Author [EN] [ZH] [ES] [PT] [IT] [DE] [FR] [NL] [TR] [SR] [AR] [RU] [EN] [ZH] [ES] [PT] [IT] [DE] [FR] [NL] [TR] [SR] [AR] [RU] [EN] [ZH] [ES] [PT] [IT] [DE] [FR] [NL] [TR] [SR] [AR] [RU] Topic: DAC dilution model proposal  (Read 319 times)

0 Members and 1 Guest are viewing this topic.

Offline Frodo

  • Sr. Member
  • ****
  • Posts: 334
    • View Profile
  • BTS: frodo
DAC dilution model proposal
« on: October 04, 2014, 04:01:31 PM »

One of the most discussed topics I have ever seen on this forum is the possible dilution of shares.
I've read dozens of posts and excellent points were made for both sides.
By now I came to the following conclusions:

1. Dilution is an extremely powerful tool to fund development for a DAC/ecosystem. It might not be needed today or tomorrow but to maintain and expand a billion dollar DAC some serious funds are needed.
2. As already stated above dilution might not be needed at all times. Therefore a variable rate is needed.
3. Why are many users (including me) so scared of dilution? IMO this is due to (seemingly) lacking predictability and controllability. That's why it must be priority
to build a transparent, not overly complex, system that guarantees long term predictability.

With this points in mind I would like to propose the following system:

1. Stake can vote on a dilution rate. (As I have no insight into the implementaion I don't know how this can be realized best. (Some set options, Int between 0 and 100 etc.))

2. Stake can vote independently of step 1 on business delegates. Business delegates have to publish details like requested pay per block and time period.

The system works like this:
The dilution rate is fixed for a certrain time interval e.g. one week. With begin of a new time period the dilution rate is adjusted. There are three possible events: either the rate goes up/down by a fixed percentage (e.g. 0.1%) or stays at its current value. All stake that voted on a rate below the current one implicitly votes for an decrease, analogous all stake that voted on a higher rate for an increase and the rest for an unchanged rate. The biggest of the three groups wins. This way the rate slowly tracks the median of the votes.

With the fixed dilution rate it can be calculated how much the network can pay at most to all business delegates together.
Now the business delegates get ranked by approval. This list is traversed starting with the highest approval. If the dilution rate is sufficient to fund the specific business delegate the requested pay per block will be executed and the remaining funds/dilution rate is calculated. If the requested payment is too high and thus the dilution rate would be exceeded the business delegate doesn't get funding. This is done until there is only a certain fraction of funding left (e.g. less then 10% of funds not used) or there are no business delegates left with an approval higher than X%. This has the effect that the real dilution rate is always a little bit smaller than the voted rate. This "buffer" is very important because slight fluctuations in (voted) delution rate don't result in business delegates getting fired.

Advantages:
1. Simple and transparent from a user standpoint.
2. Users can vote explicitly on a dilution rate without analyzing projects, delegates etc. This should ensure high participation.
3. Slow changes in dilution rate which leads to great predictability.
4. Higher payed business delegates tend to need higher approval to get voted in. This supports business delegates that don't have funding in advance for massive PR campaigns.

I guess implementing something like this would be rather complex but hopefully not impossible.
Any opinions?

Offline bitmeat

  • Hero Member
  • *****
  • Posts: 1116
    • View Profile
Re: DAC dilution model proposal
« Reply #1 on: October 04, 2014, 04:26:09 PM »
I think if you get diluted, you want to see the value. I think some % needs to go towards development.

Wouldn't you allow being diluted 10%, if that could double/triple/10x/100x the market cap?

The problem with dilution is that there is no accountability. I would like to see a model where development cost is slowly introduced, and shareholders have the power to stop it, if they don't like the results. This will incentivize the developers to get it done. Have big bonuses at the end.

Offline Frodo

  • Sr. Member
  • ****
  • Posts: 334
    • View Profile
  • BTS: frodo
Re: DAC dilution model proposal
« Reply #2 on: October 04, 2014, 04:47:36 PM »
I think if you get diluted, you want to see the value. I think some % needs to go towards development.

The developers would have to set up a business delegate and advertise what they want to do with the funds. I imagine users would vote them in pretty quickly.

Wouldn't you allow being diluted 10%, if that could double/triple/10x/100x the market cap?

True, there is no hard cap. (except technically 64 bit numbers) But I also see no value in taking decisions away from stakeholders.

The problem with dilution is that there is no accountability. I would like to see a model where development cost is slowly introduced, and shareholders have the power to stop it, if they don't like the results. This will incentivize the developers to get it done. Have big bonuses at the end.

Well stakeholders still have the power to vote out business delegates (including the developer's delegates). Furthermore if users have the feeling additional funding isn't needed they can vote on 0% dilution.

Offline CoinHoarder

  • Hero Member
  • *****
  • Posts: 628
  • In Cryptocoins I Trust
    • View Profile
Re: DAC dilution model proposal
« Reply #3 on: October 04, 2014, 05:13:24 PM »
I found an issue with your proposal.

DAC dilution model proposal.

Offline Frodo

  • Sr. Member
  • ****
  • Posts: 334
    • View Profile
  • BTS: frodo
Re: DAC dilution model proposal
« Reply #4 on: October 04, 2014, 06:56:13 PM »
I found an issue with your proposal.

DAC dilution model proposal.

As I said, I don't see any benefit in taking decisions away from stakeholders. If everyone agrees that dilution is bad, great vote for 0% and that's it. Actually I am myself not a huge fan of dilution but I see that it might be beneficial in certain situations.

Offline bitmeat

  • Hero Member
  • *****
  • Posts: 1116
    • View Profile
Re: DAC dilution model proposal
« Reply #5 on: October 04, 2014, 07:41:08 PM »
I think if you get diluted, you want to see the value. I think some % needs to go towards development.

The developers would have to set up a business delegate and advertise what they want to do with the funds. I imagine users would vote them in pretty quickly.

Wouldn't you allow being diluted 10%, if that could double/triple/10x/100x the market cap?

True, there is no hard cap. (except technically 64 bit numbers) But I also see no value in taking decisions away from stakeholders.

The problem with dilution is that there is no accountability. I would like to see a model where development cost is slowly introduced, and shareholders have the power to stop it, if they don't like the results. This will incentivize the developers to get it done. Have big bonuses at the end.

Well stakeholders still have the power to vote out business delegates (including the developer's delegates). Furthermore if users have the feeling additional funding isn't needed they can vote on 0% dilution.

I really like the ability to vote for delegates. However there are a few problems: Delegate's income is not enough to bring in serious talent. Number of delegate positions is limited.

i.e. you can use the voting model for delegates, and apply it towards developers. I wasn't suggesting that the shareholders don't have a say.

Ability to create supply for a given project is how I envision it. Then let shareholders vote for whether that supply should be created for that cause.

Offline Rune

  • Hero Member
  • *****
  • Posts: 1120
    • View Profile
Re: DAC dilution model proposal
« Reply #6 on: October 04, 2014, 07:54:53 PM »
I think inflation should only be implemented on one-time basis. I.e. getting the supply inflated would require a big campaign that mobilized a majority of voting stakeholders, and would be voted on in several rounds. This would make the basic inflation "block" a project - something that would be very easy to do transparent accounting on. The newly inflated funds from a project would not be released instantly, they would be given over a predetermined time period.

In the beginning, there would be smaller projects where people experiment with what is actually a net benefit on share price. As project leaders build up community trust, they can begin to do more longterm, or widereaching projects. If a project leader ever messes up or turns out to be corrupt, it will be easy to inform the community and his current "project pool" can be wiped, so that he has only been able to waste what was released beforehand.

This gives the advantage of trickling inflation, without having the risk of slow, perpetual debasement of the share price.

Offline pendragon3

Re: DAC dilution model proposal
« Reply #7 on: October 04, 2014, 08:35:02 PM »

3. Why are many users (including me) so scared of dilution? IMO this is due to (seemingly) lacking predictability and controllability. That's why it must be priority
to build a transparent, not overly complex, system that guarantees long term predictability.



Unfortunately, at this point in time, it's not realistic to think that dilution will go over well with the masses whom we hope to bring to BTSX. If savvy BTSX users and holders on this forum are themselves scared and skeptical about dilution, what hope do we have that the non-techie, non-crypto, traditional investors will feel ok about it?

Sure, dilution can be a powerful tool for some DACs for which the front end interface with consumers is all-important, such as Music. For such DACs, dilution can be a good backup funding source if future financing needs arise. For the main flagship BitsharesX chain, though, using a dilution model at this point would do more harm than good, in my opinion. On this thread, it has been proposed that dilution be used to fund user acquisition and referrals. Growing the user base is clearly an important goal, and despite what some have said, network effects and word-of-mouth will be critical for achieving mainstream adoption of crypto. My question is, why can't referrals and MLM be accomplished with transaction fees and interest paid by shorts? Perhaps in principle dilution would do the same thing as transaction fees and interest. As a practical matter, though, issuing shares would be seen in a very different light than funding based on transactions and interest.

I've argued before that those who support a dilution scheme in BTSX do not appear to be factoring in an important cost, namely, the perception dilution would create--rightly or wrongly--that BitsharesX is an unsound system. This is a general cost that goes well beyond the quantifiable $100 per user cost. Once you open the door to dilution, even a minimal amount like 1%, the promise to not dilute in the future will forevermore lack credibility. This would change the entire image of BitsharesX. It's sort of like a AAA credit rating. In 1980, about 60 companies had a AAA rating from Standard and Poor's. By 2008, only about six firms in the world had a AAA. Now, we're down to three worldwide. History shows that, after a AAA rating is lost, it's nearly impossible to regain. The same thing goes for the image of a stable, fixed share supply. Once that image is lost, BTSX would be a "broken" system and could never go back to the original state. And burning enough shares to offset the dilution by reducing supply back down below 2 billion shares would NOT restore credibility because investors would know that dilution did happen before and could happen again.

Why is the commitment to not dilute so important for the BitsharesX DAC? It's because BitsharesX aims to be the premier, flagship DAC, the go-to safe haven for investors in a world of uncertainty. In order to be the true, undisputed successor to the Bitcoin throne, BTSX needs to be seen as being utterly reliable, solid and immutable as a slab of granite, predictable as a block of gold. It is supposed to be a "virtual vault," is it not? When the next crisis occurs, does BTSX want to be seen as the safest of safe havens, or just as another second-best alternative with open-ended share supply?

It could be argued that the problem is simply that "dilution" is a dirty word and that some different terminology describing share supply increases would go over better with investors and shareholders. But the reality is that even a small share supply increase would cause an irrevocable shift in perception. We need to weigh very, very carefully whether the benefits justify going down this road. Because there would be no turning back from going down this road...

Offline Frodo

  • Sr. Member
  • ****
  • Posts: 334
    • View Profile
  • BTS: frodo
Re: DAC dilution model proposal
« Reply #8 on: October 04, 2014, 09:16:25 PM »

I really like the ability to vote for delegates. However there are a few problems: Delegate's income is not enough to bring in serious talent. Number of delegate positions is limited.

I should have described business delegates in more detail. I had in mind that they don't sign blocks like regular delegates. They basically are completely independent of the 101 delegates, just an entity to vote for. (and receive funds) So there can be any given number.

Ability to create supply for a given project is how I envision it. Then let shareholders vote for whether that supply should be created for that cause.

Originally I had the same thing in mind but imo it has two significant disadavantages:
1. It lacks long term predictability. This is very important because you can hedge accordingly with bitAssets.
2. How do you determine the level of approval needed for a project to get funded? To simply set a rate seems random. (And seems to favour one side...)
Or are there negative votes? That would mean a user that wants 0 dilution has to track all fund proposals and vote negative all the time.

-snip-

Very well said! I see your point. But still I am not quite convinced. Look at it like this: Imagine a situation where the majority of shares would vote in favour of dilution. Imagine there are two forks; one with and one without a dilution model. Which one is more likely to win?
In a situation where the majority of shares vote against dilution the two forks are basically identical. (from a momentary point of view).
So which model is more likely to succeed in a variety of different situations?

 

Google+