The Solution To Devaluation

To Linden Labs:


The way to keep the L$ from declining in value is to create the ability for
investment options within SL. If Linden Citizens can invest their L$ and
profit, they are more likely to keep L$ in SL than exchange it for US$.
This reasoning works in Real Life just as it would in Second Life.
Foreign Counties buy US$ denominated investments which force them
to purchase US$, pushing up the dollar in the process (ie: More Buyers
Than Sellers). The same possibilities can happen in SL.

Now how does SL get to that type of economy? The first step is to create
the ability for Organized Groups to become a type of Corporation which
issues stock. Then allow for the stock of these in-game companies to be
traded on an exchange in L$ dollars. The only trick would be to work out
an ability for "open books" to shareholders to ensure investment in a
company isn't backed by Enron Vapors. And allow those companies to
pay dividends on their stock.

Other ideas might be the ability for players to issue Bonds for land and
set a fixed payback rate and time frame. And allow for those Bonds to be
traded. Obviously, wondering if you'll be paid interest for your bond could
be a risk. But its a risk which could be weighted against a Bond Issuer's
ranking. Something which is ranked by the players. Something similar to
an eBay feedback ranking. Players like Anshee with a good history in SL
would be a 5-Star Bond Issuer, whereas SlickWillie who joined 2 days ago
and owns 512m2 plot is a 1-Star Bond. It might have a great interest rate,
but a dangerous risk.

In any case, without capital markets in SL to drive demand for the L$,
it will continue to decline and there is nothing that can be done to stop
the slide. If the Linden Gov't is taking any notes from this, it would be
wise point to debate at the next InterOffice Meeting.

We're pioneering this already at the Metaverse Stock Exchange. The most important role LL could take in this regard would be to work with residents to poineer trust mechanisims rather than re-invent a resident pioneered wheel. Let's not lose sight of the fact that this is OUR world and OUR imagination.

Folks, not to sound totally anti-LL here, but realistically, aren't you concerned that once you've set up and established your business model and proven successful, LL will just come along and take over the idea? There is historical precedent.

No. For various reasons I'm completely unconcerned about the possibility of an outright takeover. An augmentation is possible, but this sector of the economy is one that doesn't make a lot of sense for LL to be involved in.

I think these are good ideas on their own. The ability to form corporations and for corporations to issue shares makes sense to me.

I am constantly running into groups of people who wish to develop products together, but we do not because of the trust issue. LL needs to implement a solution to assist with the trust issue.

However, as a final solution to the exchange rate problem, I'm not clear this is it. What keeps people simply from converting the capital from share purchases to USD?

Fundamentally, the issue is a lack of confidence in the currency. People do not maintain large floats (they transfer to USD immediately) because they have little belief in the stability of the L$.

We sell our 100K L$ income today because it might only be worth 90K L$ tomorrow.

What we need to do is to increase confidence in the L$. Once we have done that, people will be less rushed to jump on the exchange and convert to USD.

There are a number of methods to do this, and they revolve around three approaches:

a) fewer stipend payouts
b) more sinks
c) structural manipulation (see "Encouraging users to increase their L$ Float")

My concern about solutions a and b is that they can actually *reduce* confidence in the L$. As people see an economy with less income for everyone and greater taxes, they generally get concerned.

The solution c, I think, has the most promise. By encouraging people to purchase and/or hold L$ in their account and to wait before converting it to USD, will provide the greatest bump to our confidence in the value of the L$ currency.

There are risks to c, of course, but I think they can be overcome by proceeding in a patient, thoughtful, and gradual manner.

The biggest and most profound risk is migration to other exchanges. As people can not find a liquid market in the Lindex, they migrate elsewhere.

There are solutions to this - for example, extra benefits to large volume sellers on the exchange. After you have sold (or bought) a certain amount of L$ you could be rewarded by something that external exchanges can not compete with.

Also, less cooperation with external exchanges. A hard tactic, to be sure, but one that is being played out for the benefit of the entire economy.

I think these are good ideas on their own. The ability to form corporations and for corporations to issue shares makes sense to me.

I am constantly running into groups of people who wish to develop products together, but we do not because of the trust issue. LL needs to implement a solution to assist with the trust issue.

However, as a final solution to the exchange rate problem, I'm not clear this is it. What keeps people simply from converting the capital from share purchases to USD?

Fundamentally, the issue is a lack of confidence in the currency. People do not maintain large floats (they transfer to USD immediately) because they have little belief in the stability of the L$.

We sell our 100K L$ income today because it might only be worth 90K L$ tomorrow.

What we need to do is to increase confidence in the L$. Once we have done that, people will be less rushed to jump on the exchange and convert to USD.

There are a number of methods to do this, and they revolve around three approaches:

a) fewer stipend payouts
b) more sinks
c) structural manipulation (see "Encouraging users to increase their L$ Float")

My concern about solutions a and b is that they can actually *reduce* confidence in the L$. As people see an economy with less income for everyone and greater taxes, they generally get concerned.

The solution c, I think, has the most promise. By encouraging people to purchase and/or hold L$ in their account and to wait before converting it to USD, will provide the greatest bump to our confidence in the value of the L$ currency.

There are risks to c, of course, but I think they can be overcome by proceeding in a patient, thoughtful, and gradual manner.

The biggest and most profound risk is migration to other exchanges. As people can not find a liquid market in the Lindex, they migrate elsewhere.

There are solutions to this - for example, extra benefits to large volume sellers on the exchange. After you have sold (or bought) a certain amount of L$ you could be rewarded by something that external exchanges can not compete with.

Also, less cooperation with external exchanges. A hard tactic, to be sure, but one that is being played out for the benefit of the entire economy.

Insofar as you think working with LL is likely to result in a fruitful relationship, I suggest you contact former "partners". I fear you may be forming your unconcern without sufficent data. And of course, you'll likely wind up in a "she said, they won't say" situation, but it is usually better to have more data and opinions than less when starting a largish endeavor. Even if - in your mind - you choose not to believe the other's reported experiences, knowing the experience in order to reject it ought still be preferred to not knowing.

You've been around long enough that I need not name names.

/wave

Your consideration of and thoughts on the discussion regarding this in "Towards a Theory for Enforcing Contract, Resolving Disputes & Incorporation would be welcome.

You may also want to consider the ongoingo discussion of the municipal corporation of Neualtenburg, which has municipal bonds and regular financial reporting usable for a commercially motivated corporation. Case Study of Neualtenburg and RFC

What I mean by augmentation is that it is perfectly possible for LL to do the same things that I am doing and cut into future prospects somewhat. What I mean when I say that I'm unconcerned about an outright takeover is that I will not close up. They'd need to ban me to get me to close up shop. Otherwise, I would continue to operate business mostly as normal. It's always been my hope that others who have already been "nationalized" would find some structure under which it still makes sense for them to return to mostly normal operations as well.

This is of course the right entrepreneurial spirit and a honorable attitude, but ... even though I don't know if you are interested in having other companies listed at your stock exchange, what would you think would happen if Linden Lab should open a "Second Life Stock
Exchange" (which I am not sure they are interested in doing)?

Just as a reminder: GOM was not closed by LL. Its owners decided to close because with LL integrating a competing platform in their website and probably soon into the client the outlook for their business changed dramatically. I guess their assessment of the situation was not wrong.

That makes three people (including moi) airing concerns about the potential of LL swiping your idea and making it their own. It's happened in the past, more than once. I myself have had an idea "implemented" into Linden Lab without even so much as a thank you (ever wonder where their current "Greeter" system came from? Look into Elf Clan news ancient archives. We invented the concept and the name). Not only have ideas been "used" by LL... but originators of those ideas were then forbidden to use them themselves (note LL Greeter rules that individual groups are forbidden to use the same methods). The ethics aren't just questionable... they're blatantly abusive.

Not only that, but LL sometimes doesn't even do the job. At one time, you could often visit the Welcome area and see a member of Elf Clan there, helping newbies become acclimated to SL. We only invited them to join Elf Clan if they showed specific interest; we were there to help, not drum up membership. Now, I don't know how long it's been since I've seen an LL Greeter at a welcome area. And considering the situation, we're sure not going to offer those services anymore.

LL made their own bed in this and earned this rep. I had nothing against them setting up a system to sell L$... if they would have done a better job than GOM. It would make sense that both LL and customers would profit by a more regulated flow of L$ directly from the company. Putting that power back in the hands of LL made perfect sense-- even if it caused GOM to go out of business. If LL had stated, "The GOM model is causing the L$ to destabilize, so we're setting up a different method"... I wouldn't have had a problem with that. That's just standard business. But to enter that field and basically duplicate the model created by GOM? To take over your customer's business using your customer's business model? That's highly questionable business practice.

I would think that anyone who would try to open a business on SL based on financial concepts rather than creativity (based on historical precedent), would be jumping into an already hot frying pan.

I think it sounds like fair competition.

Unless a business model is embodied into software or a machine and patented, and the model is either public or easily discerned through observation or "reverse engineering," its fair game. Otherwise, there would be only one cellphone company, only one discount store, only one mail order retailer, only one online auctioneer, only one direct seller of insurance, only one online stock broker.

That's how Wal-Mart basically took over Caldor's business. They worked the same business model better.

If the imitator can do it better than the original, that's good for the consumer, who gets better service or prices. Anything else would be a restraint of trade unjustified by the public good.

Sorry, Wayfinder, that is a kind of liberal interpretation of my post. While I tend to critize Linden Labs doings once in while I don't said - and don't meant - that LL is "swiping ideas and making it their own".

A currency exchange or a stock exchange is hardly a creative "idea". You know, you can see these institutions in First Life a lot. An it makes a lot of sense integrating some funtionalities like these into the Second Life platform. It has been discussed a lot if it would have been possible to integrate a resident created solution into the Second Life platform. I am not sure if this would have been applauded by all residents if Linden Lab had decided to go that way. Critisism for "favoritism" would have surely sprung up ...

LindeX in its current incarnation has some weaknesses (or "design flaws" if you like to call them this way). I am sure these will be fixed, though. That they are not fixed as fast as some of us would like to see it has an easy explanation: LL is a small company with very limited resources - and many customers with a lot of ideas where something must be fixed immediately or else ...

We are of course very interested. We received another listing inquiry as recently as Feb. 1 on our web forum, and are already following up on this privately. There are a few things that I need to get done platform-wise before we can go ahead with another listing. If the situation seems to be "a go" after we've had a chance to talk with them, however, I'll shift into high gear on those and it shouldn't take too long.

We've also spoken with someone recently who is interested in the possibility of opening a seperate VC firm to fund startups, but working closely with us at MSE towards the goal of securities listings. I probably don't even need to say how excited we are at MSE to see virtual VC beginning to emerge!

From where we're sitting, 2006 seems to hold the promise of being a pretty exciting year!



MSE does have plans on the books for such an eventuality. We are thrilled to take note in this thread of the fact that other residents share our concerns regarding there being SOME possibility that LL may make a move towards attempting to nationalize the emerging capital market. We agree that it should never occur that the government attempt to sieze resident business, and are disturbed by the thread starter's seeming notion that this is "ok". It is PERTICULARLY disturbing when the government attempts to nationalize institutions, such as forex, securities exchange, etc.

I can't get too much into our disastar planning for the obvious reason that it would allow the government to implement end runs around it. Rest assured, however, we have not failed to do our planning for this situation. We have absolutely no intention of fading into the night if the situation does come up. Simply duplicating us won't do the trick. Buying us probably wouldn't work either.



Personally I enjoyed using GOM and feel that is a shame that they chose to close up, rather than continue to add value and attempt to compete. I can't fault them at all for doing what they did and I'm sure that they did it for reasons that make perfect sense regarding their situation, goals, etc. As you're probably aware though, there are a lot of problems with the LindeX.

It is mind boggling how slow Linden Lab, with its full-time programming staff, has been in implementing something as simple as BUY ORDERS on LindeX. It is also amazing how long they sometimes take to process USD transactions. WHO out there wants to wait a week for your money? There are pleanty of other critisisms that I could list here, but in short, there may be room in this market for not the "bigger" alternative or the "only" alternative, but the "best" alternative.

It would be great if GOM would come back in the future, bigger and better than ever. Who could blame them for not choosing to though in light of all that they've been through? There is also the hope that some other group of residents will rise to the occasion and create a virtual forex platform which transcends LindeX.

This is heresay, but it is from a source that I'd trust to look after my child, thus means highly trusted by me. As I'm reporting what someone else showed me, you have every reason to take it with three or four grains of salt.

This nameless player was asked by a Linden for a specific piece of code because the Linden thought it was groovy. The player declined. The code is now in the Library section of your inventory and has more than 99% of the characters in common with the original, particularly the comments. This is not definitive proof of anything, but it sure smells bad; what is worse is that the code was not all that complicated nor interesting.

As has been amply documented in these forums, GOM indeed chose to close up their L$ exchange because a mechanism that they had depended on for ATM transactions was broken by a certain release. After a month and a half of hand processing all transactions manually to guard against the broken LSL causing loss to their customers, GOM decided that it simply wasn't worth it when they had a) been asked by LL to bring their services to SL, and b) LL declined to provide any support their putative partner. There are those who have cause to disbelieve GOM; such is their right. However, this is not a case of "he said, he said" as LL declined to publically comment on the matter at all. Epistemologically, when faced with one story claiming ill-conduct of another, and no refutation at all by the second party, my personal inclination is to believe the told story rather than the untold one.

There is a somewhat related anecdote which shows how "partnerships" in this industry are handled. Linden Lab originally used the DirectSound component of Microsoft's DirectX to handle their sound. LL had to switch to FMOD because they - like many other firms - found Microsoft completely unhelpful with errors.

I would be very hesistant to make substantial investment of time or capital into a venture hitched to LL's caprice. That is my decision based on my derived view of LL's conduct, I can certiainly understand someone holding a radically different view, but I don't think it is well supported by the evidence available to me in these and other similar relevant "partnerships".

It would be fair competition if they weren't doing so against their customers. As it is, it falls into the category of monopoly; taking unfair advantage of internal power to put others out of business.

Would be if it was your post I was referring to. It wasn't.



Well, it comes back to the point that when you're charging premium prices for a service, people expect premium delivery.

Also, not sure I'd call 8 million in investment capital "very limited resources", nor the amount of money they pull in fees every month as limited resources.

Second Life is one of the most expensive online environments going. It shouldn't be surprising that people expect a certain amount of performance within a certain period of time. How long has 1.7 been out now and we're still experiencing excessive texture rezzing problems? A lot of other things have been fixed yes, but a lot of things are also being done that are not essentials... while essentials are ignored. All people really expect I think, is reasonable response to customer needs... and a cessation of what has often in these forums been referred to as "knee-jerk decisions".

I like a lot of what I've seen LL doing lately. I dislike a lot of what I've seen them do lately. After being here more than a year, landowner tools are still grossly underpowered, group officers still don't have the simple function of being able to contact all their group members at once or send out a group newsletter, and griefers still run rampant while innocent victims are banned for defending themselves.

Off topic I know, but really, even a company with limited resources could have addressed such things long ago.

There's something I'd like to see someone try: open a market buying/selling L$ at a flat $4 / 1000. Know what might happen? If sellers have a shred of sense, they'll all abandon LindeX overnight. Why sell on LindeX for $3.45 / 1000 when you can get $4 elsewhere? The buyers would then abandon LindeX because well... no L$ available there any more. And suddenly we'd have a stable market.

Of course, there's always the chance that someone at LL would be smart enough to convert LindeX to do the same thing and take the market right back... but at least it would be fun to watch what happens. : )

My only misgiving overall, is that some sellers would be silly enough to stick with LindeX even when they could get more for their L$ elsewhere. There are always those who lack basic common sense. sigh. But I would hope that the majority of the big sellers would jump ship and as a result-- the market would stabilize fairly quickly.

I hate to agree with you in this Int... but I'm sad to say I must agree with you in this. I've seen too many instances of underhanded not-for-the-good-of-customers decisions to take any other position. I've never held to the corporate-first philosophy. I've never believed that the way to conduct business is to deal unethically with your competition. What some people consider to be "fair game" in business-- I consider to be foul play.

"If you do your neighbor dirty in order to succeed-- you've already failed."

For this to work, you first have to convince the buyers to buy $L at US$4.00/1000$L at a third party site when they can get the same thing for cheaper at the Second Life for cheaper. What seller in their right mind would ever go to such a site, when there is no reason for any buyer to ever go there. It is no different than placing a US$4.00/1000$L on the Lindex today. It will not get filled for months if ever.

I already covered this. If all the sellers moved to the new site (because they'll get more for their L$) the buyers would be forced to move as well. Buyers have nothing against paying $4 / 1000 for L$; they've paid more than that before. They'll go where there are L$ to be purchased and if no one is selling at LindeX, yeah, they'll go to a third party to do business.

It won't work mind you. LL will shut them out faster than you can blink. It was just a nice fantasy. The economy is already being hurt by LindeX (numerous posts currently on these forums echo that concept). The question is... who and when is anyone going to do something about it? To be truthful, I'd love to see LL do something about it (and I think they're working toward that). But like another user pointed out, they seem to take forever to do anything, and then often do it only halfway or in ways totally different than what people really need.

I feel like you want to treat the symptom and not the problem. Say that there are people who want to pay their teirs tommorow that when added together need 7M$L, but buyers only want 5M$L no matter what the price. 2M$L will be left over unsold costing the people that need to pay teir money out of their banks. The next day you can have a whole other set of people that want to sell 7M$L along with the 2M$L people still want to sell while the buyers still only want 5M$L. This isn't happening at these exact magnitudes, but this is happening. The reason the $L goes down in value is that there are often more sellers than buyers. This will happen whether or not there is a variable rate. The reason there are probably more sellers than buyers is that the amount of $L in circulation per person is going up all the time. Everything goes up and down in value. A set price does not stop that, it just makes things more inefficient. When IGE offers at set prices, they still have to either stop buying at times or lower their prices. Sellers will always sell cheaper if they need a sale now.

What you fail to realize is that the market is not always controlled by the sellers. The sellers only control the market when people want more $L in a time period than sellers need to sell in that same time period. In Second Life where Linden Labs puts new money into circulation all the time, the buyers will not need as many $L as the sellers need to sell. People are not selling cheaper just because they want to as a whole. People are selling, because Second Life costs real life US$ to run a business in. When you need to sell today or else, you have no choice but to sell cheaper than everyone else. If you make a set rate, you take away my ability to do that unless I do it through some other means. This means there will always be a place that opens up where the daily desperate sellers can actually get their $L sold, because buyers don't always need as many $L as people sell. Every $L sold at a cheaper rate will slow your system with the set rate down. Why would someone buy at the higher price when they don't have to.

You have only "covered this" if the $L are going to be rising in the first place. If $L are rising in price, then the sellers start to control the market as people search for places to get any $L at all. The only time your idea works is when buyers need more $L, than people need to sell in the same time period. Otherwise, people will always find a way to give people discounts on their $L from the proposed 4US$/1000L$ rate.

I don't think this would obtain the desired result; my opinion of the ethics of LL is no secret in this thread. Indeed, Philip Rosedale has said that they don't and won't print "money" and that LindeX is a pure player to player transfer. However, I'm not sure I believe that they aren't printing L$ at present, or if they are not doing so now, that they'd hesistate to do so should they believe it advantageous for any of a number of possible reasons.

There is no one to whom they need show their accounts, and there is would be simply no way that anyone would ever be able to determine if they were not keeping to their word on the money supply.