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Lumifer comments on Open Thread for February 11 - 17 - Less Wrong Discussion
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The exchange can just fail in a large variety of ways and close (go bankrupt). If you're not "insured" you are exposed to the trading risk and insurance costs what, about 30%? and, of course, it doesn't help you with the exchange counterparty risk.
30% per annum? Even if this were true (and this sounds quite high, as I mentioned with Gwerns 1% per month estimate) then providing liquidity with them would still be +EV (86% increase vs 30% risk).
Um, did you make your post without actually reading the Bitfinex site about how it works..?
Upvoted for pointing out my stupid mistake (I assumed it works in a certain way, and skipped readig the vital bit)
Ahh, oops. I think I missed the last line... I thought if someone exceeded their margin, they were forced to close their position so that no money was lost.