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Offline theoretical

The lemonade stand
« on: October 04, 2014, 02:30:27 AM »

Let me tell you a little story.

Alice and Bob run a lemonade stand.  Each invested $50 capital, and the lemonade stand turns a profit of $10 per day.

Their cash register is a small basket full of bills and coins.  On odd-numbered days, Alice runs the stand.  On even-numbered days, Bob runs the stand.  They agree that whoever is running the stand will be paid by getting half the contents of the basket at the end of the day.

This system works very well.  Taking profits on alternating days allows Alice and Bob to buy lots of candy and soda.  Bob gets a little more in the beginning, but the dividends quickly even out, and they are not very worried about it.

Over the winter, Bob decides that next summer he's going to buy a bike -- the model he has his eye on costs $150.  He knows this is about what he makes from the lemonade stand, so he no longer wants to take profits daily, instead letting his share accrue in the basket so he's not tempted to blow the money on sweets.  Alice is less of a long-term thinker and wants to still get her share of profits every day, however.

Continued in the next post...
« Last Edit: October 04, 2014, 02:39:55 AM by drltc »
BTS- theoretical / PTS- PZxpdC8RqWsdU3pVJeobZY7JFKVPfNpy5z / BTC- 1NfGejohzoVGffAD1CnCRgo9vApjCU2viY / the delegate formerly known as drltc / Nothing said on these forums is intended to be legally binding / All opinions are my own unless otherwise noted / Take action due to my posts at your own risk

Offline theoretical

Re: The lemonade stand
« Reply #1 on: October 04, 2014, 02:31:02 AM »
The entrepreneurs consult Alice's older brother Adam, who is studying DAC's in accounting school.  Adam tells them:

"You're running this stand for a total of 30 days, right?  We give each of you one share a day, and you can trade in any number of shares at any time for a proportional fraction of the basket.  We're giving out a total of 60 shares, so each share will be worth 1/60 of a basket."

The next day, Adam's sister Alice is crying and mad at him because, while the stand earned $10 in profits, her lemonade share was only worth $0.17 which wasn't enough to buy either a candy bar or a soda, and this simply didn't seem right to Alice.  Adam assured her that the accounting math was solid, although the system might take a long time to reach equilibrium.

Thirty days later, Bob's pretty mad at Adam too, because he can't buy his $150 bike.  Bob's 30 shares, cashed in on the last day, were only worth $116.82 while he was expecting to earn $150.

Continued in the next post...
« Last Edit: October 04, 2014, 02:35:39 AM by drltc »
BTS- theoretical / PTS- PZxpdC8RqWsdU3pVJeobZY7JFKVPfNpy5z / BTC- 1NfGejohzoVGffAD1CnCRgo9vApjCU2viY / the delegate formerly known as drltc / Nothing said on these forums is intended to be legally binding / All opinions are my own unless otherwise noted / Take action due to my posts at your own risk

Offline theoretical

Re: The lemonade stand
« Reply #2 on: October 04, 2014, 02:31:20 AM »
And then the entrepreneurs count the money in the basket and discover there's $116.83 left.  They're very confused about who owns it, but Adam re-assures them that each will be entitled to half of it -- after they wait 30 more days and have each accumulated another 30 shares.

Alice has learned some hard lessons about trusting Adam's accounting advice.  She thinks for a few minutes, then scribbles on a piece of paper.  Showing it to Adam, she says, "But wouldn't that mean that whoever goes first gets half of $116.83, and whoever goes second gets half of a half?"

Adam says, "Yeah, that's right!  My History of Accounting professor says they used to do things differently back in the twentieth century, before DAC's took over the world of finance.  I usually sleep in that class though."

The End
« Last Edit: October 04, 2014, 02:37:41 AM by drltc »
BTS- theoretical / PTS- PZxpdC8RqWsdU3pVJeobZY7JFKVPfNpy5z / BTC- 1NfGejohzoVGffAD1CnCRgo9vApjCU2viY / the delegate formerly known as drltc / Nothing said on these forums is intended to be legally binding / All opinions are my own unless otherwise noted / Take action due to my posts at your own risk

Offline theoretical

Re: The lemonade stand
« Reply #3 on: October 04, 2014, 02:34:47 AM »
Adam's accounting system in this story is a much-simplified version of my understanding of the yield implementation currently live in BTSX.  It captures the essence of the accounting problems I perceive, without including features of the yield implementation which complicate the analysis.
« Last Edit: October 04, 2014, 02:40:12 AM by drltc »
BTS- theoretical / PTS- PZxpdC8RqWsdU3pVJeobZY7JFKVPfNpy5z / BTC- 1NfGejohzoVGffAD1CnCRgo9vApjCU2viY / the delegate formerly known as drltc / Nothing said on these forums is intended to be legally binding / All opinions are my own unless otherwise noted / Take action due to my posts at your own risk

Offline GaltReport

Re: The lemonade stand
« Reply #4 on: October 04, 2014, 02:50:40 AM »
I'm very disappointed (in myself) that I have no idea what you said... :-[

Offline tonyk

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Re: The lemonade stand
« Reply #5 on: October 04, 2014, 03:11:50 AM »
I'm very disappointed (in myself) that I have no idea what you said... :-[

He wants everybody to gets his share of the interest earned for having bitAssets on a daily bases, or at least everything to be recorded  (accounted for) on a regular distribution events (let's call them daily destitutions, although they can be each block).

Additionally he is saying that if 2 people are entitle to 1/2 each of the current pot (of the yield fund), the first one is getting 1/2 of the money the next one 1/2 of the remaining money or 1/2(1-1/2)=1/4....
[disclosure I am not sure if this is how the current BTSX yield system works at the moment. So, this might be correct or not. I have no idea.]
All I know is nobody is having close to 50% of all bitUSD in existence and the issue is diminishing with each additional bitUSD holder...

[edit]
1. I know this will increase the precision of the yield calculation.
2. I do not if this is worth it (as if the cost such better precision will have on increasing the size of the blockchain, the processing time etc., out weight the benefit of such precision.)
« Last Edit: October 04, 2014, 03:26:41 AM by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline GaltReport

Re: The lemonade stand
« Reply #6 on: October 04, 2014, 03:15:59 AM »
I'm very disappointed (in myself) that I have no idea what you said... :-[

He wants everybody to gets his share of the interest earned for having bitAssets on a daily bases, or at least everything to be recorded  (accounted for) on a regular distribution events (let's call them daily destitutions, although they can be each block).

Additionally he is saying that if 2 people are entitle to 1/2 each of the current pot (of the yield fund), the first one is getting 1/2 of the money the next one 1/2 of the remaining money or 1/2(1-1/2)=1/4....
[disclosure I am not sure if this is how the current BTSX yield system works at the moment. So, this might be correct or not. I have no idea.]
All I know is nobody is having close to 50% of all bitUSD in existence and the issue is diminishing with each additional bitUSD holder...

ah, thanks.  That does help.

Offline pariah99

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Re: The lemonade stand
« Reply #7 on: October 04, 2014, 04:00:49 AM »
I see the problem, although I don't know if it exactly mirrors the bitasset yield scenario.

How about this model for yield?:

You could calculate the yield on a per-block basis, since as far as the network is concerned, the resolution on confirmed transactions is per-block.  If you want to encourage people to hold an asset, you could have a ramp-up period for an increase in assets, i.e., your share is diminished for the first XXX blocks until it is earning at full potential.  Any decrease in your accounts would cause an immediate and proportionate decrease in the yield (i.e. no rampdown).

This would:
- Provide incentive for people to hold funds to maximize yield.
- Provide disincentive to withdraw funds, which would immediately reduce yield.
- Since the share is recalculated on a per-block basis instead of at the time of withdrawal, there's no strategy for increasing your share based on timing your withdrawal.

Ggozzo

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Re: The lemonade stand
« Reply #8 on: October 04, 2014, 05:50:43 AM »
Aren't you basing this on a depleting sum? As long as the basket maintains an equal amount of income per day (payouts don't exceed receivables) the end yield remains the same. At least the way I thought it works is, your account is continually "banking" a specific amount of yield per day based on the amount of bit* held. I didn't think that the yield changes based on who cashes out when. Sorry, but I haven't been able to keep up with a lot of the proposals here as they are very long and technical and I have life outside of the ecosystem. Please tell me that long term holders aren't punished because day traders cash in and out depleting the yield banks.

 

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