CPOS (cooperative proof of stake) discussion thread

[Agent86]

For there to be any dilution, the majority of stakeholders would have to want it.  To me it seems strange for us to say: "even if the majority of stake/shareholders want it, we know what's best for them better than they do, so we should protect them from themselves."  I don't think your co-owners want you to protect them from themselves, I think they want to be empowered and have their stake and voice respected.

A DAC that can issue shares attracts developers with fair compensation and customers with low fees.  A DAC that is waiting for the day they collect enough fees to start reinvesting in their growth would get SMOKED in comparison.  Or again, a DAC that is expecting volunteers/charity and creating all the wrong incentive structures is going to get SMOKED.  Not everyone with something to contribute has time to work for free; why would people volunteer to develop and promote this DAC when they can work for a reasonable DAC that is willing to compensate them for their time?

Taking a hard line against leveraged growth is like teaching your kid financial responsibility by making them work at Walmart until they've saved enough for college.

Do you think Zuckerberg could build Facebook into a company with 1000s of employees out of his dorm room by waiting for advertising revenue to come in to buy a couple more computers and maybe hire someone down the road? Not one chance in a million years.

The only companies paying dividends and not leveraging their market value are companies that are already peaking in their growth or have achieved market saturation or dominance.  Bitshares is a world away from this.

We talk about decentralization, empowerment, and creating the right incentives and then ignore it completely to trust that AGS funds controlled by a handful of people is enough to grow our "decentralized" businesses.

The devil is in the details and implementation. But rest assured someone will implement this and then watch out if they are HIRING while we are running on volunteer labor, transaction fees, and fumes.

[bytemaster]

I think this is a great discussion and wanted to add my two cents.

1) I am neutral with respect to the moral aspect of issuing new shares to raise capital because for the time being the whole process appears voluntary by all parties assuming all parties knew the conditions under-which it may happen.

2) Property rights under shared-ownership are already stretched because obviously no one party is free to do with his fraction of the company as he chooses.  It can be said that while you may have 100% property rights in your shares, you have no property rights in the system because no-one has the ability to control the system.   I am using the 'control' == 'ownership' definition of property rights.  So all parties 'own' the data controlled by their private key, but they do not own the wider system. 

3) Under this premise we can say that if 99.999% of the shareholders want to dilute to raise capital and grow, then the other .001% is effectively getting a free ride (something for nothing) by refusing to be diluted.   Assumptions here are that this is a simple capital infusion for new shares and the value of the cash infusion is greater than the value of the shares issued.   Thus in the name of defending the property rights of the .001% the 99.999% have lost their property rights because they are no longer in control of the system they have invested in.   

4) Based upon this principle the argument against dilution is that no one is in control of the system.  This is indeed a goal of our decentralization effort and in the name of having a truly decentralized and corruption free system it is the ideal we should strive for.

5) While dilution can help you grow, it is not a sustainable model in the long run.  Eventually all systems must fund themselves from profits and not capital infusions. 

6) The proper way to do a dilution is to fork a new DAC, honor 90% of the old shareholders and give 10% to the new source of funding.   Then let the market sort out which DAC will survive. 

[santaclause102]

If you owned 10% of the original business which was not much more than an idea and a few sales do you think you would be entitled to 10% of the new business that has $200k on the balance sheet and prominent new investor.  Of course not, you would get diluted right along with everyone else.

That depends on who the money from the sell of new shares go to. The entrepreneur can sell more of his 90% and take the money for himself or all shareholders sell new shares which makes the money from the sell of the new shares everyone's proportional to their stake... I just come up with that but it should be like that.. 

[luckybit]

I thought most of the "Shark Tank" deals were just equity being sold for cash.

You're wrong.  The Shark Tank deals are a dilution of equity.  The cash they give is not income of the original business owner and does not belong to him/her; the cash belongs to the business. If the shark got 51% stake they actually have more control over that cash and how it's spent than the original business owner does.

If you owned 10% of the original business which was not much more than an idea and a few sales do you think you would be entitled to 10% of the new business that has $200k on the balance sheet and prominent new investor.  Of course not, you would get diluted right along with everyone else.

If you want to do airdrops then designate some shares for that in advance.
There is no excuse to dilute shares and your cases are all weak. It's as if just because it's done like that in the corporate world that it should be done in our world too?

Maybe we shouldn't copy the mistakes of the corporate world considering we don't have the same limitations. We are capable of doing it in a better way but you keep pushing dilution and inflation, why is that your favored solution?

If you want to dilute shares then dilute your own. If you want to discuss how we can fund ourselves without dilution then that would be fine.

There are only two acceptable ways to do it in my opinion

1. Raise transaction fees and use that.
2. Designate in advance that x% of shares is for these purposes (the Mastercoin method).

But to say after people bought their shares that you now want to dilute their shares? It's never going to work without causing havoc. People who paid for shares with the expectation that they would never be diluted and that they'd even be deflationary are not going to want to hear that it's now becoming like Dogecoin.

The good thing about Bitshares is there will be plenty of chains in the future and an altchain can explore some of these ideas. Additionally you have all these other DACs which will be coming online which can explore any of these ideas. But in my opinion if you can avoid dilution and pay with your revenue then you should because that is what revenue is for.

[amencon]

I thought most of the "Shark Tank" deals were just equity being sold for cash.

You're wrong.  The Shark Tank deals are a dilution of equity.  The cash they give is not income of the original business owner and does not belong to him/her; the cash belongs to the business. If the shark got 51% stake they actually have more control over that cash and how it's spent than the original business owner does.

If you owned 10% of the original business which was not much more than an idea and a few sales do you think you would be entitled to 10% of the new business that has $200k on the balance sheet and prominent new investor.  Of course not, you would get diluted right along with everyone else.

Hmm OK thanks, interesting.

[Agent86]

I thought most of the "Shark Tank" deals were just equity being sold for cash.

You're wrong.  The Shark Tank deals are a dilution of equity.  The cash they give is not income of the original business owner and does not belong to him/her; the cash belongs to the business. If the shark got 51% stake they actually have more control over that cash and how it's spent than the original business owner does.

If you owned 10% of the original business which was not much more than an idea and a few sales do you think you would be entitled to 10% of the new business that has $200k on the balance sheet and prominent new investor.  Of course not, you would get diluted right along with everyone else.

[amencon]

Shares are commonly diluted to pay executives stock options or do acquisitions of other companies. Ever watch Shark Tank?  That's share dilution; the original business owners are being diluted to bring in new investors and capital.

I thought most of the "Shark Tank" deals were just equity being sold for cash.  So if you started a company and I helped and was given 10% of the business, and then you went and sold 30% more equity on Shark Tank that wouldn't be considered "share dilution" since it would be a sale out of your portion of the pie rather than increasing the whole pie.  My 10% would still be 10%.

The equivalent analogy in crypto would be the dev keeping x% of the shares at launch, and then selling some portion of them later on the open market to fund various tasks.  He's not diluting any shares that way since the same number of shares exist and so any percentage of shares you own don't change.

[Agent86]

I think we should at least acknowledge that share dilution is a fact of life in our current system, and a needed tool for many companies.  Most high growth companies would be f*cked without it.

The whole idea behind venture capital investment with multiple rounds is share dilution; each round of VC investment dilutes the previous shareholders. The whole idea behind a public offering (IPO) is share dilution; early investors are being diluted, they are not cashing out to dump their shares on the public.

Shares are commonly diluted to pay executives stock options or do acquisitions of other companies. Ever watch Shark Tank?  That's share dilution; the original business owners are being diluted to bring in new investors and capital.

Look up "shares outstanding" charts, it's not a stable thing.

No one should invest in a company that considers taxing the shareholders to cover expenses part of its long term business plan.

If by "taxing shareholders" you mean share dilution than this is horrible advice. (debatable if you are talking about some theoretical extremely long term)

Being philosophically opposed to share dilution would preclude you being an early investor in:
Facebook, Twitter, Google, Amazon, Berkshire Hathaway, Ebay etc.
BTW none of these companies have ever paid a dividend.

When was the last time Apple or Coca-Cola diluted their shares? AFAIK they only paid dividends and do buybacks out of their income...

Apple was diluting shareholders as recently as mid 2012 after which they became so cash flush that they issued their first dividend in over 15 years and started buying back shares.
http://ycharts.com/companies/AAPL/shares_outstanding

Coca-Cola is not exactly analogous to our high growth DACs and I think a well established DAC could pay dividends.  However, I'm sure Coke diluted shareholders at some point in their company history.

Coca-Cola currently spends $4.8 billion per year buying back stock, and $1.3 billion per year issuing stock as compensation.  The total dilution for shareholders due to issuing stock would amount to 0.7% per year (they are not diluted because of the buy back)

[gamey]

Realize that when a dev abandons a DAC after selling all their shares on the market and the thing breaks down due to some unforseen circumstance, you have effectively had your property rights screwed with.  I would suggest people look at these things more in terms of incentives and how the longterm will play out. If a dev is paid purely on the shares they allocate themselves, you will forever have the dev holding the DAC and the rest of the shareholders hostage to some degree.  (unless the source has been released, which may or may not be the case) 

DACs are a different beast.  You will have different problems.  Most corporations have more put into them than the labor of a single person which can then be cashed out once it becomes worth something.  Now in the real world a person can do something similar, but the corporation will continue with whatever management it has.  So in the physical regulated world you will never see the type of problem I am concerned with, so it never needs to be addressed.

I'm not a big fan of diluting shares to pay the dev.  I think other ways would be preferable in some ways.  I am mainly just looking at it in terms of longterm incentives to keep a DAC going.

@luckybit  I was talking about paying the dev(s) not paying the network.  2 different things.  I never suggested dilution to pay for network security, just as a way to prevent the dump and run strategy which people will undoubtedly see.

[santaclause102]

Therefore the hypothesis above that a corporation is by definition a joint venture which is less likely to succeed if everybody claimed his full individual (property) rights can be seen as confirmed.
Thoughts?

When was the last time Apple or Coca-Cola diluted their shares? AFAIK they only paid dividends and do buybacks out of their income...

https://bitsharestalk.org/index.php?topic=4713.msg60400#msg60400

Btw I am not proposing dilution... It all depends on the actual implementation details and the context / challenges.

[toast]

Therefore the hypothesis above that a corporation is by definition a joint venture which is less likely to succeed if everybody claimed his full individual (property) rights can be seen as confirmed.
Thoughts?

When was the last time Apple or Coca-Cola diluted their shares? AFAIK they only paid dividends and do buybacks out of their income...

[santaclause102]

When all expenses are paid from fees, the fees go directly into the expenses and no dilution is possible. What is possible is no deflation if all fees are used up but no inflation is possible (at least not to the degree that it is under the control of the delegates/shareholders*). The argument has a long tradition. It is about property rights.
We are lucky here because we only design a few DACs that everyone knowns the terms to and can by in and out by if he/she likes the model or not.

It is a philosophical question in the end. When becoming a shareholder in a company....
- You can assume that the individual stays completely by himself and the property rights are the highest good (there is always a conflict between different goods).
- Or you can assume that the individual commits him/herself to a "joint venture" willingly allows a majority vote to touch his property rights. This is how all corporations work today.
There is not right or wrong here. Depending on the culture people live in they might feel better in a corporation / society that is structured the one or the other way. 

*just a thought: Is a corporation not by definition a joint venture which would have to fail if everybody claimed his full individual (property) rights? In DPOS like in any company/joint effort you subordinate your shareholder vote to the vote of the majority. Why? Because the inflation/deflation issue has to include not only the money supply which is under the control of the shareholders but also the fact that the shares are traded on a market where there is competition "among shares" respectively among similar companies which have shares. Now not actively deciding for or against dilution (and having a mechanism for that in place) can be seen from this holistic standpoint that includes the potential dilution from the lack of interest on the market in the shares as highly risky in terms of long term dilution. Therefore the hypothesis above that a corporation is by definition a joint venture which is less likely to succeed if everybody claimed his full individual (property) rights can be seen as confirmed.
Thoughts? 

[luckybit]

My thing is that taking money from transactions fees is effectively the same as dilution.  Those transaction fees are profit that should go to shareholders (in a general sense).  So in the end, you're just decreasing the amount that shareholders receive to pay for expenses. Since dividends etc are paid in shares, it all seems like the same thing to me.  After reading Delulo's last response I thought "Oh, the user is paying the bill and thats why transaction fees are different than dilution".   Yet take it a bit further and it seems to end up being another form of dilution but just one that seems more appealing.

No its not the same. You get diluted whether or not you used the network which is completely unfair. Transaction fees are the most fair way to pay for the network. Raise transaction fees.

My thing is that taking money from transactions fees is effectively the same as dilution.  Those transaction fees are profit that should go to shareholders (in a general sense).  So in the end, you're just decreasing the amount that shareholders receive to pay for expenses. Since dividends etc are paid in shares, it all seems like the same thing to me.  After reading Delulo's last response I thought "Oh, the user is paying the bill and thats why transaction fees are different than dilution".   Yet take it a bit further and it seems to end up being another form of dilution but just one that seems more appealing.

Not at all the same thing. *I individually* can choose to not transact and thus not pay transaction fees. I buy, hold, then sell, and the cost to me is 1 tx fee.
I cannot choose not to have my share diluted. I buy, hold, then sell, and notice my share is smaller than before because people took some while I was gone.

I think the difference is a lot smaller than you guys believe, but your point about not actually being able to have less equity than when you started is a good one.  I was always implying the dilution would be known beforehand, so you *could* choose to not have your shares diluted by not purchasing shares in the DAC.

Anyway .... I am just trying to figure out why people despise certain methods of paying a dev to maintain a DAC over others.  To me there is also an incentive to keep the DAC going and not have some situation where the DAC dev just dumps shares and abandons it.

For DACs which by design are set up to have to pay for marketing, why not just create more initial shares to begin with and use that? I see no point to diluting. If you planned well you wouldn't be having to dilute and if you don't plan well then you use higher transaction fees.

Dilution offers no advantage that I can see and always is unpopular.

Why would we use a Bitshares DAC if we have to worry about our shares being diluted? If it's about marketing that's just bad.

I think if you want to market something like Bitshares the best form of marketing is to have a lot of people make a lot of money and be like "See? I told you Bitshares was the best investment but you didn't listen!". Non-buyers remorse is one of the main marketing mechanisms of Bitcoin. http://www.gq-magazine.co.uk/comment/articles/2013-11/28/bitcoin-value-breaks-1000-dollars

[gamey]

My thing is that taking money from transactions fees is effectively the same as dilution.  Those transaction fees are profit that should go to shareholders (in a general sense).  So in the end, you're just decreasing the amount that shareholders receive to pay for expenses. Since dividends etc are paid in shares, it all seems like the same thing to me.  After reading Delulo's last response I thought "Oh, the user is paying the bill and thats why transaction fees are different than dilution".   Yet take it a bit further and it seems to end up being another form of dilution but just one that seems more appealing.

Not at all the same thing. *I individually* can choose to not transact and thus not pay transaction fees. I buy, hold, then sell, and the cost to me is 1 tx fee.
I cannot choose not to have my share diluted. I buy, hold, then sell, and notice my share is smaller than before because people took some while I was gone.

I think the difference is a lot smaller than you guys believe, but your point about not actually being able to have less equity than when you started is a good one.  I was always implying the dilution would be known beforehand, so you *could* choose to not have your shares diluted by not purchasing shares in the DAC.

Anyway .... I am just trying to figure out why people despise certain methods of paying a dev to maintain a DAC over others.  To me there is also an incentive to keep the DAC going and not have some situation where the DAC dev just dumps shares and abandons it.

[toast]

My thing is that taking money from transactions fees is effectively the same as dilution.  Those transaction fees are profit that should go to shareholders (in a general sense).  So in the end, you're just decreasing the amount that shareholders receive to pay for expenses. Since dividends etc are paid in shares, it all seems like the same thing to me.  After reading Delulo's last response I thought "Oh, the user is paying the bill and thats why transaction fees are different than dilution".   Yet take it a bit further and it seems to end up being another form of dilution but just one that seems more appealing.

Not at all the same thing. *I individually* can choose to not transact and thus not pay transaction fees. I buy, hold, then sell, and the cost to me is 1 tx fee.
I cannot choose not to have my share diluted. I buy, hold, then sell, and notice my share is smaller than before because people took some while I was gone.