Could "Stipend Farming" be influencing the Exchange Rate ?

Found a miscalculation.
Redrafting posts 1 and 4
Back soon as poss.

Ignore for the time being.

Post 2 Practicality of Organising a Farming Operation

First, the practicality. I find from practical experimentation that LL are banning the creation of additional accounts on the basis of no more than about 3 (though they say 5) per credit card, and no more than about 3 per address.

Lets assume that the typical farmer, not recruiting armies of helpers, can rustle up 3 addresses, and put 5 credit cards on each. So he runs 15 farming alts.

Thats my baseline farmer. Probably very few could double that, and many would run a half-scale operation.

Is there a way of operating on a much bigger scale ?

Well, perhaps there was, but with the creation of Lindex, maybe a loophole has closed.

This is because a credit card can now be charged by the alt with cash withdrawals at any time, whereas before it was exposed only to Linden initiated subscriptions.
No - I'm wrong - it was also exposed to avatar-initiated tier charges.

Why am I discussing the vulnerability of the card to its avatar? Because the only way I can see to scale up farming is to use other peoples cards and addresses. Other unrelated people who lack total trust in the farmer, and are unwilling to expose anything more than a single initiating subscription payment, for which they will have been rewarded.

I come up to you in the street (an internet cafe? Online chat room?). I offer you (say) US100 to create me an SL avatar with a single US$72 annual subscription payment. I never see you again. Unless this is a card you will discontinue tomorrow, you will not proceed unless you know for certain that nothing I can do will charge your card ever again.

This I cannot promise. Indeed with the advent of Lindex, I could withdraw cash from your card at will.

What other way can the card-lender be made safe ?
Now we come into unknown territory. What if immediately the annual subscription is paid, and before handing over the password, the card-lender changes his card details on the SL website?

What will the system accept ? Does it check ? Can he invent an entirely fictitious card ? Can he provide one of the farmer's valid cards which is otherwise banned, or will this flag up the true owner of the avatar, and reveal the scam ? We do not know.

What we can say is that no potential card-lender would be able to assess his level of risk to further card charges without a full understanding of SL's operations. And no card farmer would surely substitute his own card details because of the high and uncalculable risk of exposure, expulsion, and losing all his multiple annual subscriptions, let alone the risk of revealing his details to the card-lender so that he can enter them in.

I conclude that a farmer cannot scale up his operations by involving unrelated card-lenders, unless they are idiots, or about to abandon their cards. If the farmer had access to stolen cards, he would have bigger fish to fry than puny little SL scams.

Close relatives who trust him, yes - perhaps to the level of two or maybe three times the baseline 15 alts, but no more.

Scaling up by the farmer creating and then abandoning lots of credit cards is not helpful either, due to the addresses restriction.

I conclude that my baseline farmer, with his 15 alts, is a good average representative, and that there will be so few who get above, say, 40 or 50, that they will not damage conclusions reached from that calculating on that baseline as an average.

Post 3 The Economics of a Farming Operation

The costs, rewards, risks, etc.

An annual subscription, paid up front, costs US$72, and gets you a total of L$26,000. But it takes you a year to get them, and heaven knows where the exchange rate will be.

If we put in a little correction for the cost of "borrowing" to get that $72 upfront now, my spreadsheet brings it up to US$73.8.

This gives us an effective exchange rate of $2.84/L$1000 block (GOM-talk).

Close enough to Ricky Zamboni's 2.88.

But remember that if the farmer sells on the exchange at this rate all his effort described in post 1 is void. He makes not a cent. He needs an exchange rate higher than this.

If the farmer unloads onto the exchange regularly, this is what income one alt will give him per month, calculated for a few different exchange rates.

exchange rate and income in cost per block and US$

2.84 0.00 0.00
3.00 0.35 5.25
3.50 1.43 21.50
4.00 2.52 37.75
4.50 3.60 54.00
5.00 4.68 70.25

First column is exchange rate in US$/block.
Second is the monthly US$ income from a single alt.
The third column is the monthly income of my typical farmer, running 15 alts and selling their stipend.

So let us ask - how secure is this income ? What are the risks the farmer takes to get it ?

Risk 1: LL punitive action.
If LL decide to act against farming, then they could confiscate all his assets, losing him potentially a maximum US$72x15 in advance subscription ie US$1080. This is his maximum stake at risk.
But of course they have to catch him.
What can he do to minimise the risk?
He has to avoid his alts associating with each other. He cannot pool the money with one, and have a single monthly selling spree. Each has to sell separately, taking up more time.
Annual subscriptions are probably fairly unusual, and LL could easily scan for those with no other activity than selling L$. He would need to plat each alt now and again, and make a few token object purchases. More time wasted.
With these time-consuming and tedious precautions biting into his effective hourly rate of pay, his risk of losing badly is probably low.

Risk 2 : Exchange rate fluctuation.
His income is totally dependent on an exchange rate well above the 2.84 below which he begins to operate at a loss. His scam must last for a whole year to reap its full reward, and no prediction that far ahead can possibly be reliable. In the event of early termination the number of months he has to have operated to break even is dependent on the exchange rate. I cant be bothered to calculate the table, but it is a risky business and he might sensibly conclude he might not get to run the whole year, and factor that in.

Risk 3: LL change the rules
All the calculations of value assume stipend unchanged for a year. Most unlikely, and indeed the very circumstances which would increase the value of farming (climbing L$ value) are precisely those pressuring LL to reduce the stipend

So what income (and therefore what exchange rate) would you need to think these risks, and this effort, worth taking on ?

It surely couldn't take you less than 4 hrs a month to administer, let alone all the initial messing about with cards addresses and signons. Probably more like 2 hours a week minimum, if you need to play each of 15 alts a little to avoid suspicion. 10 mins each is more than that, and you need logon time.

Lets assume 6 hours per month. Assuming that almost anyone can find RL work at US$6 per hour, then below a guaranteed minimum exchange rate of US$4/block (income $37.75) it would surely not be worth considering.

Who could guarantee, or even sanely rely on, that being averaged for the next year ? If you trust LL's powers of economic control, you might make it, but only just.

My conclusion is that this farming operation needs a high-risk investment of over US$1000 for the typical farmer, and is close to worthless in income even then. Only just scraping up to acceptability if the exchange rate allows you to sell consistently above $4 per block long term.

Looks like a very poor game indeed to me. My guess is it would only make any sort of sense as a small sideline in an operation also involving land use, and gainfully employing the tier allocation of the alts. The farming business in isolation is rubbish.

As an extra, lets see how much it would help to use the land tier.

15 alts give land tier of 15x512 = 7680 m.

What is that worth per month - how much could it reduce the tier bill on an existing operation? Biggest value would be on a smallest operation, so lets assume that.

US$40/month will buy you 8192m. So you could save that if you would otherwise be paying it.

This ups our farmers monthly income figures a lot, as follows.
Again, exchange rate on the left, income from 15 alts on the right.

2.84 40.00
3.00 45.25
3.50 61.50
4.00 77.75
4.50 94.00
5.00 110.25

Hmm - looks much better - maybe income just worth having right down to exchange rate 2.50.

But your risk is even higher, because on punitive action from LL you now also have your land assets to lose, and presumably some sort of associated business which must have value. Land value now also at risk about 8000x5 = L$40,000. Double with the business, so maybe about another US$300 made liable to possible confiscation at current values.


Nevertheless, lets assume people want to take the risk, and try to estimate how many people might be doing it, and whether it could be influencing the exchange rate. Next post.

Post 4 The Likely Size and Influence of Farming in SL

Ok - can we estimate just how much of the money converted to US$ is traded from these sources, and thus ultimately priced to match farming economics ? Is it enough to influence the market ?

Having now seen the numbers, I am going to assume no-one would be so stupid as to run a farming operation without using the benefit of the associated tier. I shall therefore take as my baseline farmer someone running 15 alts in association with an annual premium subscription, and a landholding of at least 8192m which he uses effectively either for pleasure or (more likely if he thinks farming worthy of his time) for gain.

Lets look at the current size of the market, and see how many farmers we might need to influence it.

Over a long period, GOM seemed to be running about 2500 blocks per day, and Lindex is already at or above that level.

Assume 17500 per week.

Further assume ( and this could be argued) that at least 10% of these blocks would have to be from farmers before the market was significantly influenced by their pricing economics. So we need 1750 blocks per week from farmers.

Each alt will provide half a block. So we need 3500 farmers alts in play to have an influence.

At 15 per farmer, that is 233 farmers.

If there are likely fewer farmers than these, then I think we can assume their economics will have little influence.

Could there be this many ?

These farmers are also landholders, and Lordfly estimates there are 4400 of them
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Lets assume 5000 premium land holding accounts.

At our present rate of growth at least 1000 of these would be too young and innocent for this nefarious practice, so say 4000 potential farmers. Forget it - stick at 5000.

If there are 233 actual farmers amongst them, each counting as 15 persons, then
15x233 + N = 5000, where N is the number of non farmers.

3495 of these accounts would be farmers and their alts.
N = 1505, so there would be only 1505 non-farmers.

We conclude that to significantly influence the market we would need 233 people to be farming (and farming vigorously, with an average 15 alts), which would be 69.9% (3495/5000) of the entire land owning population. ERROR -correction being calculated.

This is utterly ludicrous. Surely no-one reasonable could ever accept such a figure. 70% of landowners each running 15 alts ? Never.

And yet any less number would constitute less than 10% of the exchange market, and have negligeable influence.

So it doesn't really matter what their pricing economics is - it will have no influence regardless. My posts 2 and 3 were unnecessary to determine market influence, though interesting in demonstrating the highly marginal value and high risk of a farming operation. Worthless alone, and even with full use of tier, not much good as an actual profit generator below about $3.50/block, because of the extra risk to your land.

My guess is that there might be a some people running a rather less risky 5 or 6 alts just to help out with their existing tier cost, but most will be deterred from considering even that by the US$360 (5x72) upfront subscription cost.

If 10% of landholders would be willing to run 5 alts, that is 357 people (since 5F +9F = 5000).

Sounds a bit high, but not wildly out. Though most likely the selling of the stipend on the exchange would not be the primary purpose, since the tier benefit dominates, so perhaps this isn't technically "farming" at all.

Post 5 - Conclusions


1. Farming on a really large scale is not technically possible due to LL constraints and to trust issues.

2. Farming is risky, needs investment, and is too long-term and vulnerable to exchange rate changes to be worth much effort purely to raise cash income.- unless the exchange rate consistently climbed to unforeseeble levels, in which case the stipend would undoubtedly be cut back and limit the income.

3. Farming may have value as a small scale and therefore less risky adjunct to an existing landholding and business. Maybe 10% of landowners ie about 350 people. But perhaps the need to pay several upfront annual subscriptions would halve this figure again to 150 or so.

4. Market size considerations tell us that farming cannot possibly be going on at a level large enough to influence the exchange rate. It would need 70% of landholders averaging 15 farming alts each to achieve a big enough effect.


So there is my final answer:

The market is too big to be significantly influenced by any farming activity there could possibly be. Even small-scale sideline use of alts with annual subscriptions (for tier rather than just for L$ sales) is likely to be limited to a couple of hundred people or less

lol ellie, looks like you're off reviewing your model

just wanted to request that when you are done with the longer explanation and analysis, could you include a 1 or 2 paragraph "in conclusion" post?

selfish of me, but i'd prefer to read your final conclusions first before diving into your backup