antomeister
Hatchling
- Joined
- Aug 2, 2021
- Posts
- 7
Allow a tab for item lending in the auction house, the lender makes interest by lending the material to said short-seller, and the short-seller in question puts up PED as collateral or anything with TT value for 125% or 150% of the position (Enough to make up for MU and risk). Then with the borrowed material, your market prediction starts off with a sale of the material on the auction house. Say, I predict muscle oil will decrease by 0.5% during merry mayhem. I borrow muscle oil at 101.5% and pay .1% interest per week, but borrow the muscle oil on the day that it is 101.5% and sell it on that day.
Next week, when merry mayhem hits, lets say my prediction is correct - it drops to 101%. I would buy back the muscle oil at 101% and pay the .1% interest, give back the oil to the lender and unlock my previously locked PED collateral, netting a profit margin of +0.4% of capital. Lender wins and investor wins!
(The Reverse) When merry mayhem hits, my prediction is incorrect - it rises to 102%. I have a choice to buy back the oil to close my position at 102%, plus 0.1% interest, netting a loss of -0.6%. Because my collateral is 125 or 150% of the position, this accounts for the losses that a person may make, and leaves the lender risk-less.
*One More Choice* - Let's say im a gambler and choose not to take a loss. For some weird reason muscle oil keeps rising to abnormal levels, say 105 or 110%. The loan will automatically calculate when to liquidate the position so that the lender leaves risk-free, by using the PED collateral to buyout the cheapest muscle oil on the market.
For Calculation purposes -
I want to short 100 PED of muscle oil at its current MU of 101.5%+0.1%Interest. I must put up 125% collateral, so the equation is - 100p*1.016(1.25)=127 PED Collateral.
3 Days goes by, a huge crafters soc decided to buy up all the oil, MU rises to 120%. The loan calculates that the risk-free limit for the lender is 120% based on the cheapest buyout offers available and the MU history (Say, using a 50 day Simple Moving Average and accumulation/distribution calculation). All of this is included in the loan calculation to ensure that it is risk-free. at 120% MU the collateral is automatically liquidated, and the short-seller take a loss, purchasing the cheapest muscle oil buyout and fulfilling the lender's material. Any excess oil is reserved in MA's "reserve" bank, for future lending and fulfilling, as we cannot ensure that auction house offers will fulfill the exact quantity of the material.
Now most importantly, what does this solve?
1. Liquidity - This provides more opportunities for trades and lending, allowing more opportunities and more people to trade the market. The more trades occur on the market, the less volatile items can become. If i'm an uber hunter who has no time to spend putting items on the market or am looking to hold materials for the long term, I can provide an opportunity to lend and acquire interest.
2. Price Accuracy - This allows prices to be more accurate, because if our only choice is to invest in something and make money when it goes up, then it is more vulnerable to price mismatch. Like for example, I can assume that at a certain time at night when everyone is sleeping, MU may rise, but I can only take advantage by buying low and selling high. What if a person in another country wants to sell high and buy low, making the MU more accurately priced, and making it harder for any individual reseller to take advantage.
2. Prevents Manipulation - Now this is something that we all are worried about. Short-selling as an option actually prevents price manipulation. Let me explain why. Systems where participants have contrarian views tend to be more efficient. Imagine a situation at work where we are all happy-go-lucky people and do not provide effective criticism to each other. The profit margin for this company would be low compared to a company that states to their workers why certain methods of work and what they believe they should be doing may be incorrect. This does not constitute an insulting opinion, but actually an efficient one. Thoughtful discussion tends to lead towards increased knowledge and productivity. And that's what prices are! A communication between buyer and seller at the micro level, and supply-and-demand at the macro level.
Next week, when merry mayhem hits, lets say my prediction is correct - it drops to 101%. I would buy back the muscle oil at 101% and pay the .1% interest, give back the oil to the lender and unlock my previously locked PED collateral, netting a profit margin of +0.4% of capital. Lender wins and investor wins!
(The Reverse) When merry mayhem hits, my prediction is incorrect - it rises to 102%. I have a choice to buy back the oil to close my position at 102%, plus 0.1% interest, netting a loss of -0.6%. Because my collateral is 125 or 150% of the position, this accounts for the losses that a person may make, and leaves the lender risk-less.
*One More Choice* - Let's say im a gambler and choose not to take a loss. For some weird reason muscle oil keeps rising to abnormal levels, say 105 or 110%. The loan will automatically calculate when to liquidate the position so that the lender leaves risk-free, by using the PED collateral to buyout the cheapest muscle oil on the market.
For Calculation purposes -
I want to short 100 PED of muscle oil at its current MU of 101.5%+0.1%Interest. I must put up 125% collateral, so the equation is - 100p*1.016(1.25)=127 PED Collateral.
3 Days goes by, a huge crafters soc decided to buy up all the oil, MU rises to 120%. The loan calculates that the risk-free limit for the lender is 120% based on the cheapest buyout offers available and the MU history (Say, using a 50 day Simple Moving Average and accumulation/distribution calculation). All of this is included in the loan calculation to ensure that it is risk-free. at 120% MU the collateral is automatically liquidated, and the short-seller take a loss, purchasing the cheapest muscle oil buyout and fulfilling the lender's material. Any excess oil is reserved in MA's "reserve" bank, for future lending and fulfilling, as we cannot ensure that auction house offers will fulfill the exact quantity of the material.
Now most importantly, what does this solve?
1. Liquidity - This provides more opportunities for trades and lending, allowing more opportunities and more people to trade the market. The more trades occur on the market, the less volatile items can become. If i'm an uber hunter who has no time to spend putting items on the market or am looking to hold materials for the long term, I can provide an opportunity to lend and acquire interest.
2. Price Accuracy - This allows prices to be more accurate, because if our only choice is to invest in something and make money when it goes up, then it is more vulnerable to price mismatch. Like for example, I can assume that at a certain time at night when everyone is sleeping, MU may rise, but I can only take advantage by buying low and selling high. What if a person in another country wants to sell high and buy low, making the MU more accurately priced, and making it harder for any individual reseller to take advantage.
2. Prevents Manipulation - Now this is something that we all are worried about. Short-selling as an option actually prevents price manipulation. Let me explain why. Systems where participants have contrarian views tend to be more efficient. Imagine a situation at work where we are all happy-go-lucky people and do not provide effective criticism to each other. The profit margin for this company would be low compared to a company that states to their workers why certain methods of work and what they believe they should be doing may be incorrect. This does not constitute an insulting opinion, but actually an efficient one. Thoughtful discussion tends to lead towards increased knowledge and productivity. And that's what prices are! A communication between buyer and seller at the micro level, and supply-and-demand at the macro level.