the index to then control he market rate and allow people to trade on it with collateralize BTS.

You want to see whales flock.. watch them grow wings when they hear about that. :)

Predicting best pair to trade.. MINING:CRYPTOINDEX .. MINING will be the bigger money maker though. ;)
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Offline starspirit

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Re: UIA Hedge fund to employ traders and provide "whale" liquidity
« Reply #3 on: June 07, 2015, 02:35:15 AM »
DSN, what is an MIA? Do you mean an IMA (Investment Management Agreement)?

Permie, I like your goal. A scope limit I see with this specific approach is how to audit the traders that are using external markets to ensure they are not absconding with funds. If this is not auditable, you would need to limit their activity to arbitrage and market making on internal exchanges, and not give them any power to withdraw funds from the pool they are managing, only the power to trade it.

Offline eagleeye

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Re: UIA Hedge fund to employ traders and provide "whale" liquidity
« Reply #4 on: June 07, 2015, 03:02:32 AM »
I think both UIA and MIA are good, depends on the personality of the trader, day trader or whale.

Offline BunkerChain Labs

Re: UIA Hedge fund to employ traders and provide "whale" liquidity
« Reply #5 on: June 07, 2015, 03:06:42 AM »
DSN, what is an MIA? Do you mean an IMA (Investment Management Agreement)?

Permie, I like your goal. A scope limit I see with this specific approach is how to audit the traders that are using external markets to ensure they are not absconding with funds. If this is not auditable, you would need to limit their activity to arbitrage and market making on internal exchanges, and not give them any power to withdraw funds from the pool they are managing, only the power to trade it.

MIA = Market Issued Asset

We can create them.. just like bitUSD and the like. The major difference with MIAs vs UIAs is .. at least at present:

1. MIAs earn fees only for BitShares and nobody else
2. Assets issued must be collateralize with BTS to short the Asset into existence. This means they have real value backing them.
3. They rely on delegates to provide feed data to supply the market value of the Asset. You need at least 51 of the 101 feeding it.

In this scenario, there is no need for the complexity of fund managers to trust whats going on behind the Asset.

As I mentioned.. 'for now'.. discussions about bitassets 2.0 suggest some elements to this are going to change... like being able to collateralize one MIA with another MIA.

Nonetheless.. the use of an MIA makes more sense for a straight market trading type asset.
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Offline starspirit

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Re: UIA Hedge fund to employ traders and provide "whale" liquidity
« Reply #6 on: June 07, 2015, 04:11:52 AM »
DSN, what is an MIA? Do you mean an IMA (Investment Management Agreement)?

Permie, I like your goal. A scope limit I see with this specific approach is how to audit the traders that are using external markets to ensure they are not absconding with funds. If this is not auditable, you would need to limit their activity to arbitrage and market making on internal exchanges, and not give them any power to withdraw funds from the pool they are managing, only the power to trade it.

MIA = Market Issued Asset

We can create them.. just like bitUSD and the like. The major difference with MIAs vs UIAs is .. at least at present:

1. MIAs earn fees only for BitShares and nobody else
2. Assets issued must be collateralize with BTS to short the Asset into existence. This means they have real value backing them.
3. They rely on delegates to provide feed data to supply the market value of the Asset. You need at least 51 of the 101 feeding it.

In this scenario, there is no need for the complexity of fund managers to trust whats going on behind the Asset.

As I mentioned.. 'for now'.. discussions about bitassets 2.0 suggest some elements to this are going to change... like being able to collateralize one MIA with another MIA.

Nonetheless.. the use of an MIA makes more sense for a straight market trading type asset.
Oh, silly me. I know what a market issued asset it.  I just was not very familiar with use of this acronym.

My understanding of what the OP is suggesting is not a UIA structure an an alternative to MIAs, but as a way to pool trading strategies that gives added liquidity and support to MIAs.

Offline Permie

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Re: UIA Hedge fund to employ traders and provide "whale" liquidity
« Reply #7 on: June 07, 2015, 09:37:20 AM »
Quote
My understanding of what the OP is suggesting is not a UIA structure an an alternative to MIAs, but as a way to pool trading strategies that gives added liquidity and support to MIAs.
That was my idea, yeah. 'Celebrity' traders could issue UIA's that allow users to benefit from their trading strategy. This would mean that adept traders could advertise and sell BitShares for us, as they profit themselves directly. These trader UIA's would then compete and eventually a stable few will demonstrate steady returns. These particular UIA's could then be bundled into a trader-UIA-Index that tracks the top performing traders.

Quote
1. MIAs earn fees only for BitShares and nobody else
2. Assets issued must be collateralize with BTS to short the Asset into existence. This means they have real value backing them.
3. They rely on delegates to provide feed data to supply the market value of the Asset. You need at least 51 of the 101 feeding it.

In this scenario, there is no need for the complexity of fund managers to trust whats going on behind the Asset.
This is probably the way to go for now.
The difficulty I see is that if the index is comprised of 5-20 other coins then it might be difficult to 'take delivery' for arbitrage opportunities.
I'm wondering how well the peg will hold.

Lets says this INDEX tracks the value of the top 4 Crypto's.
Could the funds held in the INDEX be used to provide liquidity for a bridge service (like metaexchange) so that the INDEX MPI can be traded in one go for 25% of each crypto.
That way arbitrage can be kept within the bts economy, and the peg for the index has another price finding mechanism.
Perhaps the profits for providing this liquidity could be split between the MPI and the bridge service provider.

Quote
Permie, I like your goal. A scope limit I see with this specific approach is how to audit the traders that are using external markets to ensure they are not absconding with funds. If this is not auditable, you would need to limit their activity to arbitrage and market making on internal exchanges, and not give them any power to withdraw funds from the pool they are managing, only the power to trade it.
Profit from market making and arbitrage on the internal market would be great. I'm imagining an index that can profit a few % every week/month from low risk trades that provide a service to the ecosystem (liquidity?).

How could trades be limited?
Wouldn't that require just as much effort as monitoring traders? Delegates would have to constantly sign multisig transactions?
Unless special 'trading accounts' can be made at participating services such as Metaexchange or Blocktrades. Perhaps a single master public key is permitted for the traders to use on each of these bridges.

Another approach I see is to divide the funds amongst 101 traders.
For arguments sake let's say that the each day all the traders return funds to a multisig address so that funds can be audited and that the risk of more than 3 traders not returning funds is less than 1%.
This means a 1% risk of a 4% loss of funds (assuming honest traders make risk-free profit).
If the profit made by the 96 remaining honest traders is greater than the 4% loss, then the fund is in profit.
Auditing each trader costs money, the cost of auditing is potentially more than the risk of rogue trading.
Mitigating risk by requiring traders to have an online reputation or some form of collateral would increase profits but without the on-going expense of auditing traders.
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