The issue of Banks in SL.

If LL would spend more time in development than CNBC Interviews,
then maybe we could have a more Hayekian economy.

Then you will be the last to get on the boat when new features and
abilities make it possible and secure. Assuming the boat hasn't left
you behind. Although, that is what happens to most folks who fail to
visualize what could be possible and rather stick with the same unchanging
tools. Ohh well, somebody has to run the virtual antique shop.

I can think of two instances where have some kind of escrow service would be useful.

1. Adam and Baker want to trade pieces of land. Suppose whoever buys first, that person will be over his tier for as long as it takes the other to make his purchase. Even if he is over tier for a few seconds his tier bill for the entire month will increase. Edward Escrow could buy Adam's land (say) and hold it for a few minutes while Adam buys Baker's land, and then Edward would sell Adam's old plot to Baker, thus saving Adam this additional cost of tier.

2. Adam wants to buy a plot of land. Buying it will put him a higher tier. However, his tier bill is due tomorrow, so if he buys it today, the increase in his tier for this month will be based entirely on a piece of land he owned for only one day. Edward Escrow could buy the land, hold it for a day, and sell it to Adam after Adam has paid his tier for the previous month, and Adam would save the additional amount for this month.

For both of these examples, Edward Escrow will save someone a known amount of money, so it should be easy to set a reasonable price: say, 10% of the amount saved or something like that.

Then Edward Escrow has to do enough deals to use his entire tier at least 11 times each month to make any small profit at all, assuming ZERO currency depreciation over the course of a month. Realistically, he'd probably have to fill and empty his tier 12-13 times just to break even. Sounds risky to me. I'd love to see the results though. So when is your escrow service opening?

Oh wait. It's worse than I'd initially thought. Because you're only saving your clients the DIFFERENCE between two tier levels, you're getting 10% of the DIFFERENCE rather than 10% of the total tiering costs. In this event, probably a lot more than 13 deals which ENTIRELY fill your tier would be needed to break even. Maybe 30 or 40, each month.

1. I never said I was going to do this. I simply said this would be a useful service to have available.

2. Indeed Edward is going to have a hard time making any money if he buys tier exclusively to be used in this escrow service. On the other hand, if Edward has some spare tier, as many of is usually do, he could offset some of expense by offering these services. If he were paying L$40 a month for 8192 m2 (plus his 512 m2 freebie) but he only owned 7200 m2 of land, he could temporarily allocate up to 1504m2 at a time at no additional cost. The short term service that helps people trade land only needs his tier for a few minutes, so potentially he could do it many times a month. I have no idea if he could actually attract very much business.

3. Charging 10% of the amount saved was just an example. With further thought I realize Edward would probably want to base his charge on the length of time he holds the extra land. My main point was that the amount his client would save would be a known quantity that at least sets an upper bound on what Edward could charge.

4. A more complicated business would be to serve as a broker between people who would pay for these services and people who have spare tier.

5. Given the absence of any rule of law, other than what's hard-coded into the user interface and occasional interventions by the Lindens, I have no illusions that this would be an easy way to make any money in SL. Still, one of the roads to wealth is to go where great amounts of wealth is changing hands, and try to grab a little piece of it as it goes by. Thus, we have lawyers. Moreover, IRL, real estate and all the financial institutions involved in the transfer of property and money do pretty well following that model.

This sounds really well thought out. I think you should go for it!

The alternative would be for an existing land developer/barron with excess tier to pick this up as a side bussiness. I already know of at least one that "rents" tier to a group of your choice.

It would only be a slight difference for me to to go ahead and pay the same person the full purchase price of the land so that they can buy it upfront, then mark it for sail for L$0 or purhaps for the service fee to the person the land is being transfered to.

Please let me know what you all think of these. Please be happy to poke holes etc. I plan on opening shop real soon as Eldrich Financial of Neualtenburg Inc.

Problem: Alts. Mary, Edward, and Judy should prove they are not alts of the same avatar by holding premium accounts and showing clients 16m2 of mainland they own.
Problem: Bribing Judy Judge. That happens in RL too.
Problem: Non-premium accounts cannot own land. Solution: Co-sign with a vouching premium account holder.

Mortgages on Zoned Sim Land
=====================
-Bob Buyer wants to buy land from Simon Simowner but can't afford the purchase price.
-Bob can afford tier or "land use" via stipend or verifiable income to Mary Mortgager's satisfaction.

1)Bob & Mary sign a notarized promissory note.
2)Bob pays downpayment to Mary.
3)Mary buys land from Simon, pays tier/land use and collects mortgage payments from Bob.
4)When Bob has fully repaid Mary, Mary removes herself from the group.
5)Mary stops paying tier/land use to Simon.

Possible Outcomes
A)Successful transaction, Mary gains confidence in Bob's creditworthiness.
B)Simon sells the Sim. Bob and Mary lose their investment.
C)Bob defaults on payments and Mary forecloses. Bob is evicted and loses funds/equity. This is no different than failure to pay rent.
D)Mary takes payment(s) on time and then evicts Bob. Bob takes promissory note to 3rd party mediator Judy Judge who forces Mary to comply with terms of the note. Mary does not comply and Bob is repaid from Mary's escrow with 3rd party Edward Escrow.
E)Bob makes a few payments and decides to sell prior to paying off the mortgage.
E1)Bob negotiates a price with Charlie.
E2)Charlie buys from Mary at the negociated price provided it's greater than the outstanding mortage obligation.
E3)Mary gives the excess to Bob per the note.
E4)Bob goes to conflict resolution per D) if this doesn't happen.

Notes:
B)If the simholder sells, there are no guarantees. This is a universal problem and something to address.
This is different than RL because the Tier/Land Use is paid by the "bank". This is because SL doesn't have enforceable liens, or "deeds". Outside of NBurg there is no way to own land without being responsible for tier/land use.
The promissory note is signed using Nota Bene.
3rd party arbitator is specified on the note,e.g. Neualtenburg SC or SL Mediators.
Mary's company escrow (in excess of sum of all in progress transaction land values) is kept with a 3rd party ideally separate from the mediator.
Mary is not also Judy
Edward (ideally) is not also Judy

Value Proposition:
-Landowner Simon improves cashflow by selling for entire purchase price.
-Buyer Bob gains equity everytime a payment is made to Mary.
-Mortgage Holder Mary makes a modest profit by charging interest.
-Edward receives escrow service charge from Mary
-Judy receives service charge from Bob and Mary (split equally) if case needs to be adjudicated.

Mortgages on Mainland
================
-Bob Buyer wants to buy land from Larry Landowner but can't afford the purchase price.
-Bob can afford tier or "land use" via stipend or verifiable income to Mary Mortgager's satisfaction.

1)Bob & Mary sign a notarized promissory note.
2)Bob pays downpayment to Mary.
3)Mary buys land outright from Larry Landowner and adds Bob to group.
4)Mary pays tier to LL and collects mortgage payments from Bob.
5)When Bob has fully repaid Mary, Mary removes herself from the group and sells land to Bob for 0$L
6)Mary stops paying tier to LL..

Possible Outcomes, Notes, Value Proposition: See above

Loans
====
-Bob Borrower needs a $L loan
-Bob holds lands whose fair market value exceeds the loan amount. This is verified by Linda Lender

1)Bob & Linda's sign a notarized loan note.
2)Bob sells land (or appropriate subdivision) to Linda for the loan amount as security. Linda adds Bob to group.
3)Bob makes payments to Linda accounting for (collateral land tier + loan + interest).
4)When loan is repaid, Linda sells land back to Bob for 0$L.

Possible Outcomes
A)Successful transaction. Linda gains confidence in Bob's creditworthiness.
B)Bob defaults on some/all repayments. Linda removes Bob from group (evicts), end of transaction.
C)Linda does not return land to Bob (sell for 0$L) when last payment made. Bob takes loan note to Judy (see above).

Note: Cash loans were such high risk that they were unheard of except for the smallest amounts.

Value Proposition:
-Bob gets a $L loan.
-Linda collects interest on a reduced risk loan due to secured collateral.

Escrow:
=====
a)Land Trade (thanks Lee!)
-Tina and Tom Trader have no free tier and want to trade land.

1)Tina, Tom and Edward sign a notarized escrow agreement.
2)Tina sells to Edward Escrow at fair market value minus half of service charge
3)Tom sells to Tina at fair market value
4)Edward sells to Tom at fair market value plus half of service charge

Possible Outcomes
A)Successful transaction
B)Edward buys from Tina (#2) and refuses to resell to Tom (#4). Tina takes the note to Judy for half service charge refund.
C)Tom does not sell to Tina (#2).
C1)Edward sells escrow land back to Tina at original purchase price, transaction is aborted.
C2)Edward does not perform duty in C1. Tina takes the note to Judy for original purchase price refund.

Note: If parties trade unequal sized plots, it is in Tina's and Tom's interest to have the smaller of the two plots held in escrow by Edward.

Value Proposition
Tina & Tom both avoid tiering up
Edward profits a modest service charge

b)Land Reservation (thanks Lee!)
-Bob Buyer strongly desires a particular plot but doesn't want to tier up

1)Bob and Edward Escrow sign a notarized escrow agreement. Agreement can specifies default date when Edward can seize land.
2)Edward purchases desired land from Larry Landowner at price negotiated by Bob and Larry in the note.
3)Edward charges Bob a fixed amount per m2 per day for holding the land
4)Bob purchases the land from Edward at the note price plus service charge

Possible Outcomes
A)Successful transaction
B)Larry doesn't want to sell to Edward at negotiated price, transaction aborted.
C)Edward does not want to sell to Bob. Bob can optionally take note to Judy to be paid a seizure penalty.

Value Proposition
-Larry sells land more quickly at full purchase price.
-Bob obtains land for less than the cost of the land + tiering up.
-Edward profits from a modest service charge depending on how long and how much land is held.

c)Contract
-Cindy Contractor and Andy Avatar want to engage in a contract (goods and/or services)

1)Cindy, Andy & Edward Escrow sign a contract specifying conditions, dates and payments. A non-performance penalty is specified.
2)Cindy escrows the non-performance fee with Edward per the contract.
3)Andy escrows the contract payment with Edward per the contract.

Possible Outcomes
A)Both parties agree to performance. Edward refunds the non-performance penalty and the contract payment to Cindy minus the escrow fee.
B)Both parties agree to non-performance. Edward refunds the refunds the non-performance penalty and the contract payment to Andy minus the escrow fee.
C)Both parties disagree on performance/non-performance. Cindy or Andy take the note to Judge Judy for binding adjudication.
C1)Edward performs A or B something else (minus the escrow fee) depending on result of Judy's adjudication.
D)Edward fails to refund some/all of the escrowed funds. The offended party takes note to Judy for refund (see above).

Value Proposition
-Cindy is compensated for her work, risk is of non-payment reduced.
-Andy has work done for him, risk is non-performance reduced.
-Edward collects service charge.
-Judy collects service charge if services are needed.

Actually, it is very important. If your "bank" turns out to be an investment fund regulated by the Securities Exchange Commission, and has not complied with the various SEC regs, it may not only be closed summarily through a cease-and-desist order, but also incur for your management fines and penalties that exceed the thin capitalization of the bank. Even a successful defense of an SEC inquiry will incur legal expense.

And, if you are truly academics, why is the explanation a secret? Most academics I know are remarkably open about such matters.

Also, I always am leary of anyone who assures anyone that "all" laws have been taken into consideration. For two reasons: 1) "all" is a big number, which few legal scholars will warrant have been considered, and 2) "considered" does not necessarily include "complied with."

I agree that some independent confirmation from a NYU source would be important as part of any due diligence into your allegations of affiliation with NYU.

Frank

All valid points, so I'll try to address them.

Banking License: Neualtenburg has not yet offered banking licenses yet, but has set out a roadmap to obtaining them. In the meantime, I cannot offer licensed savings account from my Neualtenburg registered corporation. Here is the NB roadmap to licensed banking: /103/e3/91174/1.html (post #7)

Guarantees: We currently do not have insurance or reinsurance companies (that I'm aware of) in SL. That's an opportunity. The FDIC/Fed equivalent in SL is the escrow treasury of the Democratic Republic of Neualtenburg. The DRN (N'Burg) provides a certificate to the bank stating "Backed by the Full Faith and Trust of Neualtenburg for X $L". A consumer should look at that and check with the treasury to make sure of this. The reserve requirement specified in the banking license should reflect the added risk of SL, and be in the neighborhood of 50% or more. In our scenario, Eldrich Finanical of Neualtenburg, the Neualtenburg Guild audits our books every month on the 21st. simply as a function of being a corporation. A bank license holder would be under even more scrutiny. To see the monthly financials of Neualtenburg, check out: wiki.neualtenburg.info (financials & budgets).

NYU: The college kids might have negative net worth, but not everyone running financial institutions in SL is a college student. Most of our residents are middle aged, middle class professionals.

Teufel Hauptmann's bank never opened.

Yea, our software is still in beta. We've been testing it for a while, just to make sure all is well. We will be opening the project soon. Probably this weekend. I'll list it on "search" and put it on "advertise" once we open if you want to stop by for free drinks, lol. The name of the project is SL Bank.

Cheers

But I'm rich! Not. Some undergrads have lots of money from rich parents but most of us, especially grad students are broke. I'm about even as I have a day job

Neualtenburg is a great town and I think there may be some guy doing something similar to what you are talking about. I met someone who was trying to get me to open an account, but they had no atm or anything, you just did it in person with him. He said something about being backed by maybe Neualtenburg?

Anyways, Neualtenburg is a great town.

Cheers.

You have reliable funding in the form of a grant. SL is an avatar based world, there's really no way to prove my personal net worth, or my occupation in RL. Nor should there be. The challenge is to provide a trustworthy mechanism using current in world tools.

Eldrich Financial of Neualtenburg is the only Neualtenburg Registered Company in the financial sector at this time. I may be partnering with Lee Dimsum and have been working on a financial relationship with Midas Commons, who owns a Mainland bank.

I'm always interested to hear any news of your project and how it's progressing.

Thanks! -Pel

Have you ever thought of the feature to transfer money from one bank to another bank, similar to RL?

Hey guys,

I've gotten some IM's from a good number of you on the boards asking about the bank and trying to figure out if SL Bank has anything to do with people removing L$ from the LindenX. We are now open and we have had a GREAT response. Almost 100 open accounts in less than two weeks with total bank holdings of several hundred thousand Linden. This was higher than expected in such a short period of time, yet it is too small an amount to make any real difference in the value of the L$.

The increase in the value of the L$ and the slow in the devaluation has more to do with a rebound/balancing from the overly large loss of value found in the past few weeks combined with other factors such as stipend removal for basic accounts, a loss in referral bonuses for referrals of basic accounts, slow loss of "dwell" as well as some other monetary changes LL has made over the past few months.

The L$ should steady out over the next week or so and then slowly start to lose value again, but at a slower rate than before LL made these changes. This all depends on active user population growth, which depends on LL marketing and press coverage, etc. as well as LL ability to retain these new active accounts, thus keeping them "active" and thus demanding L$.

Hope this helps and stop on by and check out our new bank, which currently has the highest interest rates found in our online world and gives you an easy way to further diversify your in game portfolio.

Cheers!

My Bank will be the Ultimate Bank. A Reserve Bank for all Banks.
Once implemented, everybody will profit... Just a few more tweeks...

Congratulations and best of luck to you!

Teufel:

I discovered this website yesterday. I, like you, went to Stern, graduated a few years back, and am now working in finance.

My only advice is this: Some people do care about their L$ so do try to make a point out of service towards them, and try to be as transparent as possible. Confidentiality might not be in your best interest here. On the other hand everyone hides behind an SL name... so who is to judge? And maybe your clients just care about their money and not the experiment.

Changing topics. Your experiment is very interesting, here are some thoughts. I am guessing positive inflow of $ into SL overides outflow into RL. Therefore increasing money supply. This inflow would be correlated to the amount of PAYING members added to the game.

However:

- There are other sources of adding money into the game. I can purchase a strong quantity of L$, etc... therefore manipulating the exchange rate, and effectively inflating. That risk is completely unpredictable. With that said my guess is that with an expanding userbase this is less likely, as total amount of money will have increased, lessening inflationary threats.

- Technically inflation is a decrease in purchasing power. Now.. buying power of what? What statistics will u guys use? For what I have seen statistical data in SL is pretty scarce, so conducting any thorough experiment could be flawed from the start. And thats too bad because I'm guessing everything in SL is logged in one way or another.

- Now by backing up a L$ with a RL gain should be interesting. Anyway, I might be wrong, but I am not sure how this is necessary. I could understand it as a deflationary device, but with this you too would be undermining SL economy as it should be self sustained, and not manipulated in any way (no fed here... not even statistics for such to justify). As you know any single large withdrawal or deposit will effectively alter the exchange rate.

- I would not worry about bottom line risk, which could be a significant lack of demand, as with an increasing paying userbase this would be less likely.

- However, and this goes for all that expect to make money off SL: RL economies work because they are (REALly) productive, and exist because they are unavoidable.

Teufel good luck on your experiment. Thinking about starting a bank myself. Please keep me posted.

Cheers.

Teufel said:

"Interest on our portfolio has averaged 27.85%/year for the past 4.5 years, which is very high."

This is an outrageously high return in the real world, especially considering recent sluggish markets and, until recently, low interest rates. How on early are you beating the market by so much?

And it's not likely interest. No income-paying investment offers that sort of payout...

OIL