LindeX gives room for competition?

I'm what I would call a casual L$ seller. I sell my excess L$ whenever I feel like it. I'm not really interested in what the value is, and just want to get the best possible price now. With the decline of L$, i've been more eager to get rid of it before it declines further. I guess I've been partly contributing to the decline of L$.

However, the decline of the L$, the closing of GOM and opening of LindeX has sparked my interest quite a bit. So I've been reading up, my head has been spinning, and I've even made a couple of spreadsheets to test ideas out.

One thing has struck me: The LindeX selling fee opens the room for competition:

The 3.5% selling fee on LindeX makes it impossible to make a profit for a day trader. The market doesn't move enough for that.

At L$280/US$ or better (lower), the fee will always be over GOM's max fee (US$0.12 per L$1K). The better the value of the L$, the higher the fee.

At L$280/US$, the fee is US$0.13 per 1KL$ you sell.
If the L$ goes all the way to L$200/US$ (US$5/1KL$), the selling fee is up to US$0.18 per 1KL$.
And lets go the other way around: If the value declines, say to L$500/US$, the fee is down to US$0.05 per 1KL$.


This means that LindeX will make more money per L$ handled if L$ value goes up. If we see it from a GOM perspective (their fee was fixed at the L$ sold, not the US$ value of it like LindeX), it tells us that GOM made more per US$ handled if the value of L$ declined. I'm shameful to admit that this outrageous question comes to mind: Was it in GOM's interest to lower the value of L$?

LindeX is obviously no place for a day trader. The current selling fee is too high. Even if they open for buy orders, the gap between buy and sell orders will be huge because of the fee, and drive down the value of L$ when casual sellers (like me) just want to get their US$ NOW. The current LindeX setup seem to keep the L$ stable, even increase it's value. At least from what I've seen so far.

As far as I can see there is room for other currency exchanges. I'm looking forward to see what SLExchange is cooking together. I wonder if they can get the volume they need to be a serious alternative for sellers. It could be possible if they provide buyers with cheaper L$ and sellers with more US$ per L$ sold. The current LindeX selling fee makes it possible.

And in light of my above observation, wouldn't it be best if the competition sets it fee fixed to the US$ sold, not the L$ sold? I imagine this will make sure all parties will have an interest in a stronger L$?


Comments welcomed!

I think the biggest entry barrier to any third-party LindeX competitor would be that which contributed to GOM's decision to close when they did. At present, grid-to-external communications are unreliable with no indication that they are intending to be fixed. There is even some indication that the live trial of LindeX is suffering from this unreliability as well.

It is theoretically possible to construct a reliable transaction layer upon even a very lossy communication channel so long as you have unbounded time. But most people who desire financial services don't want transactions to take arbitrarily long to reliably complete (or fail to complete).

Yes, "holy fees, Batman" indeed It's well possible to make an exchange using the Mass Pay and IPN features in PayPal that beat those fees by a comfortable margin. And guess what, that's what a number of people are preparing to offer, or offering right now.

I think that the effect of moving the exchange into the UI will drastically increase participation by people who think *EXACTLY* that way. It will also increase participation by impulse buyers who didn't want to bother with a third party site. The burning question in my mind is, which group wins?


No, the "benefit" from that angle is tiny. GOM made more money when more trades happened, so it was in GOM's interest to have a lot of trading going on. I suspect they were too busy just trying to keep everybody happy and detect/prevent fraud to think about their margin. If the implication that GOM itself would have manipulated the market, I don't see how. They had better information than anybody else, but that's it.

Buster

What i meant is that GOM had no interest of seing a higher valued L$. After all, the US$ we HAVE to withdraw from GOM is fixed with tier fees in US$. The difference in fees collected at US$3 per 1KL$ compared to US$4 per 1KL$ is 33%, with the same US$ amount sold. As GOM were making profit entirely from fees, a 33% increase in income can be a nice motivation for not wanting the L$ value to rise. Thats all.

Theoretically ? Unbounded ?

I would say "practically" and in fairly short time unless something in SL is temporarily broken.

The only problem is that timescales are of the order of how long a realtime avatar is willing to wait. But I am astonished that GOM confess to having lost many transactions a day, and cite the time taken for manual corrective action as a main reason not to go on with it.

Although the operation was (they state in the GOM forum) funding one full time salary. But not two, they complain. Sheesh.

I've been looking at a combination of xml-rpc and email, and a completely secure and reliable transport layer looks no problem , though with delays just a little more than one might like.

Perhaps there is some big problem I have not met. Which aspect makes some of you so much more pessimistic? SLExchange seem to manage ok, except for occasional non-delivery of inventory items. This being outside their ability to check.

Unless someone tells me different, my private opinion is that GOM's demise was actually due to an original weakness in it comms protocols, which was recently exposed by increased xml-rpc errors with which it was not adequately designed to cope. Demanding excess manual corrections, so extensive that even the one fulltime salary it paid rendered it not worthwhile. Maybe this is why LL were not so keen to pay through the nose for it, and why they can't say why?

My guess is GOM actually threw in the towel because its comms were too seriously flawed, and too big a task to correct without almost a re-start.

You confused me, could you please re-explain? GOM had fixed fees, so they would want volume of L$ sold, not really caring at what price. But LLX is charging 3.5% for any amount sold. So if they have higher prices, that means greater income.

First of all, they said that is was approching to having the ablity to pay one of them for full time work, wasn't there yet.

Looking at a completely secure and reliable transport layer looks easy, but have you tried it? I can easy look at things that should work, but don't. I have never had really good luck with any outside communication and the return communication, but I gave up.

If I spend two years on a project and then just as it was about to become worth while, and the rug get pulled out from under me, I would be upset too. All in all, it really doesn't matter what any of us think, it was Tom and Jamie that felt that the current business model was not working for them anymore, so they changed it. I can put out 1000s of person theories on things that I really know nothing about, but that will not make them right.

I suspect that 3.5% is to offset the cost of the credit card transaction. I do not believe this will be a profit center for LL.

Exactly. Volume. The lower the value of the L$, the more blocks (volume) we would have to sell to cover our tier fees. Hence, GOM made more with a lower L$ value. My own spreadsheets shows a 33% higher income for GOM at US$3 per L$1K than at US$4 per L$1K, with a constant volume of US$. If the US$ volume increases and the value goes down, it looks even better.
The real problem is that the fee is based on the L$ sold, but we pay it in US$. Lower L$=Pay more fees to get the same amount of US$.

So I was thinking that competing exchanges should have their fees based on the US$ made, not the L$ sold. That would ensure that they will make more if the value goes up, and it will help keep the currency stable.

Is the LindenX strickly set up to buy only with credit card? And if so why is the seller paying the buyer's CC fee? Or is it all PoS transactions are put on the seller but the price of the items purchased have been increased to pass this fee on to the buyer. Second...

Is LindenX going to accept Paypal as a means of buying Lindens? And if so will the same 3.5% fee also be charged?

I did a comparison yesterday just to get a better idea of where the fees were in reference to LindenX and GoM.

For simplicity I used the $4.00L/1000 GoM = $250L/US LindenX

Fees to sell $100KL on LindenX including Paypal transfer fee would cost $18.53 in fees. The same amount sold on GOM at the 6 cent tier lvl would have a $6.00 fee charge. This is $12.53 higher in fees.

Even tho I do not incur a paypal tranaction fee for having a basic acct I would still be charged the $5 transaction fee to have money sent from my LL acct to Paypal. I know that atm the transfers are being done manually so hopefully this will change once everything is stable.

I know LindenX is still in its infancy and am sure there will be lots of changes to improve it.

But if I use paypal, the seller still get charged 3.5%, even though the paypal fee is only 2.9%. To me that is .6% that seem unaccounted for. Also, what is the point of the .30$ fee for buyers, if the seller is paying for all the transaction fees?

Paypal's fee is 2.9% + $0.30, not just 2.9%. So the seller isn't paying the whole transfer fee, actually only a small portion. Of course this is only if the buyer is buying 1K lindens. The set rate + the $10 check or $5 paypal fees on large scale sales is what kills it for the seller and makes it pointless to sell anything less than large amounts of linden. They need to do away with the paypal transfer fee and work out a teir system instead of a fixed rate to make it worth while for the sellers. Only way I'd sell my lindens on LindeX the way it is now is if they put an option to credit your bill using the money you made on LindeX since thats my only reason for really selling lindens in the first place.

If you are referring to your SL acct its my understanding thats where your credit currently goes. The $10 check adn $5 paypal fee is if you want to move it from your SL acct to paypal or receive a check.

With partial buys there is no way to sell in large blocks since the buyer can buy any amount they wish to purchase. At least this is what i'm understanding.

Lindex has a 0.6% profit margin. This is near impossible to compete with on price.

That's how it works, they credit your bill with the money you made on lindex.

Ok, so let me get this straight - sorry, i'm not good with maths.. lol

If my hubby sold enough L$ to meet his tier payment, rather than the usual withdrawing to Paypal, then to the bank account and paying it off the CC, he could leave that money in his LX account and LL would take it directly to pay his tier ?

If that's the case, what would be the fees incurred ? i.e. how much extra than the tier amount ($199) would he have to have in his account to cover it ?

Sorry, I hope that made sense.

Nothing extra needed. The fees were taken when the L$ were sold. The US$ balance is after fees. Only extra fee is if he wants to cash out his US$ balance via PayPal or check.

Thanks Moonshine

Assuming for argument's sake that LL's credit card fee is 3.5%, and the Lindex fee to buyer is 3.5%, and a buyer buys $5.00 worth of Lindens. (This is all for argument's sake to illustrate the effect, so don't nitpick.)

Buyer pays $5.18, linden pays $0.18 in credit card fee, Linden gets $5.

Linden subtracts $5 from the sellers monthly fee, so the seller's next bill will be $4.95 (instead of $9.95). Linden pays 3.5% on that, so they pay a credit card fee of 0.17, Linden's net is $4.78. Linden now has $9.78.

If there was no Lindex transaction:

Seller pays $9.95 less 3.5%, which is $0.35 so Linden now has $9.60.

In a case where a currency trade shifts a charge from one resident to another, Linden is charging a fee to one resident that is not offset by a discount to the other. 3.5% profit on those trades, intended or not. (Assuming a 3.5% credit card fee, of course.)

Buster

Your argument is that they profit because they don't have to pay the CC fee for the tier payment.

Cute argument, I wonder how much that amounts to.


You can also add the interest rate they also earn on monies which are 'on deposit'.

5% on 1 million is 50K per year. I guess it could pay for someone's job. May be awhile before they get that much on deposit, though.

It amounts to the entire fee charged on every dollar that is charged to a buyer and subsequently credited to a seller.

The reason given for the 3.5% was to cover credit card fees. The credit card fees are a wash, though.

I don't mean to argue that the exchange is a profit center, because I'm sure they pay Lawrence. And perhaps others spend time related to it, and there will be administrative costs because of billing questions and snafus. I didn't say they were "getting rich".

But the argument that the 3.5% goes to credit card fees is wrong, because the CC fee to the buyer is offset by the reduction in the CC fee to the seller.

Buster

That's not necessarily true, though somewhat true.

For example, I pay 0 tier fees to SL (it's all rent to the middleman) .. so in my case, they're making only the 3.5% off of me to offset the buyer CC fees.

Being "somewhat true" is like being somewhat pregnant.

I did say, "In a case where a currency trade shifts a charge from one resident to another". (Meaning a credit card charge) In a case where they mail out a check or make a paypal payment, that isn't the case. (Although they charge a large fee for THAT, so the 3.5% is lost in the wash in that case.)

Buster

For a technical explanation of what was wrong with SL as far as GOM is concerned see this link from Jamie. It is very interesting in my opinion! Look near the end of the thread for the post that starts after a quote -

I would quote the interesting bits here but it is a little long for that.