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...
Topic: DAC dilution model proposal (Read 3802 times)
