Auctions of $L1,000,000 blocks for the future

The concept of Linden Labs selling $L directly was talked about 9 months ago in the forum, so I thought I would talk about what I forsee as a possible creation method for the $L in the future. If Linden Labs decides they like the method of creating $L through selling on the Lindex to the point that they need millions of Lindens sold every month, then they may find the task too labor intensive to do themselves. I forsee the possibility of selling $L in large blocks as the land is sold at unlimited auctions. Linden Labs could make the task simpler on themselves in the future by holding auctions for $L in large blocks that speculators would buy to re-sell on the Lindex. The market would then be completely self-automated besides the task of keeping auctions available.

There would be an added benefit to Linden Labs with this method. If Linden Labs moves towards selling $L directly, then they will be losing the advanced US$ they received by people paying US$72 for money rationed out over a years time. The auctions would bring back some of this revenue for pre-purchased $L as the auction winners will likely buy more $L than the market will support. The market won't crash, because the $L was already valued with a bottom price of the auction cost, but the real users of the $L will most likely not need all the auctioned money immediately.

I don't think there could be any more stabilizing system than both land auctions and money auctions set at pre-determined prices. The land auctions could be justified as revenue for the use of land(hardware), and the money auctions could be justified as the Linden Labs "tax" for their service of providing a money-making platform. Instead of getting the latter revenue directly from the end-users, they would get money as the economy comes in need of a larger money supply. In the end the money supply would end up hovering around whatever price they set for the $L in the auctions. With the $L value where it is now, US$3000/$L1,000,000 would make sense as a starting auction price.

Normal residents likely wouldn't be affected any more than the anger the feel for being forced to get money immediately rather than the allowance they prefer to pay for.

Okay, now I'm just going to sit back, and see how many people would hate Linden Labs doing this, and how many people wish Linden Labs would do this.

I see it as a definite possibility.

This is a very interesting idea. However, it needs to be done carefully. If this were turned on without any checks and balances in place (the same way land auctions run), I would start bids on every single block available, one at a time, with a maximium bid of around 50% of FMV, and continue starting new auctions until I finally won some. Imagine the compound effects on L$ values if 50 or 60 people were doing this.

How would you propose to keep people with my bargain hunting mindset in check so that the economy doesn't suffer the concequences? Could this system be designed in a better way than the land auctions, so there isn't a glut of L$ similar to the land glut? Nobody is going to bid $3000 US on a money auction in this format.

People will only bid US$3000US when the $L has become too valuable. If the $L starts to rise too fast, then people will do arbitrage between the auction and the market till the arbitrage opportunity is gone. If the $L starts to fall in value too fast, then the auctions will stop until the currency volume has decreased enough in Second Life to bring up the value. If they don't go changing the price, then it is a self correcting system that lets the market decide how much $L needs to be in circulation rather than having a corporate employee guess how much money the market needs. Land has always returned to the same US$ value with the way land auctions work now. People tend to take the base level of the auction, and then add 20% for average peice of land. This makes sense, because a month's teir costs 20% the base price at auction. When the price falls, the average comes back up to this place. When it rises, the average comes back down to this place. You will never get rid of all fluctuations, but you can accurately predict the future value of an average peice of land. The way things are with the stipend is a constant down trend. With a base price, you know the $L always has pressure to return to the same point, rather than having to guess whether the latest Linden action has made down or up pressure. I basically like the land style of auction, because it switches the market to setting the supply of something rather than the price of something. The price of the $L is best left vibrating around a non-changing value.

Land auctions have a good record. There have been fluctuations when land barons get over-zelous, but the land has always crossed back to the average of 20% above the base auction price. You will never stop fluctuations completely, but knowing that the value of $L will come back to a certain price instead of falling to an unknown level is a good thing. Land has not spiraled down in values as the $L has. It goes up in price in $L, but it always comes back to the same price in US$.

To address your point, you could always have some regulation by Linden Labs limiting the number of auctions they put off in a month to keep the creation of $L from reaching an insane level. It wouldn't make sense for them to auction off 7000 blocks in one month, but the benefit of the land version of auctions is that the supply fluctuates to damper the value fluctuations.

The future is not known. Past performance does not guarantee future results. Etc, etc. I think they'd need to start the bidding at $1.00 in order to interest people in speculating on L$1,000,000 blocks. Then again, I've always been in favor of land auctions being started at $1.00 too, and supply regulation decisions being made by observing auction closing prices.

If US$1.00/1$L was their target, then I'd agree with you, but this certainly shouldn't be the case for unlimited auctions. It definately shouldn't be the case on auctions on something with a real lowest value like land, since it costs a real life value to buy the hardware to host land. If you are talking about very limited auctions, then the auctions will not convert the fluctions from price into more fluctuations in supply. The supply will increase as the people put it into their mind to be a source, while the price would fluctuate as supply and demand fluctuate. My whole idea is allowing the supply to wave along with demand to try to acheive a more stable price. It won't be a pin-point price, but it could be a price with shock absorbers on it.