Suppose there’s 50% chance that next month a share will be worth $10 (after the project turns out to be beneficial) and 50% chance that the share will be worth $0 (after the project turns out to be extremely harmful). The price of the share today would be ~$5. Why would anyone short these shares if they are currently trade at $5? Doing so will result in losing money in expectation.
Ah, you’re right. Not sure why I was so confused about this before.
I might’ve implicitly been thinking about the case where the bad news about the intervention gradually comes to light (in the worlds where it turns out to be bad) and the shorter regularly increases their short to maintain the same leverage while the market drops. Would that work?
I’ve been under the impression that that’s how the HEDGE tokens work, specifically with a rebalancing interval of one day or less (extra rebalancing during the day in case of high volatility), but the result is weird… DMG dropped 77% all at once on Feb. 5, 2021, so I would’ve expected DMGHEDGE to go up 77%? Instead it also dropped 55%. Maybe there was not enough buy-side liquidity to rebalance properly because everyone just wanted to sell?
I wonder if negative impact tokens would work or would fall short for similar reasons. Is there some sort of software for simulating markets? Otherwise I might just try to put together a little custom agent-based model for this.
I wonder, what would happen if we created a USDC/TOKEN market instead of a TOKEN/USDC market?
That’s a great point. This also applies to traders who go long on a share (potentially making them give less weight to the downside risks of the project).
Yeah, sadly.
I think something like this can potentially be a great solution. Though there may be a risk that such a market will cause other crypto enthusiasts to create competing markets that don’t have this mechanism (“our market is truly decentralized, not like that other one!”).
Hmm, it would be completely decentralized. Only the “ICO” would consist of giving the token to specific charities and funds, which would thereby obtain particular voting rights. If a project wanted to avoid that, they could exclude the funds, but they can’t exclude the charities as that would defeat the purpose of the token…
But that’s not much consolation. A lot of the charities I do want to see supported run interventions with potentially vast downside risks, in my opinion. I don’t know if they really have vast or rather limited downside risks, so I would like the market to know more than me about that, not less.
Ah, you’re right. Not sure why I was so confused about this before.
I might’ve implicitly been thinking about the case where the bad news about the intervention gradually comes to light (in the worlds where it turns out to be bad) and the shorter regularly increases their short to maintain the same leverage while the market drops. Would that work?
I’ve been under the impression that that’s how the HEDGE tokens work, specifically with a rebalancing interval of one day or less (extra rebalancing during the day in case of high volatility), but the result is weird… DMG dropped 77% all at once on Feb. 5, 2021, so I would’ve expected DMGHEDGE to go up 77%? Instead it also dropped 55%. Maybe there was not enough buy-side liquidity to rebalance properly because everyone just wanted to sell?
I wonder if negative impact tokens would work or would fall short for similar reasons. Is there some sort of software for simulating markets? Otherwise I might just try to put together a little custom agent-based model for this.
I wonder, what would happen if we created a USDC/TOKEN market instead of a TOKEN/USDC market?
Yeah, sadly.
Hmm, it would be completely decentralized. Only the “ICO” would consist of giving the token to specific charities and funds, which would thereby obtain particular voting rights. If a project wanted to avoid that, they could exclude the funds, but they can’t exclude the charities as that would defeat the purpose of the token…
But that’s not much consolation. A lot of the charities I do want to see supported run interventions with potentially vast downside risks, in my opinion. I don’t know if they really have vast or rather limited downside risks, so I would like the market to know more than me about that, not less.