OKEx CEO: high volatility and prisoner's dilemma make it difficult to implement circuit breakers in digital currency markets

In response to the question of whether the currency ring can introduce circuit breakers to control risks, Jay Hao, CEO of digital currency trading platform OKEx, said the circuit breakers are well-designed to protect the interests of small and medium investors in the digital currency market and prevent them from suffering greater losses. However, circuit breakers are difficult to implement in digital money markets.

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For a start, Mr Hao argues, the market for digital currencies is volatile, and circuit breakers are tricky. We need to understand that the current circuit breakers in the traditional financial markets have changed the rules many times, and the purpose of the circuit breakers' designers is to prevent them from happening, because they would prevent market transactions and disrupt normal market behavior.

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How volatile is the digital money market? According to statistics from last year, the median daily rise and fall of bitcoin was 12%, which means that if a 7% circuit breaker is set, normal trading in bitcoin will be interrupted many times, which is bad for the market. By contrast, the three percentage points of a s&p decline triggering a circuit breaker are 7%, 13% and 20%. Seven percent of the first tranche, in operation for more than 20 years, has occurred three circuit breakers.

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Secondly, the digital currency market is a 7*24h market, and digital currency is traded on multiple platforms. Therefore, when a trading platform announces the adoption of circuit breaker measures, if a circuit breaker occurs, the price difference of digital currency between platforms will increase, triggering arbitrage, and ultimately the circuit breaker mechanism will become a mere device.

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Jay Hao in response to another question "if all exchange or major exchanges in the industry consensus, unified implementation of circuit breakers is workable" said, "of course is not feasible, because such alliance similar cartel (the organisation of the petroleum exporting countries (Opec) is a cartel), such an alliance born do not have stability: union members have deception motivation, on the game theory which is a typical" prisoner's dilemma ": When a fuse, if some exchanges secretly traded in the league, you will give yourself in terms of market share and market income bring great benefits, this will motivate members secretly traded, eventually form a Nash equilibrium, exchange traded privately, or out of circuit breakers, circuit breakers has also exist in name only."

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Source link:https://www.cnbeta.com/articles/tech/954951.htm

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