Question and Answer Session with Fintech Entrepreneur Bharath Rao: CEO of Bitcoin Trading Platform Coinpit
BitcoinFuturesGuide: First, some background for the readers: where is Coinpit incorporated and where is the team based? What technical background do the team have? Are they coders or traders or both?
Bharath Rao (Coinpit CEO): Coinpit, the software company is incorporated in the USA. Edge.sh Ltd, our client operates the exchange from Seychelles. Coinpit provides software licenses and professional services to the exchange.
Coinpit team is made of a mix of veteran traders and software engineers who have many years of experience developing trading software. We are advised by professional traders and experts on product and contract features to ensure we build a desirable and robust product.
Traders want to feel confident that the entity they are trading with is well capitalized. How is Coinpit funded?
We are privately capitalized well enough to serve traders for a long time.
Coinpit currently has a BTC/USD contract which boasts offering 200x, even 500x leverage. Most bitcoin futures exchanges that offer this degree of leverage use “socialised losses” in order to offset unfilled liquidations of users whose margin doesn't cover their position. How does Coinpit offer this high leverage without socialised losses?
Socialized losses benefit the ultra-speculative traders at the expense of skilled and disciplined traders. We believe that game theory suggests that on such exchanges the most beneficial play is to make many small bets with the highest available leverage. This will lead to larger and larger socialized losses eventually making sensible trading impossible. Judicious use of high leverage requires that disciplined and skilled traders are rewarded instead of being punished. Coinpit terminates/deleverages a highly-leveraged winning trader when there are no orders at the stop of the losing trader. While this is not desirable, this is a problem that becomes less and less severe with increasing liquidity.
Many traders are frustrated by leverage products on Bitfinex and BitMEX which lead to funding charges for traders – is there any interest charged on leverage for trading on Coinpit, or any kind of funding mechanism which users need to be aware of?
Moving coins from Multisig to margin and vice-versa costs a small amount of coins to be paid directly to the bitcoin network. This may go away in the future if we can use lightening network or any similar off-chain technology once proven in the market.
The exchange does not have any funding charges at present. This makes it ideal for long time holders. Funding fees add up, but more important, being variable they complicate the ability to predictably take winning positions. The longer traders hold, the more the chances of profits being erased by funding costs. High funding rate has the effect of causing the users to trade small for short durations.
Coinpit says that users do not have to even use an email or login to trade. How does this system work? How can a trader feel confident they are in a secure environment if they do not have a classic-style account with email address and a personal relationship with the exchange?
Coinpit uses Zero-Knowledge authentication using the same crypto in Bitcoin. Your user id is the bitcoin address represented by your private key. Every request is authenticated with the user’s private key instead of setting a session cookie. This is much safer than the traditional email/password and eliminates entire classes of security issues. You may have recently read about the 500 million emails leaked from yahoo. Several of these leaks occur every month. Some are detected a few years later, many are not. Hackers have years to crack the passwords, which they can easily attempt for commonly used passwords and passwords reused and stolen from other sites. Even some forms of 2FA do not protect the user from a server breach since the 2FA seeds can also be stolen and the 2FA token reconstructed. Zero knowledge systems however, do not store the essential ingredient on the servers and therefore are more resilient. We avoid email to eliminate the threat of spam, phishing and brute-force login attacks.
Coinpit marketing materials state that you do “AML without KYC” – how does this work?
Coinpit is committed to transparency using the blockchain. However, transparency without privacy would be a serious threat to financial security and peace of mind. To enable transparency without compromising privacy, Coinpit uses AML without KYC. Money laundering works in three stages: placement, layering and integration. Ensuring we do not take untraceable cash deposits prevents placement. Ensuring that coins can only be withdrawn to the origin prevents layering. The initial response from bankers to this system has been positive and provides a way to eliminate the poor cost effectiveness ratio of KYC
What do you say to users who are in profitable positions but their counterparty is at high leverage and gets terminated, which causes the winning trader to be “kicked out” of their active position without wanting to be – how do you mitigate this problem for traders?
This is an inherent issue with low liquidity and high leverage. Ideally, we increase liquidity by getting a lot more users or get more market making relationships and our books get so deep that there is no need to “kick out” a trader. Our market maker bot is open source and we invite traders to make markets on our products.
Traders are used to calculating fees and profit in terms of percentages, but Coinpit uses “ticks” and “points”, terminology that is more common in legacy markets. Additionally, the contract is a Quanto, not Inverse contract, making its use for hedging limited and is also different than what most bitcoin traders are used to. How does Coinpit plan to bridge this divide in what bitcoin traders are accustomed to and the system Coinpit has built?
A percent based fee, especially on an inverse contract means that the ability to extract profit from the market decreases with the increase in the underlying’s price. Ticks keep the costs constant and predictable and are very precise and can be verified without rounding errors. However, we are OK moving to a percent system if users are more comfortable with it and for linear contracts, it makes more sense.
Quantos are a synthetic way to trade BTC/Fiat since BTC needs a fiat currency as the denominator. Other contracts can simply be linearly denominated in BTC. A USD contract denominated in BTC and settled in BTC would be the right balance but the chart would look inverted.
Currently your fees are two-sided: negative (-0.000025 BTC), meaning you give rebates to traders for providing liquidity (if they have a limit order in the book which gets “taken”) and a modest fee for “taker” orders (0.0001 BTC). This makes fees of 0.0001 for taker at 0.61 btc notional price about 0.015% for taker, meaning 0.03% roundtrip for a trader who is taking on open and close – this is the same fee that OKCoin charges roundtrip for their futures. Is Coinpit planning to raise fees or continue to do negative fees for “makers” and keep net fees on par with the current market leader OKCoin?
When you consider that there are no daily funding charges, withdrawal fees or any of the numerous hidden costs on many of the other sites, this is actually the lowest cost exchange. Eventually fees are likely to rise a bit without losing competitive advantage to enable financing of high-demand features and products.
Are there plans for future products outside of BTC/USD? Or plans to accept currencies other than Bitcoin?
We plan to list top cryptos and crypto versions of traditional commodity contracts such as OIL, Gold and Silver
Bharath Rao (Coinpit CEO): Coinpit, the software company is incorporated in the USA. Edge.sh Ltd, our client operates the exchange from Seychelles. Coinpit provides software licenses and professional services to the exchange.
Coinpit team is made of a mix of veteran traders and software engineers who have many years of experience developing trading software. We are advised by professional traders and experts on product and contract features to ensure we build a desirable and robust product.
Traders want to feel confident that the entity they are trading with is well capitalized. How is Coinpit funded?
We are privately capitalized well enough to serve traders for a long time.
Coinpit currently has a BTC/USD contract which boasts offering 200x, even 500x leverage. Most bitcoin futures exchanges that offer this degree of leverage use “socialised losses” in order to offset unfilled liquidations of users whose margin doesn't cover their position. How does Coinpit offer this high leverage without socialised losses?
Socialized losses benefit the ultra-speculative traders at the expense of skilled and disciplined traders. We believe that game theory suggests that on such exchanges the most beneficial play is to make many small bets with the highest available leverage. This will lead to larger and larger socialized losses eventually making sensible trading impossible. Judicious use of high leverage requires that disciplined and skilled traders are rewarded instead of being punished. Coinpit terminates/deleverages a highly-leveraged winning trader when there are no orders at the stop of the losing trader. While this is not desirable, this is a problem that becomes less and less severe with increasing liquidity.
Many traders are frustrated by leverage products on Bitfinex and BitMEX which lead to funding charges for traders – is there any interest charged on leverage for trading on Coinpit, or any kind of funding mechanism which users need to be aware of?
Moving coins from Multisig to margin and vice-versa costs a small amount of coins to be paid directly to the bitcoin network. This may go away in the future if we can use lightening network or any similar off-chain technology once proven in the market.
The exchange does not have any funding charges at present. This makes it ideal for long time holders. Funding fees add up, but more important, being variable they complicate the ability to predictably take winning positions. The longer traders hold, the more the chances of profits being erased by funding costs. High funding rate has the effect of causing the users to trade small for short durations.
Coinpit says that users do not have to even use an email or login to trade. How does this system work? How can a trader feel confident they are in a secure environment if they do not have a classic-style account with email address and a personal relationship with the exchange?
Coinpit uses Zero-Knowledge authentication using the same crypto in Bitcoin. Your user id is the bitcoin address represented by your private key. Every request is authenticated with the user’s private key instead of setting a session cookie. This is much safer than the traditional email/password and eliminates entire classes of security issues. You may have recently read about the 500 million emails leaked from yahoo. Several of these leaks occur every month. Some are detected a few years later, many are not. Hackers have years to crack the passwords, which they can easily attempt for commonly used passwords and passwords reused and stolen from other sites. Even some forms of 2FA do not protect the user from a server breach since the 2FA seeds can also be stolen and the 2FA token reconstructed. Zero knowledge systems however, do not store the essential ingredient on the servers and therefore are more resilient. We avoid email to eliminate the threat of spam, phishing and brute-force login attacks.
Coinpit marketing materials state that you do “AML without KYC” – how does this work?
Coinpit is committed to transparency using the blockchain. However, transparency without privacy would be a serious threat to financial security and peace of mind. To enable transparency without compromising privacy, Coinpit uses AML without KYC. Money laundering works in three stages: placement, layering and integration. Ensuring we do not take untraceable cash deposits prevents placement. Ensuring that coins can only be withdrawn to the origin prevents layering. The initial response from bankers to this system has been positive and provides a way to eliminate the poor cost effectiveness ratio of KYC
What do you say to users who are in profitable positions but their counterparty is at high leverage and gets terminated, which causes the winning trader to be “kicked out” of their active position without wanting to be – how do you mitigate this problem for traders?
This is an inherent issue with low liquidity and high leverage. Ideally, we increase liquidity by getting a lot more users or get more market making relationships and our books get so deep that there is no need to “kick out” a trader. Our market maker bot is open source and we invite traders to make markets on our products.
Traders are used to calculating fees and profit in terms of percentages, but Coinpit uses “ticks” and “points”, terminology that is more common in legacy markets. Additionally, the contract is a Quanto, not Inverse contract, making its use for hedging limited and is also different than what most bitcoin traders are used to. How does Coinpit plan to bridge this divide in what bitcoin traders are accustomed to and the system Coinpit has built?
A percent based fee, especially on an inverse contract means that the ability to extract profit from the market decreases with the increase in the underlying’s price. Ticks keep the costs constant and predictable and are very precise and can be verified without rounding errors. However, we are OK moving to a percent system if users are more comfortable with it and for linear contracts, it makes more sense.
Quantos are a synthetic way to trade BTC/Fiat since BTC needs a fiat currency as the denominator. Other contracts can simply be linearly denominated in BTC. A USD contract denominated in BTC and settled in BTC would be the right balance but the chart would look inverted.
Currently your fees are two-sided: negative (-0.000025 BTC), meaning you give rebates to traders for providing liquidity (if they have a limit order in the book which gets “taken”) and a modest fee for “taker” orders (0.0001 BTC). This makes fees of 0.0001 for taker at 0.61 btc notional price about 0.015% for taker, meaning 0.03% roundtrip for a trader who is taking on open and close – this is the same fee that OKCoin charges roundtrip for their futures. Is Coinpit planning to raise fees or continue to do negative fees for “makers” and keep net fees on par with the current market leader OKCoin?
When you consider that there are no daily funding charges, withdrawal fees or any of the numerous hidden costs on many of the other sites, this is actually the lowest cost exchange. Eventually fees are likely to rise a bit without losing competitive advantage to enable financing of high-demand features and products.
Are there plans for future products outside of BTC/USD? Or plans to accept currencies other than Bitcoin?
We plan to list top cryptos and crypto versions of traditional commodity contracts such as OIL, Gold and Silver
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