Author Topic: [Proposal] PTS Angel fund allocation in the new Bitshares PTS  (Read 5202 times)

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Offline alphaBar

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Thought I would share the new logo here:



I want to move forward with this project but I cannot do so in good faith without addressing this issue. I want to be able to market this to the benefit of all involved, which I've been doing with my own funds thus far (behind the scenes). I'll leave you with an analogy that I gave to Stan (since he seems to like those): I'm trying to run in the Kentucky Derby here but I can't do it with a donkey. I need a thoroughbred... ;)
« Last Edit: October 29, 2014, 04:16:09 am by alphaBar »

Offline alphaBar

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People of Bitshares, I’ve been discussing an issue privately with Stan and it was suggested that I present the issue to the community for input. As many of you know, a group of us are trying to organize an upgrade to PTS and to reposition PTS as a currency DAC and sharedrop instrument. I’ll try to provide a quick summary before diving into the details.

Background Information

* Many PTS investors are displeased with the recent merger proposal. In particular, many feel that the social contract has been violated by:
  -granting only 7% stake to PTS/AGS holders instead of 10%.
  -even worse, locking PTS into a 2 year vesting period in the merged BTS.
  It is not the intent of this post to discuss the “fairness” of the allocation.
* Currently, the PTS Angel address currently holds ~13.5% of the entire money supply of PTS.
* It was the intent of the merger proposal to “absorb PTS” into the new BTS and therefore, in theory, PTS residual value would be almost nothing without community action.

Problems

A single entity owning 13.5% of the money supply is a non-starter for “distributed consensus” in a DPOS version of PTS. This is because the entire legitimacy of the coin comes into question when a single entity owns such a massive stake. There is a "critical mass" of centralization (which someone alluded to in another post) that effectively makes the entire consensus algorithm useless. Here is a thought exercise illustrating the point:

  * What is the likely percentage of PTS holders who move their funds out of the genesis block? I would guess a minority within the first year. Let's take an estimate of 50%.
  * What percentage of those people would actively participate in voting? Let's estimate that at 35%.

If these estimates are even close to being reasonable, it would mean that only 17.5% percent of the stake would be used in active voting. A single entity owning 13.5% of the money supply (not counting the personal funds of I3 employees) means that essentially a single person (Dan) decides the entire 101 delegate stack. This translates into complete centralization of the currency. I want to emphasize that I am not arguing that Dan should not be trusted, just that it violates the intent of a distributed consensus algorithm for a single entity to possess absolute and unanswerable control. At this point it becomes more efficient for Dan to simply manage the ledger as a trusted counterparty. I contend that we are currently at that point with PTS.

Proposal

Firstly, I appreciate that the Bitshares Trust has been careful not to crash the price of PTS by liquidating the Angel fund recklessly. I think most would agree that, long term, having a 13.5% stake in such an asset is not in the best interest of the Trust or PTS holders. I’ve proposed a structure for reducing the position of the Angel fund in the upgraded PTS, as follows:

The Bitshares Trust would promise to:
-reduce the fund’s position to a maximum of 3% stake within 2 years. This requires divesting about 180,000 PTS.
-sell 55,000 PTS to private investors in a series of blind auctions distributed over the next year (e.g., monthly). For example, two 2300 PTS segments can be sold each month at a discount to large investors in exchange for a non-binding commitment to not sell for at least 1 year.
-sell another 55,000 PTS on the exchanges over the next 2 years.
-perform a controlled burn of 30% of the fund to offset the downward price pressure of the above. The 30% stake is not chosen randomly. The BTS allocation of PTS was discounted by 30% from the amount of the social contract and this would be a similar allocation.

This proposal would allow I3 to generate a lot of cash and to maintain a very large stake in PTS without compromising the integrity of the whole system.

Advantages

* Over the long haul, the Trust would get a higher return on investment than if it were to simply sell the whole 13.5% on the exchanges. In fact, I’m not sure if there would be any incentive to keep PTS alive without such a commitment from the Trust. Without such a structure in place, the actual end result might be that PTS completely dies after the BTS merger.
* Such a commitment would do a lot to restore PTS investor’s confidence in Bitshares and I3, and to inspire PTS investors to grow the Bitshares ecosystem.
* Lastly, such a commitment would better position PTS as a stable long-term store of value for outsiders who may be wary of investing in a PoS coin with low participation and a single shareholder having a lopsided proportion of the money supply.

Conclusion

This proposal allows the Bitshares Trust to generate a lot of revenue from a currency that would otherwise die and therefore be worthless to all parties. The Fund would keep a significant stake in the new PTS, and at the same time show PTS investors a token of good faith after the very tumultuous recent events.

I have presented this proposal to Stan. He did not offer an approval or disapproval of the idea, but he did mention that the proposal should be presented to the community in order for the Bitshares Trust to consider supporting it. Please voice your concerns and opinions here.