For anyone curious, I think this is a good explanation of how you can short on Binance
And here’s the pair for NMR and USDT
From my understanding (I might be wrong on some things here as I’ve never looked into this stuff before, this is just my understanding after some research and thought today). If you had 100 USDT to put into the tournament, you’d buy 75 USDT worth of NMR and stake it in the tournament, and then you’d put 25 USDT in your Binance margin wallet. Then you borrow NMR to sell using your 25 USDT, which means you’re now short NMR by 75 USDT (as 3x leverage). Hence you’re both short and long NMR by 75 USDT, so that’ll cancel out the currency risk. You’ll probably want more than 25 USDT in your margin wallet though as I think if the price rises by 50% (hence your loss is 25USDT) then your short position will be liquidated and you’ll lose your 25 USDT.
Of course, now we’ve introduced exchange risk, as if Binance gets hacked etc. then you could lose all your money in your Binance margin wallet. So it’s really a trade-off of NMR currency risk for all of your currency, vs exchange risk for a fraction of your currency and incurring interest on your short loan.
I guess how you weigh up those risks depends on your sentiment for the long-term prospects of NMR. Personally I think its probably better to just DCA/VCA your NMR purchases.
Transaction fees are probably going to be pretty small relative to the loan interest. Yeah, I think in the video they talk about using BNB to pay your fees. You wouldn’t want to borrow using BNB though, as then you’re exposed to the currency risk of BNB, e.g. if BNB falls against USDT then you lose out.
I think being short and long is hedging? As then if the price of NMR falls, the price falling doesn’t hurt you so much as you profit on your short position
Hmm good point. Not sure. But options are used for risk management to lock in the price of an asset. So yeah options would probably be another good way to manage risk. Might also eliminate currency risk as I don’t think you need collateral for an options contract
Yeah, I was wondering about that too. Even if you have a mind to borrow NMR to protect your staking investment, the new NMR you make is still only worth so much (and is not protected). You have to commit to going long one way or another, right?
I am considering tying that out, I have one problem with it though: There is still the lockup time of the NMRs being staked.
Lets say NMRs go up from where I initially placed my short position. At some point the stop will trigger my short position to be cancelled eating away my collateral. To cover my loss from the short position, I would have to immediately liquidate my staked NMRs, which I cant do for 4 weeks, which is a rather long time in the crypto world. While waiting for the now unprotected NMRs being released, NMRs could fall down again losing me even more money.
So sudden price hikes as seen in the last months are killing this strategy.
A solution for this would be some sort of naked short selling, because you essentially always have the NMRs you borrowed (if your model did not lose money), just not right now, but I don’t think you can do that anywhere.
Another option would be that Numerai reworks their staking system, so that it is possible to immediately withdraw the entire staked NMRs from a model. Obviously you would have to introduce some sort of punishment for that, like automatically apply the maximum burn for the given round. Then you would basically limit the loss to the early withdrawal punishment + your model earnings/burns since staking + all transaction fees for trading, which would be an acceptable risk for me.
I meant only for one round. Having 25% of your stake burned because you bail out early should be harsh enough… For 4 rounds compound burning that would be around 68% burned not 100%, by the way.
Edit: I always forget that the payouts are applied 4 weeks afterwards… I was not even aware of the theoretical possibility that you can lose your entire stake if you have 4 unlucky rounds.
We really just need a consistent market maker that will be or find the counter parties to 4-week long NMR forward contracts for each round. Perhaps speculators who are willing to buy and hold for 4 weeks would be interested to long the contract. But the nicheness of NMR is maybe not interesting enough for someone to set up this mechanism in large volume with decent liquidity. I think I saw APR of over 100% on some of the NMR swaps on the Sushi/Kashi page. I also don’t understand all this enough to feel comfortable engaging in such a platform where I need to use my head a bit. Would always feel I am missing something.
I think its more dangerous than holding nmr. The price of NMR is so damn spiky. You can get liquidated in no time. What is worse you can get liquidated on both sides in one day. IMO it is not worth the risk.
In order to make it work, one must have some money as backup for liquidation calls, that means less money staked, which is less earned, and you can always lose everything.
And the liquidity of the gains is another issue, plus gass fees.
Going short yeah, but I think a forward contract managed by a market maker wouldn’t need that liquidation provision for counter-party risk (I am not sure though?). I was thinking like upon the delivery of the NMR, the agreed upon price could easily be paid by the receiver of the NMR no matter the prevailing market price.
There is a bit of risk if the NMR round performance doesn’t line up with the expected NMR amount in the contract however. Perhaps can allow the quantity to be variable +/- 10% of some stated amount.
So like buy 100 NMR at $10/coin for $1000 at available spot price. Use that 100 NMR to stake 1 model for 4 weeks (liquidate the model after the round). At the same time, enter into a forward contract with some counterparty at the available forward price, let’s say $9.8/coin. Wait 4 weeks to get NMR distribution of 120 NMR let’s say (20% return). Sell 110 NMR at the contract forward price of $9.8 and the other 10 NMR at the prevailing spot price at the time. Do this with a different model slot for each of the 4 weeks.
