Topic: [BTC-TC] Deprived Mining Speculation (DMS) - page 97. (Read 198700 times)

Yep - just got back and all 3 are approved.

DMS.PURCHASE will be placed for sale now at the price shown 2 post above:

405 days (IPO)    0.06525757

That price will be maintained until 16:00 GMT tomorrow when the first dividend to mining will be paid.

Shortly after 16:00 GMT today (just over 2 hour's time) I will send out the first units of MINING and SELLING in return for any PURCHASE That have been returned by then.  The delay before first exchanges are processed (and first dividend not being until tomorrow) is so that :

1.  There is a decent period (over a day) in which everyone can buy at the same price.
2.  The few hours of no exchange avoids one person (even me) being the only one selling MINING or SELLING (my own exchanges for my first batch will be processed along with everyone else's).

Expect the first units of MINING and SELLING to appear for sale shortly after 16:00 GMT today (in 2 hours time).  They will be at whatever price investors who converted PURCHASE choose to sell them.

Approved!

Here's some numbers to consider :

Apologies for poor formatting - I've copied and pasted from my spreadsheet here.  I'll try to remember to paste this after every difficulty change (along with other parts of it showing the calculation of NAV/U, dividends of SELLING etc - SELLING will tend to only receive a dividend after a difficulty change where difficulty rises a lot.).

Block reward   25
Difficulty   15605633
Hashes   5000000
   
Daily Dividend    0.00016113
50 days (Min Liquid)    0.00805649
100 days (Forced Close)    0.01611298
365 days (Buyback)    0.05881238
405 days (IPO)    0.06525757
400 days (Post SELLING div)    0.06445192
410 days (Pre SELLING div)    0.06606322

If we received moderator approval before the next dividend changes then:

The very first batch of PURCHASE would be sold at : 0.06525757 BTC each (with BTC-TC limiting us to 6 decimal places that would be 0.065258).  If the securities are approved for trading whilst I'm not around (e.g. in the next 8 hours or so whilst I sleep) then anyone intending to buy in at the start can place Bids at that price.  There's no need (or point) in over-bidding one another - ALL bids at that price will be filled.  And the price will remain at that until the first dividend is paid.

MINING would receive a dividend of 0.00016113 per day until difficulty next changed.

The 50 days value represents the amount of capital per share (of MINING + PURCHASE) that has to be kept liquid at all times.

The 100 days value is the capital per share (MINING + PURCHASE) which, if fallen below, triggers automatic closure of the fund with payout of all cash to MINING.

The 365 days value is the amount that would paid to MINING if the fund were closed now (after a vote from SELLING).  Paying more than that for MINING is totally stupid (paying anywhere near it isn't too bright either for that matter - unless you have good reason to believe difficulty won't rise much for quite a long time).

The 405 days value is the IPO price for PURCHASE.

The 400 and 410 days values represent the range in which capital will be targetted to stay.  If it rises above the 410 day limit then a dividend will be paid to SELLING to reduce it down to the 400 day level.  The only time this will usually happen if after a difficulty change where difficulty significantly rose (it CAN on rare occasions also occur at other points - but those will be exceedingly uncommon).

Missed responding to this.

First dividend will be paid at the first occurence of 16:00 GMT after the first units of MINING are distributed.  So if you hold MINING then any time 16:00 GMT arrives you'll be due a dividend.  If you hold PURCHASE then the same is true so long as SOMEONE holds a MINING.  The minor distinction is in case trading gets approved shortly before a dividend-due time (like within a few hours).  In that scenario I'd hold off doign any swaps (including my own) until after the dividend time.

Reason for that is that from first sale until first dividend, PURCHASE will be sold at a fixed price.  At the time of first dividend that price will change - and from then on all new sales will be at a slight premium to the actual value of existing units.  I therefore want to ensure some reasonable window for everyone who wants to market-make initially to get in at the same price (the very first change in price will probaly be very slightly upwards due to the 2% markup exceeding the likely amount of the dividend paid).

As soon as approval is received (and I notice) I will, of course, post indicating the amount and time of the next dividend for MINING and the initial sales price for PURCHASE.

I agree with your estimate that the discount rate is too long in the short-term and too high in the long term.  That actually was one of the factors constraining the range in which buy-back had to be set.  The value was determined by trying to find a value where there could legitimately be speculation on the value of MINING.  To pick extreme examples - if buy-back was at 10 days dividend (and PURCHASE was sold at a small amount over the capital needed to guarantee Buyback initially) then the price of one PURCHASE would never cover the amount a MINING could expect if dividends were paid perpetually.  At the other extreme if buy-back was at 1000 days then there's no way it would ever be enforced - and the need to always have sufficient capital to cover a buy-back would mean that a LOT of money would be charged for PURCHASE with no realistic chance of the majority of it ever being needed.

Beyond that there's no precise formula I used to define it.   With current difficulty trends it's above what MINING could expect to earn in any reasonable period.  With a more flat difficulty progression it becomes LESS than anticipated long-term earnings.  For more informed investors/sepculators on this fund it's predicting the point at which difficulty will (relatively) stabilise that's key - and I've tried to set a buy-back that practically allows betting on that prediction (not always - but at some stages).

365 is, of course, the number of days in a year.  Having determined that in my estimation the optimal value (by which I mean one where BOTH MINING and SELLING have a change of profit) lay somewhere in th 300-500 range it seemed a nice number to pick.

The 405 is just the 365 plus a small bit extra to allow for short-term variance (spikes) - so as to ensure that in most scenarios capital can remain above the amount needed to execute a buy-back and still leave a bit left over for SELLING to get.

There are possible models for difficulty where this breaks down at some point - either ending with forced closure and all funds going to MINING (where difficulty becomes almost static for a long period - or even decreases) or with MINING dividends reducing to a trivial amount with the vast majority of capital having been returned to SELLING (where difficulty rises astronomically).  Those who believe in either of those scenarios obviously have a chance to try to make a very significant profit by trading appropriately.

Neither of those endings would be a failure for the fund.  In many ways the fund CAN'T fail (other than if I manage to lose its capital in investments).

• If one set of MINING or SELLING make a killing at the expense of the other then the fund has facilitated the mass transfer of capital from those who were wrong to those who were right.  I don't see that as a bad thing.
• If some years down the road neither side has lost or gained a lot then this may not have been great as an investment - but it will have been absolutely brilliant at demonstrating the exact true value of PMBs over a lengthy period of time.

I believe the actual outcome will lie somewhere between the two options above - probably nearer the first than the second.  At times the market price MAY represent a true value - but I believe the market isn't informed enough AND too many elements are unpredictable anyway for any sustained period during which the trading price of MNING is consistently an accurate representation of real value.

Nice work. I feel that it is a bit complicated, but of course you have to work with the tools that you are given. I think it demonstrates the need for a futures contract based on difficulty.

How did you arrive at the initial price of 405 times dividend and the buyback price of the mining shares at 365 times daily dividend? These imply a discount rate (assuming dividends are paid forever) of 3.5% and 3.8% per difficulty period, respectively. The rates seem too low in the short term (given recent history, they should be 15%) and too high in the long term (assuming Moore's Law, they should be 1.8%).

You didn't specify when the first dividend will be paid. It affects the price but guess it doesn't really matter.

Edit: Warning -- my math could be wrong.

Following text inserted into the section of the contract relating to investment:

--- Inserted text starts below this line ---

Entities may be removed from the fund's white-lists by a majority vote of DMS.SELLING.

Votes may only be initiated by the Manager (at his discretion).  Investors may propose candidates for white-listing - but have no right or ability to compel a vote to be held.

--- Inserted text ends above this line --

These minor additions were made for the following reasons:

No means existed by which entities (issuers, counter-parties or assets) could be removed from our white-lists.  Whilst that was hardly serious (I can always just refuse to invest in them, expose capital to them or have exposure to them via loan collateral) it is preferable to be able to remove them completely so they gain no credibility from being on our white-list.

No means existed by which investors could compel a vote - but that left an ambiguity over whether a vote could be initiated by investors.  They now explicitly can NOT.  That is necessary to avoid the situation where someone unsuitable gains significant holdings of DMS.SELLING and then initiates a vote to have themself white-listed (though they could still not compel me to expose capital to them).

Following text added to the end of the contract (the unplanned closure section) to address the issue identified earlier of a scenario where a majority of remaining shares are inactive and so no vote can be passed.

--- New text to be added to end of contract below this line ---

In the event of a vote with a proposal to split funds being left up for 7 days and (in either vote) the total of (Yes votes + No votes) being less than 50% of all outstanding shares then the Manager will determine a fair (in his best judgement) split of funds and execute final payments in accordance with that decision.  This clause is added specifically to address the scenario where most shares have been redeemed with a large part of those remaining outstanding being unable or unwilling to participate in reaching closure.

No - I mean what I said.  I could equally well have said PURCHASE outstanding plus MINING outstanding.

Let X be the number of MINING
X will also be the number of SELLING (they're only ever issued in pairs)

So MINING + SELLING would be same as 2*MINING OR 2*SELLING.

1 PURCHASE = 1 MINING + 1 SELLING

When I calculate the NAV/U I'm calculating the number of PURCHASE that have been sold less the number that have been bought back.

Some of those PURCHASE will still be PURCHASE - others will have been converted into a pair of (1 MINING and 1 SELLING).  SO to calculate the effective number outstanding I have to add the ones that are still PURCHASE to the ones that have been converted.  The latter number (the converted ones) can be determined from EITHER the outstanding MINING OR the outstanding SELLING (those 2 counts being identical).

Remember when a PURCHASE is converted it ceases to be outstanding - as it is returned to issuer.


Corrected - missed that one when I changed the basis of management fee from being taken on all outgoing payments.


Actually it's both.  The main danger is a short-term rise (a spike) where I pay out a dividend to SELLING then after the spike, when the drop back happens, capital has fallen below the target level for the revised (correct) difficulty.  Have changed it to "to allow for short-term variance in difficulty".

Short-term rises (what I had) was unclear.  Short-term falls don't need correcting for - being short-term there's no problem if capital isn't in place for them.  It's both together which are the problem - so variance is likely the most accurate term to use.



It's not an ideal solution - but without some revenue generation investment (especially on the SELLING side) would have to be done within very precise ranges for any investors to make a profit.  There's a few reasons why I rejected your suggestion (it's one I considered):

1.  I already manage a trading fund - which has as much cash as it needs and has no problem raising more if needed (my inbox is full of PMs from people who'd love to buy into it).  So it would make littlle sense for me to take on this project if my reward was only to keep profit that I could already keep the vast majority of anyway through existing endeavours.
2.  Supply would be artificially constrained.  If I assessed the maxmimum amount of loss likely to be sustained on investments at X% then my ability to issue PURCHASE would be restricted to an amount where X% of total sales met the amount of personal cash I was willing/able to risk.  As it stands, supply IS still limited - in that if capital raised exceeds available investment opportunities of suitable quality then return on investments will fall, possibly to the extent of lowering the perceived value of SELLING and so halting further sales of PURCHASE.  But that's a far higher limit.
3.  It is entirely likely that investing all capital (or the amount allowable to be precise) will not be possible in the short-term.  There are relatively few suitable investments - and loans will take a while to get going.  If I were only paid from investment proceeds then issuing more PURCHASE would leave me accepting risk (just holding cash in my own wallet is risk - albeit very small) without ANY benefit.
4.  It would leave open messy areas in terms of liability - for example if BTC-TC vanished would I personally be liable for ALL investment?  There's no way I'd want to take on significant risk for low-return safe investments - as the relatively low profits don't warrant me having to keep the entire amount available in case of disaster.  The alternative - that I pass on such risks whilst keeping all the profit - is surely unpalatable for investors.


The price at which further issuances of this will be sold is defined in the contract - and will fall so as to remain at around the same multiple of hashing power.  Pricing based on NAV/U ensures no loss for existing investors - and dividends to SELLING ensure that capital doesn't grow excessively (as a multiple of MINING dividends) in the event of fast rising difficulty.

The price of all three will fall over time - and yes, if difficulty rises raidly for a sustained period, eventually will reach the point where the price for units becomes tiny.  That's IF SELLING haven't voted by then to do a buy-back of course.  If the price were to fall so low as to begin to lose definition on the market (i.e. not enough decimal places) then it may well make sense to open a new one with a higher hashing denomination and cease sales on this one.

But in the short-term that's unlikely to be an issue - and splitting short-term sales up across different Series would just add work for me, add listing fees and split liquidity.  I can't help feeling I may be missing some element of your point here - as I'm not seeing how there'd be a need to even consider a new Series just because (if) IPO volume was high.

Thanks for the feedback - always great to know at least one person actually read the whole contract.

OK some points now that I have gone through the thing fully, first some minor mistakes i noticed:

"2. This will be divided by (PURCHASE outstanding + SELLING outstanding).  This is the NAV/U (Net Asset Value per Unit) of the overall fund and represents the current book value of one PURCHASE or (one SELLING + one MINING)."

You mean "Mining outstanding + Selling outstanding", right? Sorry if this is a nitpick.

"NAV/U post (DMS.MINING) dividend will be divided by the base dividend (i.e. before management fee) just calculated for DMS.MINING. "

I thought management fees were only upon issuance and not for dividends?

"This serves to keep capital at around 1 year's dividends (the buy-back price) plus just over a month extra to allow for short-term rises in difficulty."

You mean short-term falls, correct?



Now for the meat of my thoughts upon a full reading

1) I don't like the whole investment of capital thing and the resultant credit risk exposure that the miners and especially sellers bear. It is probably too late to change and  I am sure you have already considered and rejected this, but; Maybe you should eliminate the 3% fee, take on the obligation for payment yourself and instead invest the capital however you would like (since the face of Purchase is now your obligation) and whatever ROI you generate is your compensation for managing these instruments. Sort of like what life insurance companies do.

2) How will you differentiate instruments across time? For example, say you sell a purchase today. Lets also say that you issue and sell another purchase 4 months from now. Because the value of the Purchase (or mining + selling since they will be split) will degrade, additional issuances will have increasingly lower value. You have basically set a life expectancy on this as the instruments will approach zero. If there is sufficient volume when you IPO, you may want to consider additional issuance as being differentiated (i.e. Series A vs. Series B) and with  new value for the mining hash rate.

On planned dissolution there would be no priority whatsoever.

One DMS.MINING + one DMS.SELLING is exactly equal to one DMS.PURCHASE in value - so dividends would be paid (in the same amount) to DMS.PURCHASE as they were paid to DMS.MINING.  And after DMS.MINING had been paid off, to DMS.SELLING at the same time as to DMS.PURCHASE.

If a replacement fund were being opened then I'd certainly consider allowing trading of these for ones in the new fund.  I'd definitely be looking at the new fund buying out remaining investments of the current one - as it would get invetsments without paying market fees and this fund would get its cash back (to pay out) a little quicker.

In the event of unplanned dissolution (the "I can't continue" scenario) it's slightly different - as the split of assets between DMS.MINING and DMS.SELLING can't be defined by me.  The contract specifices that this could be detemined by vote - in practice most shares would be sold back well before that happened.

With a buy-back at 100% NAV/U on DMS.PURCHASE anyone holding both SELLING/MINING can immediately convert them to a PURCHASE and sell back.  Anyone holding only one type can either sell that - or buy the other and cash out.  With the buy-back being at full value arbitragers are going to ensure the market is pretty efficient - and that anyone who wants out can do so at a very small loss at most.

We'd rapidly reach the point where only shares left were those of people who were away and those of people holding a handful of one type.  With zero investment income as investments get closed there's no incentive at all for anyone to stay invested if they don't have to  - in a fund where the manager has stated he's quitting - when they can cash out immediately at nearly full value just by selling or buying as needed.

Where we DO hit a brick-wall is if ALL (or mainly all) that's left are people who aren't around at all to vote - meaning no vote can conceivably pass.  I'll amend the contract and add in a clause that if a vote is put up and less than 50% of all outstanding shares vote either yes or no then the manager can distrbute the remaining funds in whatever manner he believes is fairest.  There has to be SOME means to split it - and if a majority of outstanding shares aren't even voting then that's only real option.

Thanks for the clarification I'll let you finish posting all the sections before asking to many more questions as they will probably be explained in detail and do not want to ask redundant questions But will ask this question for now

Using the current info

Regarding the Buy Back Terms

It is the intention of Manager that this fund should be a long-term prospect (the prices of all three securities will gradually fall) however an option must exist for a shut down.  In the event of shutdown then DMS.MINING (and any outstanding units of DMS.PURCHASE) would first receive a dividend equal to the LOWER of :

a) All funds held by the securities,

b) 365 times the daily dividend due at current difficulty.

My question's are

Is their a priority list on the dissolution between DMS.Mining and DMS.Purchase
Related to the amount of shares owned
Or is it similar to
Financiers
Bondholders
Shareholders
In priority

In the event that one security shuts down will there be an option to convert to shares in another fund if such a fund is created at the time of dissolution perhaps to adjust for a difficulty change in a new issuing by the issuer.

A similar question applies to
Manager must further seek to either:
Propose a split of funds between DMS.MINING and DMS.SELLING to be approved by a majority vote by both all outstanding DMS.MINING and all outstanding DMS.SELLING.

And whether their is a convertibility option in such a case or if a new issuing has no relationship at a future date with the current offering
Clarification: Not a 1:10 split case I meant in the case of a new issuance

I can see how this applies to exchanges of units from one fund to another but I wanted to ask for the clarification on the application of such issues in terms of fund dissolution and fund splitting/ Class A or B dividend's if a preferred option is created.

Thanks again

I'm not intending to make a comparison to (or of) actual PMBs - more to explain HOW investors should do it themselves.  There's a bunch of reasons why I'm not doing it - I'll explain those in one of the first posts when I get around to that section.

Am just adding the following into the contract for all three securities:

--- Addition to contract starts here ---

EXCHANGE FOR DMS.PURCHASE

If a potential investor holds loans or securities (that are white-listed for investment by this fund) and wishes to, then at Manager's discretion a swap may be made of DMS.PURCHASE for those loans or securities.  Such a swap must be made with DMS.PURCHASE valued at its current official selling price and the loans or securities valued at their face value (with any difference in either direction being settled in BTC).  If the investor indicates that he intends to exchange for DMS.MINING and DMS.SELLING then he may be provided with those and skip the intermediate step of being sent DMS.PURCHASE and then immediately returning them.

This avoids unnecessary hassle for all parties involved.

If such an exchange occurs then the Manager will be paid his management fee of 3% as though the units of DMS.PURCHASE had been bought through the market.  Any such exchange must be specifically reported by the Manager in the thread for this fund - though the identity of the investor need not be disclosed (unless it is the Manager in which case that must be disclosed).

--- Addition to contract ends here ---

An example may explain why this is being added.

Say an investor/speculator holds 20 BTC worth of BTC-BOND (a real bond on BTC-TC and exactly the type of investment I'd expect us to invest in).  Without this clause here's what would have to happen:

1.  Investor sells their bonds back to namworld - who may not have the cash on hand to do so immediately.  Namworld would then have to sell those bonds again - paying market fees in the process.
2.  Investor buys DMS.Purchase.
3.  Investor sends DMS.Purchase to issuer.  Issuer sends DMS.MINING and DMS.SELLING to investor.
4.  DMS now has 20 BTC more cash that is earning nothing - so time (and fees) have to be used investing it.

With the clause here's what happens.
1. Investor sends the BTC-BOND to issuer.
2. Investors sends DMS.MINING and DMS.SELLING to investor.
3. Issuer reports in this thread (or a replacement) that 2000 BTC-BOND were accepted in exchange for X DMS.MINING and X DMS.SELLING.

Think that makes very clear how this addition helps all parties involved (other than BTC-TC which loses out on some trade fees - but will then likely get some from sale of either the MINING and or SELLING which may not have existed at all had this streamlined method not been available).

I was wondering if you can include your estimates in a chart form at a later date
https://i.imgur.com/lzpvjDQ.gif
Similar to this
Read through the announcment
COMPARISON OF DMS.MINING WITH PMBS IN GENERAL
TBD.
Jumped the gun a bit and will wait for your estimates
I wish you the best of luck this looks similar to insurance fund's actually and some mutual funds for bitcoin will keep watching

+1, looks like you put a lot of thought in to this.  I predict this is bad news for existing PMBs

Absolutely fascinating product Deprived. Best of luck.

Because of the flexible market control over total volume, this would be great for true price discovery on PMBs (and the .SELLING counterpart, whatever that asset is best conceptualized as) and for letting investors position themselves anywhere on the mining difficulty prognostication continuum.   I would love to see this approved.

Regarding creation of additional DMS.PURCHASE units after the first dividends have been paid, do I understand correctly that would cheaper to, say, create 5000 DMS.PURCHASE units all at once rather than 2500 DMS.PURCHASE units on day 1, and then 2500 DMS.PURCHASE units on day 2, because the funds I used to create 2500 units from day 1 would now be baked into the NAV and increase cost on day 2 derived from the 1.05*(NAV/U) calculation?

Yes - I've tried as much as I can to genuinely allow the market to set the price.  There's no artifical constraints (or over-supply) on supply and no limitations on how the MINING and SELLING elements can be priced (other than that their prices added together should roughly equal the fixed price of a PURCHASE - arbitrageurs will ensure that they do for sure).

I'm by no means confident that I'll sell enough to recoup the listing fees - but it's (in my view) an interesing enough experiment to warrant a 15 BTC risk anyway.  And the up-side isn't too terrible for me if there's good volume.  Like everyone else I can try to make profit by pitting my wits against the market in the pricing of the seperate elements.  And if noone else buys PURCHASE then what I lfail to recoup in management fees I can make back in margins in selling the two halves post-split.

fascinating. These structured products will finally allow for the market to price and illustrate what the equilibrium discount rate is for PMBs.