Utopian-IO Idea: P2P Margin Trading / Stability Contracts

Repository

https://github.com/holgern/steemengine

Components

Requires smart-contracts.
Possibly could be implemented on the new SteemEngine platform.
This would avoid the need for Witness approval.

Proposal Description

If we can create a network of users looking to hedge their bets and engage in leveraged crypto trades, we can match them together to create a system of high/low volatility polarization. The dichotomy of users looking to take more/less risk within the system can be used to our advantage.

By finding two users looking to implement opposite tasks, we can pair them together to allow both of them to accomplish their goal. This system can be utilized to create an unregulated free market; allowing users to manipulate the financial risk they are willing to take within the network.

Mockups / Examples

User @abc wants to margin trade Steem.
User @xyz wants to lower the volatility of Steem price action.

User @abc and @xyz both throw 1000 Steem each into a smart contract.
User @abc wants to increase the volatility of their 1000 coins.
User @xyz wants to reduce said uncertainty.

Let's say that Steem were to double in value and the contract was terminated.
For simplicity, let's assume that 1 Steem is worth 1 USD.

When the contract was created its total value was $2000.
When the contract ended its value increased to $4000.
This is a $2000 profit, but @abc will receive more because they margin traded.
@abc would receive 1250 coins ($2500) from the terminated contract,
while @xyz would receive 750 coins ($1500).

In the event of Steem losing half its value, the opposite would be true:
@xyz would receive 1500 coins ($750) from the terminated contract,
while @abc would receive 500 coins ($250).

---

In the above example, @abc accepted +50% volatility.
When Steem doubled they took half of @xyz's profit. ($500)
When Steem was halved they accepted half of @xyz's loss ($250)

Description Continued

The amount of volatility the margin trader would accept would not necessarily be equal in the event of a positive or negative net gain. Any number of agreements could be reached depending on many different factors. Any number of variables could also be used to break the contract as long as both parties agreed in advance.

These contracts would exist on a free market. In general, if margin trading had more demand than stable holding, users willing to negate volatility would be offered a better deal, and vice versa. For example, perhaps a margin trader would be willing to accept a 40% gain in the event of bullish action while at the same time accepting 60% of the loss of the other party during bearish action. The free market would determine what kind of deals one could get at any particular time.

Unfortunately, I've used Steem as an example here for simplicity, but in order for that to happen a fork approved by the witnesses would be necessary. However, in the event of an SMT launch or using a SteemEngine side chain, it is possible that this functionality could be implemented permissionlessly using a new token on the blockchain.

Benefits

By lowering the volatility of the cryptoshere we can keep more money on the platform. Users who would otherwise be transferring their assets to an exchange and cashing out to a stable coin would instead be incentivized to open a p2p volatility reduction smart contract.

On the flip side, being able to offer margin trading in a free market with little or even zero fees would also bring value to whatever underlying platform that implemented this system of Peer to Peer margin/stable match ups.

Conclusion

We no longer have to rely on centralized financial services that have previously relied on a trusted intermediary. Using smart contracts, I believe many platforms will eventually implement this system of p2p margin trading. Steem has the opportunity to be the first.

GitHub Account

https://github.com/edict3d