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Offline starspirit

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Are there other funding models to pay for development?
« on: June 16, 2015, 03:50:06 AM »

So basically what we are saying is that the level of dilution that is considered acceptable for a currency (in competition with Bitcoin etc) is not sufficient to fund the level of development we are aspiring to. And as a result the cost of that development needs to be defrayed across multiple networks through CNX licensing out that technology.

But have we exhausted all the ways in which the development could be internally funded?

Below I've just brainstormed a bit on internal funding approaches to open what might be an interesting and curly discussion about these and other ideas people might have. They are not mutually exclusive, and they do not necessarily preclude the CNX/license approach either - possibly some of these could be complementary.

I'm not recommending any of these approaches right now, as they come loaded with enormous philosophical arguments about what bitShares really is or might be (e.g. startup business, currency, something else...). I can guarantee the community would be up in arms on just about any of these approaches! So nobody get their knickers in a knot  ;D

1. "Equity dilution" - What if we gave up on the notion that BTS is like a currency? We could treat it more like a startup business. First we would need a clear profit model for our core products - that is, how will these be monetised and what could they be worth. Then, there would be no reason why we could not dilute $2m worth of shares in a year, if we thought that was the investment required for the project to deliver a revenue stream well in excess of this down the track. If the market embraces the direction of the business, capital gains should more than exceed the dilution.

2. Investment Loans - What if we borrowed from the market for investment purposes, effectively leveraging the business? For example, we issue $2m USD loan tokens to the market, paying say 25% pa (or a market-determined rate), repayable in 2 or 3 years. Payment is made at expiry by the block-chain diluting the necessary value of BTS shares. If the business has invested well, the market cap should have risen by much more than $2m. If there is not sufficient equity for payment, loans may need to be rolled if the market is willing, or else default terms would kick in.

[A side point on approaches 1. and 2. which treat bitShares as a start-up business. Eventually when the business revenue exceeds the need for investment, the business would no longer need dilution (from equity or loans), and would be self-funding through profit. And ultimately when the business builds a decreasingly risky utility-like income stream, it could be bid up to the point where the yield is quite low and the main utility of BTS is as a currency. This could be an alternative path to eventual currency status.]

3. Project equity - Development projects could be privatised as far as possible, where there is a clear revenue stream possible. Developers can either take the risk themselves, share it with a group of backers, or take a salary and pass it all to the backers. At a granular level, it may even be possible that any modules accepted into the core protocol could receive a revenue stream from its direct use, or use by other modules.

4. Donors - there may simply be people that would like to donate to the cause and evolution of bitShares. This could be for their own philosophical reasons, or perhaps they may hope to get network advertising or other benefits from it.

5. Other??
« Last Edit: June 16, 2015, 03:51:41 AM by starspirit »

Offline tonyk

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Re: Are there other funding models to pay for development?
« Reply #1 on: June 16, 2015, 04:48:49 AM »
 I have actually always known it, but have never quite put a finger on it.

But issuing new shares is not a method to fund a company. It can be at best a tool to achieve the desired funding, but you need other, arguably more important elements to achieve an actual funding of a company (or a DAC).

To achieve the actual funding you need one indispensable element - you need someone to wait on the capital investments he made, before asking for his returns! In other words asking for the money back at the moment one contributed is not funding.

This waiting process can have different forms of course:
-If it is employee being the actual person funding and he is receiving shares in the company as compensation - He must not cry "Ohh if I sell my shares now I cannot pay my rent, it is not enough"....In other words the employee must have the desire, ability and financial resources to wait for his returns, for this to be actual funding. Otherwise it is simply diluting your company shares by issuing new worthless paper.

-More often than not, the above funding model is not to be expected by an ordinary employee. So, we need somebody providing actual funds (actual green papers that pay for stuff like food and shelter)... and willing to wait for its returns on investment.




The CAPITAL is the greatest moving force in this great thing called capitalism. Capital comes in many different forms of course but the one universally useful in practically all conditions is in the form of actual money....


In other words the above is more or less an argument against hundreds of post claiming that by including dilution/new share issuance BTS was the first to discover a self funding blockchain....Because it did not...

It simply 'discovered' the self diluting blockchain, Agent86

[edit]
...and bytemaster, although I think you already even know that or you are just a step away from knowing it...

« Last Edit: June 16, 2015, 04:53:20 AM by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline klosure

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Re: Are there other funding models to pay for development?
« Reply #2 on: June 16, 2015, 08:08:35 AM »
A lot of good ideas in this thread

1. "Equity dilution" - What if we gave up on the notion that BTS is like a currency? We could treat it more like a startup business. First we would need a clear profit model for our core products - that is, how will these be monetised and what could they be worth. Then, there would be no reason why we could not dilute $2m worth of shares in a year, if we thought that was the investment required for the project to deliver a revenue stream well in excess of this down the track. If the market embraces the direction of the business, capital gains should more than exceed the dilution.
As tonyk says in his reply, dilution can support funding only if the investor and recipient of the diluted shares agrees not to sell his holdings until there is a real market to absorb the sales. The investor can bring either capital or sweat equity. In the first case, we can try to attract investors by auctioning OTC a large position at a price significantly lower than market price under condition that the investor commits not to sell for a specific amount of time. The second case can be implemented easily with a minor change to the delegate model: instead of simply specifying a pay rate, delegates would also specify a vesting schedule as a simple percent-per-day selling cap. For instance, a delegate specifying 0.1 percent-per-day vesting effectively agrees to let his position vest over a period of 1000 days, or ~ 3 years. Developers will therefore be voted in not only based on their profile but also on their willingness to accrue equity versus cash flow.

2. Investment Loans - What if we borrowed from the market for investment purposes, effectively leveraging the business? For example, we issue $2m USD loan tokens to the market, paying say 25% pa (or a market-determined rate), repayable in 2 or 3 years. Payment is made at expiry by the block-chain diluting the necessary value of BTS shares. If the business has invested well, the market cap should have risen by much more than $2m. If there is not sufficient equity for payment, loans may need to be rolled if the market is willing, or else default terms would kick in.

This is also a great idea that only BitShares is capable of implementing at the moment and that would add a whole new dimension to BitShares: credit. The problem of credit is that it requires trust and that's a hard problem to crunch. But the specific case that you propose doesn't have this drawback because the borrower isn't a user but the network itself. Since the network can't run away or make misrepresentations and it's financial health can be readily evaluated at any moment it is a pretty good counterparty for a lender. The network could issue bonds like governments issue bonds. Bonds would be denominated in bitAssets or BTS depending on the use case, pay a coupon monthly and be traded on the market so that lenders wouldn't even need to be locked in a fixed term commitment but only accept the risk that they could suffer a loss if they sell before maturity at a time where the price is low.

3. Project equity - Development projects could be privatised as far as possible, where there is a clear revenue stream possible. Developers can either take the risk themselves, share it with a group of backers, or take a salary and pass it all to the backers. At a granular level, it may even be possible that any modules accepted into the core protocol could receive a revenue stream from its direct use, or use by other modules.

That's also a possibility. Although the development of the core can't be privatized due to operational risk and infrastructure ownership considerations, everything that isn't strictly required as core functionality could be externalized to private companies: bidges, wallet programs, trading tools, charting and reporting websites, community websites etc. Although this doesn't solve the problem of funding the core development, it could help alleviating it by getting rid of developments that need not be developped by the core development team. For instance, it would be relatively easy to prune the current wallet out of the codebase.
« Last Edit: June 16, 2015, 08:50:16 AM by klosure »

Offline monsterer

Re: Are there other funding models to pay for development?
« Reply #3 on: June 16, 2015, 09:10:30 AM »
2. Investment Loans - What if we borrowed from the market for investment purposes, effectively leveraging the business? For example, we issue $2m USD loan tokens to the market, paying say 25% pa (or a market-determined rate), repayable in 2 or 3 years. Payment is made at expiry by the block-chain diluting the necessary value of BTS shares. If the business has invested well, the market cap should have risen by much more than $2m. If there is not sufficient equity for payment, loans may need to be rolled if the market is willing, or else default terms would kick in.

This is also a great idea that only BitShares is capable of implementing at the moment and that would add a whole new dimension to BitShares: credit. The problem of credit is that it requires trust and that's a hard problem to crunch. But the specific case that you propose doesn't have this drawback because the borrower isn't a user but the network itself. Since the network can't run away or make misrepresentations and it's financial health can be readily evaluated at any moment it is a pretty good counterparty for a lender. The network could issue bonds like governments issue bonds. Bonds would be denominated in bitAssets or BTS depending on the use case, pay a coupon monthly and be traded on the market so that lenders wouldn't even need to be locked in a fixed term commitment but only accept the risk that they could suffer a loss if they sell before maturity at a time where the price is low.

This is genius.   +5%
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Offline fuzzy

Re: Are there other funding models to pay for development?
« Reply #4 on: June 16, 2015, 01:12:50 PM »
2. Investment Loans - What if we borrowed from the market for investment purposes, effectively leveraging the business? For example, we issue $2m USD loan tokens to the market, paying say 25% pa (or a market-determined rate), repayable in 2 or 3 years. Payment is made at expiry by the block-chain diluting the necessary value of BTS shares. If the business has invested well, the market cap should have risen by much more than $2m. If there is not sufficient equity for payment, loans may need to be rolled if the market is willing, or else default terms would kick in.

This is also a great idea that only BitShares is capable of implementing at the moment and that would add a whole new dimension to BitShares: credit. The problem of credit is that it requires trust and that's a hard problem to crunch. But the specific case that you propose doesn't have this drawback because the borrower isn't a user but the network itself. Since the network can't run away or make misrepresentations and it's financial health can be readily evaluated at any moment it is a pretty good counterparty for a lender. The network could issue bonds like governments issue bonds. Bonds would be denominated in bitAssets or BTS depending on the use case, pay a coupon monthly and be traded on the market so that lenders wouldn't even need to be locked in a fixed term commitment but only accept the risk that they could suffer a loss if they sell before maturity at a time where the price is low.

This is genius.   +5%

Yes, monsterer...it certainly is.
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Offline cylonmaker2053

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Re: Are there other funding models to pay for development?
« Reply #5 on: June 16, 2015, 01:24:26 PM »
Equity crowdfunding is another possibility a la something like Kickstarter

Offline starspirit

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Re: Are there other funding models to pay for development?
« Reply #6 on: June 17, 2015, 12:09:45 AM »
On the further implications of the OP

Thinking out loud here.

Ideas 1. and 2. are really treating BTS as equity-type tokens in a startup business, rather than the more traditional view many might hold of BTS competing as a currency. These methods would not be appropriate to a currency at all, because of their [ed: potentially] dilutive effects, depending on the actual token structure, and whether market cap growth exceeds the growth in obligations.

[Edit: clarified with potentially dilutive, because they may not need to be dilutive if the value of BTS ends up rising more than the accumulated obligation]

But business equity could well be a more accurate vehicle to achieve the goals of BTS. We can debate the core purpose of BTS, but one justifiable view is that BTS aims to develop and own the technology and platform on which a profitable and free ecosystem will be built. That is inherently a business endeavour. We have already taken a tentative and controversial step in that direction through allowing some dilution to fund development. But we've done that within the bounds of what might be acceptable within the crypto-currency space, which imposes limits on funding as we know. Instead we could give ourselves the full flexibility of any traditional business as follows:

BTS = equity in the technology and infrastructure of the system, like any other business, but on a block-chain!

XCoin(s) = currency (to be developed) that will compete directly in the crypto-currency / fiat space (not pegged)

In other words, we give BTS the flexibility of any other business, and we don't have to give up creating our own superior currency (independent money) or many variations of such currency. We just create those as well! But the XCoin does not bear any development expenses (beyond covering network cost of transactions) or any equity reward. It could potentially be produced with little marginal cost as a byproduct of the bitShares protocol.

The full business flexibility in the BTS operational structure could also serve as a template for other businesses moving to the block-chain. (I'm thinking BTS owners should share with CNX in the reward from this to the extent they co-develop it.)

In this way, there would be no need for the community to split on this issue, because they could simply choose how much of BTS vs XCoin they desire to hold and use. [In general, offering user choice within the bitShares protocol is the best way to keep a united community].
« Last Edit: June 17, 2015, 01:25:53 AM by starspirit »

Offline bitmeat

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Re: Are there other funding models to pay for development?
« Reply #7 on: June 17, 2015, 12:17:46 AM »
There is also the Bitcoin model - create a crypto, then create value for it. Cover costs by being among the first believes to dedicate mininga and development time.

I love DPOS and POS algos. But for distribution I prefer mining. There are really great algorithms now that allow for good distribution. It also has a viral effect.

I know BTS community is against mining, but if you think about ProtoShares (PTS) -  believers in the ideas mined and did well overall.


Offline starspirit

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Re: Are there other funding models to pay for development?
« Reply #8 on: June 17, 2015, 12:35:42 AM »
On Investment Loans

As this method gained some interest, I wanted to expand some ideas on it.

In modern markets there are many variations on capital structures, ranging through shares, preferred shares, convertible bonds, corporate bonds, asset-backed securities etc. Each of these have different implications for capital movement, dilution and interest. Likewise here, there would be a wide range of structures that could be considered.

For example, there would be no need to pay coupons (simplifying administration) if the loans were structured like zero coupon bonds. These could then trade at a floating discount to par in the market.

The maturity payment could be set to a maximum dilution on BTS (i.e. a maximum percentage of the market cap). In that way, BTS never effectively defaults or becomes bankrupt and can always be an ongoing concern. Its just a risk the market needs to price in.

Or to minimise dilution, the tokens could get repaid first from any future revenues, with BTS holders only getting paid once the debt is fully repaid with interest.

If profitability is reached early, or funds are raised by other means, there might be options to repay the loan early.

So really a number of different parameters can be considered, to effect different outcomes, and each has different impacts on demand and interest.

The community would then also have many more choices for participating in the bitshares enterprise, as to whether they wish to hold the full-risk BTS token, or some more conservative token that supports it.

The first step though is to consider whether we wish to walk down this road. There would need to be much debate.

Offline Helikopterben

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Re: Are there other funding models to pay for development?
« Reply #9 on: June 17, 2015, 01:00:36 AM »
I think we should wait to see if the cnx deal works until the blockchain is profitable.  If so, then shareholders could vote to buy out cnx and/or licensing.  It sounds like this may be a possibility depending on how quickly bitshares 2.0 can be put into production.

Offline Stan

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Re: Are there other funding models to pay for development?
« Reply #10 on: June 17, 2015, 01:03:50 AM »
There is also the Bitcoin model - create a crypto, then create value for it. Cover costs by being among the first believes to dedicate mininga and development time.

I love DPOS and POS algos. But for distribution I prefer mining. There are really great algorithms now that allow for good distribution. It also has a viral effect.

I know BTS community is against mining, but if you think about ProtoShares (PTS) -  believers in the ideas mined and did well overall.

My take on that is that there are 600 coin distributions out there already for every demographic imaginable.
Dog lovers, permaculture enthusiasts, mars colonizers, economically aware libertarians, you name it.
So you can roll you own "fair mix"by sharedropping on custom tailored mix of chains to exactly the kind of supporters you want to attract.
If you use mining, you just get a demographic of geeks who know how to set up a mining rig.
Worse, you get a demographic of big mining pools who will suck up your "fair distribution" and resell them at their true market value.
If they are going to ultimately be sold to people who actually want them, you might as well sell them yourself and raise development funds in the process.



« Last Edit: June 17, 2015, 01:05:44 AM by Stan »
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Offline Ander

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Re: Are there other funding models to pay for development?
« Reply #11 on: June 17, 2015, 01:10:35 AM »
If they are going to ultimately be sold to people who actually want them, you might as well sell them yourself and raise development funds in the process.

Yes.

But according to bitcointalk, this makes you a "scam".  As does making any amount of money, ever.
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Offline bitmeat

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Re: Are there other funding models to pay for development?
« Reply #12 on: June 17, 2015, 01:18:59 AM »
There is also the Bitcoin model - create a crypto, then create value for it. Cover costs by being among the first believes to dedicate mininga and development time.

I love DPOS and POS algos. But for distribution I prefer mining. There are really great algorithms now that allow for good distribution. It also has a viral effect.

I know BTS community is against mining, but if you think about ProtoShares (PTS) -  believers in the ideas mined and did well overall.

My take on that is that there are 600 coin distributions out there already for every demographic imaginable.
Dog lovers, permaculture enthusiasts, mars colonizers, economically aware libertarians, you name it.
So you can roll you own "fair mix"by sharedropping on custom tailored mix of chains to exactly the kind of supporters you want to attract.
If you use mining, you just get a demographic of geeks who know how to set up a mining rig.
Worse, you get a demographic of big mining pools who will suck up your "fair distribution" and resell them at their true market value.
If they are going to ultimately be sold to people who actually want them, you might as well sell them yourself and raise development funds in the process.


Stan, my point was, I'd like to see your "SmartCoins" allow to define custom distribution including mining. That's all. :)

EDIT: also better in terms of regulation.
« Last Edit: June 17, 2015, 01:20:31 AM by bitmeat »

Offline Stan

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Re: Are there other funding models to pay for development?
« Reply #13 on: June 17, 2015, 01:20:49 AM »
If they are going to ultimately be sold to people who actually want them, you might as well sell them yourself and raise development funds in the process.

Yes.

But according to bitcointalk, this makes you a "scam".  As does making any amount of money, ever.

Indeed. 

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If you pick our red chain, you stay in wonderland and I show you how far this rabbit hole goes.




« Last Edit: June 17, 2015, 01:30:02 AM by Stan »
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Offline Stan

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Re: Are there other funding models to pay for development?
« Reply #14 on: June 17, 2015, 01:22:04 AM »
There is also the Bitcoin model - create a crypto, then create value for it. Cover costs by being among the first believes to dedicate mininga and development time.

I love DPOS and POS algos. But for distribution I prefer mining. There are really great algorithms now that allow for good distribution. It also has a viral effect.

I know BTS community is against mining, but if you think about ProtoShares (PTS) -  believers in the ideas mined and did well overall.

My take on that is that there are 600 coin distributions out there already for every demographic imaginable.
Dog lovers, permaculture enthusiasts, mars colonizers, economically aware libertarians, you name it.
So you can roll you own "fair mix"by sharedropping on custom tailored mix of chains to exactly the kind of supporters you want to attract.
If you use mining, you just get a demographic of geeks who know how to set up a mining rig.
Worse, you get a demographic of big mining pools who will suck up your "fair distribution" and resell them at their true market value.
If they are going to ultimately be sold to people who actually want them, you might as well sell them yourself and raise development funds in the process.


Stan, my point was, I'd like to see your "SmartCoins" allow to define custom distribution including mining. That's all. :)

EDIT: also better in terms of regulation.

Perfectly valid.  There are more mining lovers than dogelovers so why not?

As long as you are doing it because you consciously have selected that demographic.
Anything said on these forums does not constitute an intent to create a legal obligation or contract of any kind.   These are merely my opinions which I reserve the right to change at any time.

 

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