Conversation

Zhu Su 🔺
@zhusu
I think the word "fault" here isn't really a useful one, I agree. Main question is do underlying spot exchanges that are often used as oracles have any real or perceived esponsibility to the community to prevent this behavior?
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Zhu Su 🔺
@zhusu
If the price on kraken goes from $10k to $1 and then $10k while nowhere else moves and all margin longs on kraken itself are liquidated, would we agree that their order book malfunctioned and that something needs to change?
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udiverse
@udiWertheimer
Depends on the circumstances. If there was an actual malfunction, yes. But if the markets are just inefficient because some large prop firm randomly shut down, and you think there’s such a sweet arb opportunity lying around, why complain to kraken? Go ahead and take it
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udiverse
@udiWertheimer
That said, an exchange has responsibilities toward its own customers, so it would be in their best interest to sort things out somehow if they want to keep the margin product alive. They have zero responsibility to keep bitmex plebs happy though
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Zhu Su 🔺
@zhusu
Agree. The key philosophical question I find interesting here is whether exchanges (esp those in the CME index) have any responsibility to improve the smoothness of their trading because of derivatives based on them.
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Jesse Powell
@jespow
Anyone is welcome to offer any exchange incentives to adjust operating procedures/performance. If they're not compensated, there is no responsibility/obligation. I think this is a bit like asking your ISP to filter all the large packets because you want to use a short password.
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Zhu Su 🔺
@zhusu
Yes exactly the point of my initial tweet. You would be more concerned w margin longs getting liqed on kraken itself v margin longs on deriv exchanges which use your data but don't compensate you. I'm not arguing that you will or should care--only that you could care.
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Jesse Powell
@jespow
Right. We would be more concerned with our own markets, our own clients, our own capital. Not incentivized to care about competitors. Whether spot exchanges offering margin or lenders of any sort should have different liquidation/risk mitigation procedures is another question.
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Zhu Su 🔺
@zhusu
Exactly, hence the onus will be on the clients of the affected derivative exchanges to push for better index methodologies on those exchanges as opposed to expect oracle exchanges to discourage these attacks (b/c they aren't incentivized to in any way).
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