Author Topic: Economics on BTS 101 : Market cap is not our wealth to spend easily  (Read 12787 times)

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Offline starspirit

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How do we define revenue?  I have defined it in the past as transaction fees paid; however, that is a narrow view.    What is our product?  It is more than just transactions, it is BitAssets.   Every BitUSD sold and not returned (covered) is pure profit as far as shareholders are concerned.  In fact because of the collateral requirement every BitUSD sold and not returned is the moral equivalent of burning $3 USD worth of BTS.   If all of our product is returned and BitAssets go to 0 then we have massive losses, but if people hold and trade our product then that is pure profit.    So based upon these numbers we have $3M in "profit" on a $50M market cap or a PE ratio of 6 and that is just counting USD.     

So I think it would be reasonable to measure the profit/loss of BitShares based upon the outstanding value of all BitAssets. 

While technically a BitAsset is a loan and in theory gets paid off resulting in neither profit nor loss; it is merely a matter of perspective when you have a rotating and growing line of credit that is well collateralized.   

I hereby propose we account for BitAsset creation as "sales" and destruction as "returns" and therefore we have earned $3M in revenue in the last Quarter by this metric.
I think it is good to have new perspectives, and I agree that income can go beyond just receipts. I think what you are proposing though is like a broker or bank calling their segregated client cash accounts profit or capital of the business, when in fact it cannot be employed or distributed by the business without a major breach of trust. The BTS are not available for the block-chain to burn, because they belong to the bitAsset holders (as part of their backing) and the shorts (as their stored collateral).

Offline BldSwtTrs

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You are wrong.  If a company sells shares to raise capital the MarketCap would grow proportional to the increase of cash reserves on the balance sheet and the share price would stay flat (in a perfectly efficient market). 
I am afraid you are wrong on this one.
If a company sells shares to raise capital the book value would grow proportional to the increase of cash reserves on the balance sheet and the share price would decline (in a perfectly efficient market), and the market cap would remain the same.

Share price only increase if earnings per share increase. If they are more shares for the same earnings, share price drops.
« Last Edit: December 02, 2014, 12:32:27 am by BldSwtTrs »

Offline donkeypong

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Side note: I would like to ask, why Bytemaster, Stan, and Toast have 100% delegates? If I3 has a huge chunk of BTS, shouldn't this be divvied out as payment until it is exhausted and then start dilution for payment? I am not talking about the BTC, I am talking about the BTS acquired through the PTS donations. If you began to pay this out to those who want to be the "100%" delegates it would also help decentralize faster.  I know the 100 or 300 million you guys have looks nice for a bonus when price rises to $1.00 per, and it helps you vote the people you want in but if you are planning on just holding those forever, I think it's not such a good idea for the concept of decentralization. I am pretty sure you have not divvied these shares since you still pull a 7-9% weight in voting people in and out.

Your numbers are wrong:  I have 95M BTS of which 30M BTS is already earmarked for certain marketing milestones and thus cannot be touched until those milestones are not met by the deadline.   That leaves us with ~65M which ~30M will be paid to the core developers as end of year one time bonus and the remaining 35M will be retained to cover misc expenses such as accounting, lawyers, office space, and taxes.       

Starting next year the "Core Developers" will be taking the pay of a SINGLE delegate position which is about 20% of what they are worth.   You don't want us to hold out giving them their bonus because that would centralize trust and result in a large additional tax liability which wouldn't be good for anyone. 

We started wit a total of ~120M from the PTS Angel address.  ~25M has been divided between Chinese and US marketing teams for operation budget and incentives. 

Quote
The one thing a lot of you are confusing is that the crypto markets are in some way as efficient as Wall St. They are not and this is why the Market Cap is inflated with the dilution of new shares. If this market was as liquid and efficient as any stock traded on the NYSE, AMEX or NASDAQ, the share price would never go up and most likely continue to drop because shares are continually being created out of thin air in the form of dilution and market cap would stay the same. If you have ever seen a stock dilute shareholders, the market cap doesn't all of a sudden rise because you are adding more, it usually will stay the same and price per share will drop so the new share count equals the previous market cap.

You are wrong.  If a company sells shares to raise capital the MarketCap would grow proportional to the increase of cash reserves on the balance sheet and the share price would stay flat (in a perfectly efficient market). 

If the company burns the capital and produces nothing of value then the MarketCap will fall back to where it was to start with but the price per share will be down.
If the company uses the capital to produce something of greater value then the MarketCap will rise even more and the price per share will go up.

Conclusion:  Dilution that produces more value than the value of the diluted shares increases the Price Per Share. 

Challenge: Determine whether or not more value is being produced than the value of the diluted shares.   This is what the market is estimating/pricing.

BM, I'm confident that you're 110% honest, humble, and dedicated to BitShares' ultimate success.

Though I would give a BitUSD penny to know those target prices and deadline dates. 

Offline bytemaster

Side note: I would like to ask, why Bytemaster, Stan, and Toast have 100% delegates? If I3 has a huge chunk of BTS, shouldn't this be divvied out as payment until it is exhausted and then start dilution for payment? I am not talking about the BTC, I am talking about the BTS acquired through the PTS donations. If you began to pay this out to those who want to be the "100%" delegates it would also help decentralize faster.  I know the 100 or 300 million you guys have looks nice for a bonus when price rises to $1.00 per, and it helps you vote the people you want in but if you are planning on just holding those forever, I think it's not such a good idea for the concept of decentralization. I am pretty sure you have not divvied these shares since you still pull a 7-9% weight in voting people in and out.

Your numbers are wrong:  I have 95M BTS of which 30M BTS is already earmarked for certain marketing milestones and thus cannot be touched until those milestones are not met by the deadline.   That leaves us with ~65M which ~30M will be paid to the core developers as end of year one time bonus and the remaining 35M will be retained to cover misc expenses such as accounting, lawyers, office space, and taxes.       

Starting next year the "Core Developers" will be taking the pay of a SINGLE delegate position which is about 20% of what they are worth.   You don't want us to hold out giving them their bonus because that would centralize trust and result in a large additional tax liability which wouldn't be good for anyone. 

We started wit a total of ~120M from the PTS Angel address.  ~25M has been divided between Chinese and US marketing teams for operation budget and incentives. 

Quote
The one thing a lot of you are confusing is that the crypto markets are in some way as efficient as Wall St. They are not and this is why the Market Cap is inflated with the dilution of new shares. If this market was as liquid and efficient as any stock traded on the NYSE, AMEX or NASDAQ, the share price would never go up and most likely continue to drop because shares are continually being created out of thin air in the form of dilution and market cap would stay the same. If you have ever seen a stock dilute shareholders, the market cap doesn't all of a sudden rise because you are adding more, it usually will stay the same and price per share will drop so the new share count equals the previous market cap.

You are wrong.  If a company sells shares to raise capital the MarketCap would grow proportional to the increase of cash reserves on the balance sheet and the share price would stay flat (in a perfectly efficient market). 

If the company burns the capital and produces nothing of value then the MarketCap will fall back to where it was to start with but the price per share will be down.
If the company uses the capital to produce something of greater value then the MarketCap will rise even more and the price per share will go up.

Conclusion:  Dilution that produces more value than the value of the diluted shares increases the Price Per Share. 

Challenge: Determine whether or not more value is being produced than the value of the diluted shares.   This is what the market is estimating/pricing.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline Shentist

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Market Cap or not - this is not a bitshares only problem, but a problem with every asset in the world.

only purpose of the bitshares ecosystem with bitAssets will give everyone to sell in big junks BTS, but this is the reason we are all here?

why would i want to sell now? i don't see a reason and the daily trading volume is high enough - compared to other top 10 crypto coins/shares.

Offline NewMine

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The one thing a lot of you are confusing is that the crypto markets are in some way as efficient as Wall St. They are not and this is why the Market Cap is inflated with the dilution of new shares. If this market was as liquid and efficient as any stock traded on the NYSE, AMEX or NASDAQ, the share price would never go up and most likely continue to drop because shares are continually being created out of thin air in the form of dilution and market cap would stay the same. If you have ever seen a stock dilute shareholders, the market cap doesn't all of a sudden rise because you are adding more, it usually will stay the same and price per share will drop so the new share count equals the previous market cap.

Side note: I would like to ask, why Bytemaster, Stan, and Toast have 100% delegates? If I3 has a huge chunk of BTS, shouldn't this be divvied out as payment until it is exhausted and then start dilution for payment? I am not talking about the BTC, I am talking about the BTS acquired through the PTS donations. If you began to pay this out to those who want to be the "100%" delegates it would also help decentralize faster.  I know the 100 or 300 million you guys have looks nice for a bonus when price rises to $1.00 per, and it helps you vote the people you want in but if you are planning on just holding those forever, I think it's not such a good idea for the concept of decentralization. I am pretty sure you have not divvied these shares since you still pull a 7-9% weight in voting people in and out.

Offline arhag

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Every BitUSD sold and not returned (covered) is pure profit as far as shareholders are concerned. 
Yes. Unlike starspirit, I agree with this statement.

In fact because of the collateral requirement every BitUSD sold and not returned is the moral equivalent of burning $3 USD worth of BTS.
No. Like starspirit, I disagree with this argument based on collateral requirements that says buying and holding BitAssets leads to 3x growth in BTS compared to buying and holding an equivalent value of BTS. The 2x margin provided by the BTS bull who went short on BitUSD already was effectively locked up (as in not selling for fiat) because the bull liked their exposure to BTS and wouldn't want to reduce it. Whether people hodl it as a BTS long or lock it as part of the collateral in a BitUSD short position (which they can exit whenever they want), that choice shouldn't have an effect on the price of BTS. So, my opinion is that the collateral ratio requirements are irrelevant to how outside demand for BitAssets affects the growth in the price of BTS other than changing the leverage for shorts and thus their propensity to short. If anything increasing the collateral ratio requirements could hinder growth because the lower leverage may lead to less shorts and thus less BitAssets lent into existence at the price feed (which according to my analysis produces the asymmetry in which outside demand for BitAssets purchased with fiat leads to an increase in the price of BTS after arbitrage).

Offline bytemaster

All value is perceived value.  Our spending limit is the average daily buy volume not market cap.   More specifically the amount of money flowing in. 

A rising market cap indicates an inflow of capital and thus the creation of value. 

Increasing revenues 4x should result in more than 4x gain in cap. 

Speculators average in all market data including revenue and adoption

Market cap does not represent the cash value of the system.   If we were to assume 100% shareholder approval to auction off a 90% dilution over 3 months you better believe we would raise more than 10 million at this stage.

So , you're saying if a start up company can access to big funding , they will always do well on the market and earn big money ?
Because I saw a lot of these examples , not many of them do well in the end . They burnt though the VC money , and , the end .

It's dangerous to think you can always get what you want by spending what you feel right .
That's also the reason why credit cards don't allow you to spend the credit on investment even if you feel like it's a solid one .

As long as the expected future value continues to grow you can tap new capital.  The market prices the future into the present.    So if todays workers cause the expected future value to grow by more than the expected future value of their pay then I think we can say it was profitable.   Fortunately the market prices that into changes in the PRESENT VALUE of the shares.

How do we define revenue?  I have defined it in the past as transaction fees paid; however, that is a narrow view.    What is our product?  It is more than just transactions, it is BitAssets.   Every BitUSD sold and not returned (covered) is pure profit as far as shareholders are concerned.  In fact because of the collateral requirement every BitUSD sold and not returned is the moral equivalent of burning $3 USD worth of BTS.   If all of our product is returned and BitAssets go to 0 then we have massive losses, but if people hold and trade our product then that is pure profit.    So based upon these numbers we have $3M in "profit" on a $50M market cap or a PE ratio of 6 and that is just counting USD.     

So I think it would be reasonable to measure the profit/loss of BitShares based upon the outstanding value of all BitAssets. 

While technically a BitAsset is a loan and in theory gets paid off resulting in neither profit nor loss; it is merely a matter of perspective when you have a rotating and growing line of credit that is well collateralized.   

I hereby propose we account for BitAsset creation as "sales" and destruction as "returns" and therefore we have earned $3M in revenue in the last Quarter by this metric.   
« Last Edit: December 01, 2014, 04:43:00 pm by bytemaster »
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Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline btswildpig

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All value is perceived value.  Our spending limit is the average daily buy volume not market cap.   More specifically the amount of money flowing in. 

A rising market cap indicates an inflow of capital and thus the creation of value. 

Increasing revenues 4x should result in more than 4x gain in cap. 

Speculators average in all market data including revenue and adoption

Market cap does not represent the cash value of the system.   If we were to assume 100% shareholder approval to auction off a 90% dilution over 3 months you better believe we would raise more than 10 million at this stage.

So , you're saying if a start up company can access to big funding , they will always do well on the market and earn big money ?
Because I saw a lot of these examples , not many of them do well in the end . They burnt though the VC money , and , the end .

It's dangerous to think you can always get what you want by spending what you feel right .
That's also the reason why credit cards don't allow you to spend the credit on investment even if you feel like it's a solid one .
这个是私人账号,表达的一切言论均不代表任何团队和任何人。This is my personal account , anything I said with this account will be my opinion alone and has nothing to do with any group.

Offline xeroc

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If we were to assume 100% shareholder approval to auction off a 90% dilution over 3 months you better believe we would raise more than 10 million at this stage.

Bytemaster said "if". 
This is a hypothetical, pedagogical example for illustrative, educational edification only!
   
:)
However, that example comes with the requirement that shareholders approve and this requires a set of published goals and methods.
This would certainly fail with a closed behind-the-doors approach .. wouldn't it?

Offline bytemaster

All value is perceived value.  Our spending limit is the average daily buy volume not market cap.   More specifically the amount of money flowing in. 

A rising market cap indicates an inflow of capital and thus the creation of value. 

Increasing revenues 4x should result in more than 4x gain in cap. 

Speculators average in all market data including revenue and adoption

Market cap does not represent the cash value of the system.   If we were to assume 100% shareholder approval to auction off a 90% dilution over 3 months you better believe we would raise more than 10 million at this stage. 

For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline cass

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Offline Ben Mason

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Offline btswildpig

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I think the biggest problem in this area is the lack of understanding between the East and West.  I think it will be hard to communicate about the delegates from the 2  and so each side will be a little bit less trustful of the other side.  I'd like to see as many Chinese delegates and I assume Chinese community would do a good job vetting them.

I'm talking about a economical situation in general .
Weather a delegate is capable and weather he can bring actual value to the system is two different thing .
The major concern is not vetting the delegate himself , but vetting the position and potential value for the system .

If this guy is good , do we want him ?  Oh wait , let's see , the system already has 2 great guys are doing things in the same direction , can you joint them instead of applying a independent position ?

If this guy is good , but what he does can only gain value for the system maybe after 1 year or so , do we want to pay him to gamble the future ? We should think about it , and if we want to gamble , we'll vote for him .

If this guy sounds bad , but what he propose may actually gain value for the system in big time , do we want him ?

Votes can only be worth something if the ones voting it are thinking from every aspect .
Every company has votes , good employees at some point , but not every one of them survived .
By voting , we are not just voting for a person , we're voting for the future and direction of the system .

If everyone thinks "it should not be any doubt to vote for somebody" , then what will we become ? 
If we lost the power or incentive for even a single doubt , then what is the voting for ?

My position is that anyone who was doing valuable work or looks like they might have a decent proposal to something should be given the chance.

Which delegate proposals are you against?  It is really all a judgement call and I might very well agree with you on a particular case.

I've never said vote in anyone.  I do think that there is a lot more to be lost by being very demanding for what amounts to part time job for most Western countries. This is especially true when you are drawing from a pool of known Bitshares supporters.  Some will not provide enough value, some may provide value 100 x what they were paid.

This changes a lot later on.

People will be motivated to vote out bad actors quicker than they'll vote them in.
+5%
I do not know how to explain this but it is 'that the minimalistic (conservative) view is not the way to go.'
I am pretty  sure that if we vote 70 possibly good choices, we will have 5 delegates that produce 100x the value... and this will way outweigh the 10 bad actors, that we will vote out in 3 mo. or less.

70 full paid delegates ? It's a wishful thinking , esp. if the price go up like stan expected by 4X .
Then you'll have 3000USD*4*70=0.84 million USD in salary a month .

You think if the price goes up 4X , the revenue in the system will go up 4X ?  Nope , the salary will still be taking out of the the market cap by the factor of 20X . Unless those 70 full paid delegates can raise the revenue by 4X their salary , 4 months later , we'll still having this conversation .

25-30 full paid delegates is what stan expected if the inflation rate maintain at 1-2% a year .

btswildpig can I check my understanding....if we have many fully paid delegates but demand fails to grow straight away, then we may have too much BTS coming onto the market due to salary collection.  Therefore we should balance the need for value creating delegates that are paid against the growth potential / demand for BTS that would pay for them and also think hard about the mix of delegate type (marketing vs coding etc.)  Delegates can't collect value that isn't there.

So we need a strategy that can be suggested to the community to help guide our voting practices or we could end up taking out too much value from the network before the delegates actions have had a chance to increase the value of the network. 

Delegates could commit to holding their BTS (is this proovable?) which would limit the role to those that didn't need the income.....

I for one have no intention of "cashing out" the BTS I'm earning. While I will be making regular withdrawals in order to limit the effects of someone somehow hacking my delegate server and gaining access to the funds, I will not cash out for fiat. I will use those funds for bounties and paying for services relative to my projects, and am also considering converting parts of it to a bitasset, USD/GOLD/EUR.

But I'd like to reiterate that I will not be taking value out of the system in any way nor adding selling pressure relative to fiat.
+5% +5%
这个是私人账号,表达的一切言论均不代表任何团队和任何人。This is my personal account , anything I said with this account will be my opinion alone and has nothing to do with any group.

Offline svk

I think the biggest problem in this area is the lack of understanding between the East and West.  I think it will be hard to communicate about the delegates from the 2  and so each side will be a little bit less trustful of the other side.  I'd like to see as many Chinese delegates and I assume Chinese community would do a good job vetting them.

I'm talking about a economical situation in general .
Weather a delegate is capable and weather he can bring actual value to the system is two different thing .
The major concern is not vetting the delegate himself , but vetting the position and potential value for the system .

If this guy is good , do we want him ?  Oh wait , let's see , the system already has 2 great guys are doing things in the same direction , can you joint them instead of applying a independent position ?

If this guy is good , but what he does can only gain value for the system maybe after 1 year or so , do we want to pay him to gamble the future ? We should think about it , and if we want to gamble , we'll vote for him .

If this guy sounds bad , but what he propose may actually gain value for the system in big time , do we want him ?

Votes can only be worth something if the ones voting it are thinking from every aspect .
Every company has votes , good employees at some point , but not every one of them survived .
By voting , we are not just voting for a person , we're voting for the future and direction of the system .

If everyone thinks "it should not be any doubt to vote for somebody" , then what will we become ? 
If we lost the power or incentive for even a single doubt , then what is the voting for ?

My position is that anyone who was doing valuable work or looks like they might have a decent proposal to something should be given the chance.

Which delegate proposals are you against?  It is really all a judgement call and I might very well agree with you on a particular case.

I've never said vote in anyone.  I do think that there is a lot more to be lost by being very demanding for what amounts to part time job for most Western countries. This is especially true when you are drawing from a pool of known Bitshares supporters.  Some will not provide enough value, some may provide value 100 x what they were paid.

This changes a lot later on.

People will be motivated to vote out bad actors quicker than they'll vote them in.
+5%
I do not know how to explain this but it is 'that the minimalistic (conservative) view is not the way to go.'
I am pretty  sure that if we vote 70 possibly good choices, we will have 5 delegates that produce 100x the value... and this will way outweigh the 10 bad actors, that we will vote out in 3 mo. or less.

70 full paid delegates ? It's a wishful thinking , esp. if the price go up like stan expected by 4X .
Then you'll have 3000USD*4*70=0.84 million USD in salary a month .

You think if the price goes up 4X , the revenue in the system will go up 4X ?  Nope , the salary will still be taking out of the the market cap by the factor of 20X . Unless those 70 full paid delegates can raise the revenue by 4X their salary , 4 months later , we'll still having this conversation .

25-30 full paid delegates is what stan expected if the inflation rate maintain at 1-2% a year .

btswildpig can I check my understanding....if we have many fully paid delegates but demand fails to grow straight away, then we may have too much BTS coming onto the market due to salary collection.  Therefore we should balance the need for value creating delegates that are paid against the growth potential / demand for BTS that would pay for them and also think hard about the mix of delegate type (marketing vs coding etc.)  Delegates can't collect value that isn't there.

So we need a strategy that can be suggested to the community to help guide our voting practices or we could end up taking out too much value from the network before the delegates actions have had a chance to increase the value of the network. 

Delegates could commit to holding their BTS (is this proovable?) which would limit the role to those that didn't need the income.....

I for one have no intention of "cashing out" the BTS I'm earning. While I will be making regular withdrawals in order to limit the effects of someone somehow hacking my delegate server and gaining access to the funds, I will not cash out for fiat. I will use those funds for bounties and paying for services relative to my projects, and am also considering converting parts of it to a bitasset, USD/GOLD/EUR.

But I'd like to reiterate that I will not be taking value out of the system in any way nor adding selling pressure relative to fiat.
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