Why the Lindex keeps falling, and some potential fixes.

I've been pondering on that - what technical and emotional forces keep the Linden falling? I wonder if the motive isn't simple greed combined with poor system design.

We have people desiring to sell L$, either to pay tier or to take their profits out of the system. They also desire to do so *fast* (instant gratification and all that), so it's in their own self interest to price the sales equal to or lower than the current lowest rate - because that puts them at the 'head of the line' since the system automagically matches buyers with the lowest possible rate. (This can be seen graphically by examining the 'high/low/average' and 'trades in the last 24 hours' graphs.) It's also in the buyers best interest to quickly grab the lowest possible rate - because that reduces their real cost in terms of U$.

We also have 'the line' itself - which moves very slowly because sell orders never expire.

Combined, these two items force the Lindex ever lower - it cannot move higher for any significant period of time, because there are no restorative forces. It has nothing to do with the land glut, it has nothing to do with stipends.

I have a series of proposal that may help 'fix' the market.

1. Eliminate the free 'Good til Cancelled' sell order. All sell orders expire after 'x' (I suggest 6) hours, and LL collects the transaction fee, whether or not the transaction completes. For a cancelled or expired transaction, LL charges a fee of 1%. (A refinement would be to then apply the transaction fee to the stipend.)
   
2. Modify the buy system such that it matches the buy to sell orders no more than +/- 2 $L from the current market average.
   

Together these two proposals encourage trading nearer the current average, thus slowing the rate of the fall in valuation. They also discourage impulse selling and 'testing the waters'.

The only way to reverse the trend is to create natural restorative forces. In our toy economy, that's very difficult as none of the traditional forces will work well here. (LL cannot create jobs, and the need to cash out to meet tier or remove profits reduces drastically the incentive to move money into the economy.) Too many artificial sinks merely further reduce the incentive to keep the money in the economy.

A more radical proposal is this;

1. Eliminate the current currency trading tiers.
   
2. Limit currency trading to premium accounts.
   
3. Limit the amount traded per rolling 30 days to 1.5x of the average amount of tier you have paid per month in the last 90 days or $200, whichever is greater. (That is tier paid directly to LL, not to island owners.)
   

This encourages money to stay in the economy, encourages the payment of tier to LL, and invigorates the land market.

Why fix the LindenX when the problem is the Entire
Economy?

It requires less work to end stipends, than it does to
recode LindenX.

Just like I said in a previous post:






And that is just how Markets should work. Just like the current
Real Estate Slowdown. People put their home on the market for
US$700,000 and it doesn't move, but similar homes are still selling
for US$650,000. Which means the person asking US$700,000 can either
wait until the market to correct or lower the price to complete the Sale.

The same logic applies to the Linden Dollar. 'Cept some people around
here seem to think they have a "right" to a higher price and that market
dynamics don't apply to them for some reason.

Shock horror I agree with RBD. The exchange isn't broken, it's doing exactly what a market is supposed to be doing.

I like the idea of only premium account holders being allowed to sell L$ on the lindex. Make it so all members, basic or premium can buy L$ from the lindex, but only premium members can sell on the lindex

[/list]

So your radical solution is to prevent 85% of SL's users from being able to trade in currency?


Can someone explain to me where in the science of Economics it says that strangling fluidity is good for the market?

The moment non-premium members can't buy money is the moment the entire economy collapses. Thanks, but I'd really love it if my customers were actually able to buy my product without having to jump through expensive hoops.

edit: So we're clear: Leave Lindex alone. It's doing its job. Any changes need to occur through controlling sources and sinks in the currency supply, not by trying to command a market to do what makes a central planner happy. The moment Lindex stops being a useful place to exchange money is the moment that currency trade begins to flourish at less reliable 3rd party sites.

Of course, the real reason the linden is dropping is that the older residents are cashing out and leaving in droves. SL as a product has gone steadily downhill over the few years of it's existance. For example, it used to be I had no lag at all unless I went into a crowded club. For example, Now I get barely tolerable lag walking in an empty sim, just put on the market, with nothing in it; even when I am wearing a generic, generic skin, avitar with no attachments. No bling, no prim hair.

What would be the purpose of this restriction?

Honestly. I don't understand what this would accomplish. Is there some huge supply of Lindens being sold on LindeX through basic accounts that I don't know about?

And if there was, why would it even matter?. There's nothing special about the $L out of a basic's pocket that makes them have a greater inflationary effect than a premium's $L.

I don't understand why the market should penalize ME for the market's failure to provide liquidity at the price level that YOU say it should. This would take it even farther away from being a market than it currently is, and make it more of a classified ad than it is right now. I have a right to trade. I'm sorry, but most of these proposals are just in the realm of the utterly mind boggling.

Nice try, but that doesn't change anything. The Linden Dollars
are still stockpiling in the economy and will find their way into
the hands of the premium users to be sold.

Sadly, real markets are much more complicated than your oversimplified model above proposes. Houses sit for months, quite sellable houses, for many reasons other than being overpriced or the overall market being in a slowdown or slump.

For example, the house I am sitting in sat unsold for seven months, at the height of the bubble, despite being underpriced. Why? Poor ad copy and a poor design of the street frontage made it look *overpriced*. There was no incentive for buyers to step inside and examine the property to see it's real value. (My wife and I stopped in on a whim - and became the third and fourth people to actually visit the house during the entire period it was for sale.)


In real life markets the dynamics allow it to move both up and down - in our toy economy no corrective forces exist to allow it to move up. All the forces conspire to move it in a single direction, down. I'm not assuming a right to higher prices, I'm assuming the right to a real market. One with forces that allow the exchange rate to move in *both* directions.


One might ask the many market operators who routinely place roadblocks to control a feverish market. The NYSE for example.


It's job then appears to be to reduced the value of the $L to near zero.


Or to put it more simply "you simply don't understand the problem". If you read my post, you'll note that I said nothing about what constitues a desireable price level. If you read my post, you'll note I said nothing about the markets inability to provide liquidity.

What I *did* do was examine the forces acting on the market - and what nobody has done is to analyze that examination. Instead, they prefer to read into my words their own biases.

It's an intellectual challenge - examine the market and the forces driving it. Who is up to the challenge of thinking rather than simply repeating unproveable assertions?

In [post=952879]another thread[/post] the individual who quite likely is the largest single seller on the Lindex posts her experiences:



Her motivation (I need cash now!) and her actions (I must mark it below market!) precisely match the emotional and technical factors I identified in my initial post.

I believe, correct me if I'm wrong, that person sells their $L on their own site.

Hmm, no, not quite.

Actually, you said this, to explain how the market should penalize me for the market's own inability to fill my orders:



Then you said this this:



And this, to explain at what level YOU feel that *I* am entitled to liquidity, provided that any at all is available there:



You then went on to say this, to explain exactly, to the L$ penny, how much liquidity YOU feel that *I* am entitled to per unit of time:



In between, you said some other stuff about how the L$ price is declining. I don't dispute this. It's just the insane rigging of the market that I dispute. What you are essentially saying is that YOU should be able to dictate how much liquidity I'M intitled to, and YOU should be able to dictate a rigid valuation for currency, because YOU don't feel like adjusting your in-world prices as L$ price continues to march towards it's value.

Sorry, but the market is there for all participants. It is not the job of the market to cater to YOU. I have a right to liquidity also, and I don't feel like it's any good for ME to have MY trading levels CAPPED so that YOU can squeeze more money out of less L$. No thankyou! Wanna squeeze an extra buck? Raise your prices and get a few more L$. Put the squeeze on your own customers, not on me!

We all have a right to participate in the market, and frankly we should be able to buy and sell at whatever volume levels we're able to. In an ideal world, they'd remove the buying and selling limits per unit of time ENTIRELY. I can't tell you how many times I've had a land buyer tell me that they want this lot but they're at their LindeX limit, and I've had to arrange some type of off market solution to accomidate their L$ BUYING wishes.




Linden Lab has a new economist who seemingly is very much up to this challenge. Several residents are also very much up to this challenge. We are putting together a resident economic summit.

Securities != Virtual Currency



290/$1.00 != $0



What, you've got the monopoly on unproveable assertions?

Don't set up strawman arguments, Enabran.

At a fundamental level, Elde's argument was that the one-sided nature of Lindex (i.e. the absence of the ability to post buy orders) means there is a lack of a resistance mechanism to delay downward price movement toward a value of zero, which is absolutely true. The other ideas in the original post were, in my opinion, not the way to go. But there is some insight underlying the post.

Can I just ask if there's a (stated) reason why we can't place buy orders?

"It's in the works!"

Right. Sure.

Thanks Ricky ... hmmm obvious question is, why didn't they do it at the same time?

The answer is as obvious and glaring as the question. Once GOM's cooperation was lost, LindeX had to be out the door yesterday.

Ah. History is a good thing. At the time I joined Lindex had already started, so I missed that chapter. Thanks Shaun.

GOM *USED* to do that - wasn't it taken out though? (not GOM - that particular functionality within it)

It was there until the last day.

I used to be able to fill a sell order directly - irrespective of the price.. I beleive that was taken out for a 'best price' along with the selling in 'blocks' for a set price (a feature I liked about GOM)