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Offline starspirit

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Can development be funded from income rather than dilution?
« on: October 20, 2014, 07:54:13 PM »

The idea of a DAC is to be profitable and not burn value like bitcoin. Dilution must be regarded as an expense, and if it exceeds income, the DAC cannot be considered profitable, though that is arguable. Dilution is not always bad, but it is easily corrupted. While it can begin with good intentions and reasonable calculations and promote high growth at early stages, the access to 'free money' for a time can often lead to more and more whimsical decisions aided by a stock price that becomes more speculative on the back of each growth story, till it collapses. Thats not an inevitability but it is a danger.

If possible i think paying expenses from income is a better discipline. So i wonder if the following can be considered that might help avoid the need for dilution.

1) the DAC earns income from transaction fees. Can delegates apply this to core team development?

2) if more funding than this is required short term until DAC income builds, can a fund be raised for this purpose, with investors in that fund receiving a higher proportion of future DAC income for until a reasonable rate of return on those funds have been achieved. Such a fund would be akin to a non recourse loan.

These approaches would not lead to an unprofitable DAC.

In the end if dilution is necessary there should be strong rules upon it to limit the extent of capital consumption and uphold the integrity of all future decisions regarding it.

Offline roadscape

Re: Can development be funded from income rather than dilution?
« Reply #1 on: October 20, 2014, 07:57:06 PM »
Dilution isn't just to fund development, it's to allow capital infusion.

BM's proposal, IIRC, is to have a hard cap on dilution that would require a hard fork to change. And I believe each individual event would be voted on.
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Offline Rune

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Re: Can development be funded from income rather than dilution?
« Reply #2 on: October 20, 2014, 08:03:17 PM »
As long as the DAC is growing faster than the inflation, it will still be profitable. If a delegate uses inflated funds to bring more value into the DAC than he took via inflation, it will be profitable. If stakeholders determine a delegate to be unprofitable, he will get voted out immediately.

Offline starspirit

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Re: Can development be funded from income rather than dilution?
« Reply #3 on: October 20, 2014, 08:18:47 PM »
As long as the DAC is growing faster than the inflation, it will still be profitable. If a delegate uses inflated funds to bring more value into the DAC than he took via inflation, it will be profitable. If stakeholders determine a delegate to be unprofitable, he will get voted out immediately.
Surely if that were true it weakens BMs entire argument that bitcoin is an unprofitable DAC, because as long as its price goes up enough (which it has by orders of magnitude) then it must be profitable. It weakens the argument of why a DAC is different. Of course it could be argued the diffence is that the dilution adds value to the system rather than in the case of bitcoin where it could be argued it does not. But the market story shifts quite a bit.

Offline roadscape

Re: Can development be funded from income rather than dilution?
« Reply #4 on: October 20, 2014, 08:25:04 PM »
Surely if that were true it weakens BMs entire argument that bitcoin is an unprofitable DAC, because as long as its price goes up enough (which it has by orders of magnitude) then it must be profitable. It weakens the argument of why a DAC is different. Of course it could be argued the diffence is that the dilution adds value to the system rather than in the case of bitcoin where it could be argued it does not. But the market story shifts quite a bit.

What makes Bitcoin different is that its inflation is uncontrollable.

e: And it's used to pay for wasteful work
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Offline luckybit

Re: Can development be funded from income rather than dilution?
« Reply #5 on: October 20, 2014, 08:31:07 PM »
As long as the DAC is growing faster than the inflation, it will still be profitable. If a delegate uses inflated funds to bring more value into the DAC than he took via inflation, it will be profitable. If stakeholders determine a delegate to be unprofitable, he will get voted out immediately.

Agreed. There needs to be some consequences for board of directors who promise the world and don't deliver. We need ways to actually measure whether or not buying power is increasing, whether or not DAC profits are going up.

If you can increase the burn rate then you could literally save cash within the DAC itself and use that to pay for investment. So if you can increase the burn rate then you in theory could dilute by simply reversing the burn. This wouldn't affect the initial proportions of the DAC as the cap would still be in place.

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Offline starspirit

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Re: Can development be funded from income rather than dilution?
« Reply #6 on: October 20, 2014, 09:01:41 PM »
As long as the DAC is growing faster than the inflation, it will still be profitable. If a delegate uses inflated funds to bring more value into the DAC than he took via inflation, it will be profitable. If stakeholders determine a delegate to be unprofitable, he will get voted out immediately.

Agreed. There needs to be some consequences for board of directors who promise the world and don't deliver. We need ways to actually measure whether or not buying power is increasing, whether or not DAC profits are going up.

If you can increase the burn rate then you could literally save cash within the DAC itself and use that to pay for investment. So if you can increase the burn rate then you in theory could dilute by simply reversing the burn. This wouldn't affect the initial proportions of the DAC as the cap would still be in place.
This increases the need for transparent accounts of some sort. Eg DAC income, expenses, profit and loss, project expenses etc.

Offline Rune

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Re: Can development be funded from income rather than dilution?
« Reply #7 on: October 20, 2014, 09:10:33 PM »
As long as the DAC is growing faster than the inflation, it will still be profitable. If a delegate uses inflated funds to bring more value into the DAC than he took via inflation, it will be profitable. If stakeholders determine a delegate to be unprofitable, he will get voted out immediately.

Agreed. There needs to be some consequences for board of directors who promise the world and don't deliver. We need ways to actually measure whether or not buying power is increasing, whether or not DAC profits are going up.

If you can increase the burn rate then you could literally save cash within the DAC itself and use that to pay for investment. So if you can increase the burn rate then you in theory could dilute by simply reversing the burn. This wouldn't affect the initial proportions of the DAC as the cap would still be in place.

If we do not allow ourselves the flexibility that share dilution gives, we will be eaten by a DAC that will, such as VOTE. It's just common sense that a business that can issue stock to kickstart the network effect will destroy one that can't.

Offline luckybit

Re: Can development be funded from income rather than dilution?
« Reply #8 on: October 20, 2014, 09:23:38 PM »
As long as the DAC is growing faster than the inflation, it will still be profitable. If a delegate uses inflated funds to bring more value into the DAC than he took via inflation, it will be profitable. If stakeholders determine a delegate to be unprofitable, he will get voted out immediately.

Agreed. There needs to be some consequences for board of directors who promise the world and don't deliver. We need ways to actually measure whether or not buying power is increasing, whether or not DAC profits are going up.

If you can increase the burn rate then you could literally save cash within the DAC itself and use that to pay for investment. So if you can increase the burn rate then you in theory could dilute by simply reversing the burn. This wouldn't affect the initial proportions of the DAC as the cap would still be in place.

If we do not allow ourselves the flexibility that share dilution gives, we will be eaten by a DAC that will, such as VOTE. It's just common sense that a business that can issue stock to kickstart the network effect will destroy one that can't.

I'm for flexibility I just don't think it's as easy as it's being presented. This is going to be difficult not just in building the capabilities to do it but also in educating the shareholders.

We need the ability to vote.
We need reputation.
We need dilution.

But I think we need the ability to vote and reputation prior to dilution. If you cannot vote on infrastructure, if you don't have reputation so that there is accountability, then we have the same kind of risk you see with government politicians. Shareholders must be in control and there must be  performance metrics to track from within Bitshares X itself.
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Offline Rune

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Re: Can development be funded from income rather than dilution?
« Reply #9 on: October 20, 2014, 09:43:08 PM »
As long as the DAC is growing faster than the inflation, it will still be profitable. If a delegate uses inflated funds to bring more value into the DAC than he took via inflation, it will be profitable. If stakeholders determine a delegate to be unprofitable, he will get voted out immediately.

Agreed. There needs to be some consequences for board of directors who promise the world and don't deliver. We need ways to actually measure whether or not buying power is increasing, whether or not DAC profits are going up.

If you can increase the burn rate then you could literally save cash within the DAC itself and use that to pay for investment. So if you can increase the burn rate then you in theory could dilute by simply reversing the burn. This wouldn't affect the initial proportions of the DAC as the cap would still be in place.

If we do not allow ourselves the flexibility that share dilution gives, we will be eaten by a DAC that will, such as VOTE. It's just common sense that a business that can issue stock to kickstart the network effect will destroy one that can't.

I'm for flexibility I just don't think it's as easy as it's being presented. This is going to be difficult not just in building the capabilities to do it but also in educating the shareholders.

We need the ability to vote.
We need reputation.
We need dilution.

But I think we need the ability to vote and reputation prior to dilution. If you cannot vote on infrastructure, if you don't have reputation so that there is accountability, then we have the same kind of risk you see with government politicians. Shareholders must be in control and there must be  performance metrics to track from within Bitshares X itself.

We will get the stakeholder hard fork vote capability soon. Once we have that, stakeholders will vote on whether to implement the possibility for delegates to dilute. If that is accepted, then PTS/AGS will be bought out through some one time vested share system, and the name will be changed to BTS. Once BTS is stable, Adam from followmyvote will apply to be a diluting delegate for whatever salary he thinks is reasonable, and if he is elected by stakeholders, he will begin to implement VOTE functionality into BTS.

I don't imagine there being any other diluting delegates in the near future, unless the ability to work directly for a blockchain attracts some high profile developers from the crypto community, that are so universally supported by BTS stakeholders that they can also get in.

 

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