Author Topic: food for thought - raising fees  (Read 5213 times)

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Offline merivercap

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Bitmarket.  Glad you brought up the topic because I wanted to understand what the consensus was about transaction fees in general. Stepping back a bit, transaction fees are the source of revenue and delegate pay are expenses to run the system.  Any net profit goes to shareholders.

#1)  If you compete with Paypal their volume is $64B per quarter or running at $240B+ per year and roughly 3% avg transaction fee generates: $7.2B in revenue.  Paypal's operating income is $1.8B (according to Ebay 10-K, pg F-19).  They spend $5.4B in operating costs (SG&A).  Margin is roughly 25%.  Interestingly if you look at pg. 60 in the 10-K, Paypal's cost of net revenue is roughly 40% (bank fees, credit card interchange & assessment fees, interest expense etc.) Most of these fees crypto-companies don't need to incur. 

$7.2B revenue
$3.1B (cost of revenue -bank/credit card interchange fees etc)
---------------------------------
$4.1B net revenue
$1.8B income

The inferred SG&A is $2.3B for Paypal which is 56% of revenues.

Using the parent company Ebay for the allocation of SG&A we have:
48% Sales & Marketing
27% Product Development
25% General & Admin

The above is one example allocation for a business.  Keep in mind early on for a growing company you shouldn't distribute earnings back to shareholders.  That's not a good use of profit.  It's better to put profits to fuel growth.  Most growth companies do not have earnings because you get higher ROI putting profits back in the business than returning it to shareholders.  When a company stabilizes at the end of an S-curve, that's when as a shareholder should demand dividends & profit so profits are not put into wasteful low return investments.  Apple is a tricky one to evaluate because they are mature, but they always innovate.  As a shareholder I would request dividends at their stage of the company because innovation stalls, opportunities become more limited, and that much cash is probably not needed anyways.  Anyways, if you are going for n^2 network effect, all eyes should be on growth. 

BTW it's interesting because Icahn and other are encouraging a spin-off and putting valuations on Paypal so it would be nice to see some analysis.  If you just put a 20-25x multiple on Paypal's operating income you get a $36B - $45B valuation for Paypal and those are the valuation #'s being thrown around.

#2) If you compete against crypto-companies, all companies essentially converge towards zero or negligible revenue (transaction fees).  The technology allows roughly free transactions so you shouldn't expect much profit.  Just like the Internet disrupted the media industry and created a world of negligible profits for information & knowledge dissemination, the finance industry will realize the same fate.  Value and wealth is created with all technology, so all the people benefit.  It's just that work & jobs have to be remade and reallocated.  Those in the finance industry will have to evolve and reshape their services much like those in the media industry had to....it will be the same with the legal profession...and governments are next... :P.. but in the end it's just the natural progression.. well after the Bitcoin/blockchain Cambrian explosion that is..

#3) In the meantime I think we go after the traditional system and make money competing with the existing industry.  Also it's not like fees are the only thing that matters.  UI/UX and ease is incredibly important and Bitcoin has real disadvantages as a common payment network.  (I still see Bitcoin as having potential as a future store of value/collectible/digital Gold because of its unique properties, but who knows for sure).  Even if you charge 2.0-2.5% against Paypal and make the UX great you can still do well... and bitAssets is the key to that.  You just have to expect cryptocurrencies to put pressure to keep lowering transaction fees from 2 - 2.5% down to something much smaller ...and that will happen sooner than later, but who knows.  Just create a great UX and you can maintain fees for much longer.  Also in the long run if BTS captures mass market share, I would assume early shareholders would sell off their shares and the most active users (businesses that transact a lot) may end up being the largest stakeholders and all transaction fees they generate would essentially go back to themselves.  Or a better way to put it is the shareholders will own an amount proportional to their use.

4) So Paypal spends 56% of it's net revenue for operations but it's much more mature.  I would say spend 100% of revenue early on.  Ebay's allocation is 48% Sales & Marketing, 27% Product Dev, 25% General & Admin.  I'd say start with 33% for Sales & Marketing, 33% for Product Dev, 33% for Business & General and go up and down from there.

5) There are two groups you have to consider.  Consumers & traders/speculators.  For the former, you can charge higher fees.  For the latter to get liquidity you can't.  I would use Paypal as a comparison for the former (3% fees), and current crypto exchange platforms for the latter.  Bitfinex fees are: (0 - 0.1% for makers/ 0.2% for takers). 

Competition for the wallet with lowest fees doesn't happen until there's a large user base that's in for the long haul.  Even then, many users will just use the setup they're used to unless the fees are ridiculous.

Adding it at the protocol level is just unnecessary, and adds significant long term privacy concerns.

This is a solved problem. The model used by the light and web wallet developers will also function for referrals.

Yeah I prefer it outside the protocol level as well for the reasons you mention. 
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jaran

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I'm one of those that believe everything should be done with fees and this whole delegate share dilution stuff should be done away with.

To me the fees are the income of the DAC and should get deposited in the DAC account  and convert the fees into a stable asset such as bitUSD.  Shareholders can then use funds to hire employees etc from this account.

Then share dilution should only be done at the DAC level with a vote to SALE shares to the public and deposit those funds in the DAC account...

I know others have suggested more elegant well thought out ideas regarding this basic model elsewhere..

This whole employees getting paid with share dilution is not working.  I have never seen it work in the real world either.  It has way too many problems such as the employees dont have a stable income...shareholders might be getting ripped off if the price all of the sudden goes way up etc.

I agree in principal; the DAC should be a closed ecosystem. But in practice if anyone gets paid fees from transactions in the blocks, they are securities/commodities brokers. If delegates mine coins from signing blocks, they are cryptocurrency miners.

I realize that there is probably legal stuff that has to be worked around, but maybe something like this is possible:  Delegates mine burned shares back into existence based on yesterdays burn rate.  So if yesterday we burned $1,000 of shares in fees then today delegates will mine $1,000 of shares back into existence...then pay the new shares to the DAC account.  The DAC then distributes the funds to employees / programs based on smart contracts.


« Last Edit: March 31, 2015, 10:07:54 pm by jran »

Offline starspirit

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There are 35000 BitShares accounts - I'd be interested to know how many accounts are actively trading the product on the exchange? How frequently do they trade, and how many have made bitAsset transactions in the last month? Is the evidence that we are seeing strong internal utilisation of the product, or do we first need to encourage this by continuing to develop the features and usability that the existing community demands? I'd be reluctant to raise fees on a beta product to market to a wider audience unless we believe these things are already in place.

Offline Ander

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Something needs to happen though. No matter how good the product, we don't get enough users. Is there a way to compare userbase vs nubits? I'd say we're already behind.

I dont know about that, NSR has gotten clobbered even more than BTS in the past couple months.
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Offline maqifrnswa

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I'm one of those that believe everything should be done with fees and this whole delegate share dilution stuff should be done away with.

To me the fees are the income of the DAC and should get deposited in the DAC account  and convert the fees into a stable asset such as bitUSD.  Shareholders can then use funds to hire employees etc from this account.

Then share dilution should only be done at the DAC level with a vote to SALE shares to the public and deposit those funds in the DAC account...

I know others have suggested more elegant well thought out ideas regarding this basic model elsewhere..

This whole employees getting paid with share dilution is not working.  I have never seen it work in the real world either.  It has way too many problems such as the employees dont have a stable income...shareholders might be getting ripped off if the price all of the sudden goes way up etc.

I agree in principal; the DAC should be a closed ecosystem. But in practice if anyone gets paid fees from transactions in the blocks, they are securities/commodities brokers. If delegates mine coins from signing blocks, they are cryptocurrency miners.
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Offline Globally Distributed

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Competition for the wallet with lowest fees doesn't happen until there's a large user base that's in for the long haul.  Even then, many users will just use the setup they're used to unless the fees are ridiculous.

Ask bytemaster if he's in for the long haul or not.  Shortsighted decision making can leave businesses crippled in the long run.  Ask yourself, if there were a perfect replication of BTS, call it BTS2, and if BTS has 3rd party referral incentives and BTS2 has protocol level referral incentives, which DAC, BTS or BTS2, performs better over the long haul, and even short haul for that matter.

Adding it at the protocol level is just unnecessary, and adds significant long term privacy concerns.

I may see where you're going with this, but public reputation is where it's going to be at!

This is a solved problem. The model used by the light and web wallet developers will also function for referrals.

The dev team has made no indication that they feel this is a better solution, and I gather that they see the protocol as a better base for marketing incentives.


In summary, you made the point yourself, 3rd party referral incentives is not a solution for the long haul because competition will drive down fees.   BTS may face less competition than wallets, and therefore its products (including their fees) have greater inelasticity, which means referral marketing protocol level is better suited for the long haul.
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jaran

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This whole employees getting paid with share dilution is not working.  I have never seen it work in the real world either.  It has way too many problems such as the employees dont have a stable income...shareholders might be getting ripped off if the price all of the sudden goes way up etc.
Would you be in favor of dilution if it were denominated in BitUSD?

I would only be in favor of dilution in the traditional sense.  Where you dilute existing shareholders to raise funds.  Those funds then belong to the DAC.  The shareholders vote on how to spend these funds based on proposals such as this referral program.  If a proposal gets voted in then a smart contract is made.

The DAC uses it's funds  to make good on its contracts with employees / programs etc.




« Last Edit: March 31, 2015, 08:28:54 pm by jran »

Offline Ander

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Raising the fee would be reasonable given that a .5 BTS fee used to be a couple cents, and now is a fraction of a cent.
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Offline fav

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Something needs to happen though. No matter how good the product, we don't get enough users. Is there a way to compare userbase vs nubits? I'd say we're already behind.

Offline Chronos

This whole employees getting paid with share dilution is not working.  I have never seen it work in the real world either.  It has way too many problems such as the employees dont have a stable income...shareholders might be getting ripped off if the price all of the sudden goes way up etc.
Would you be in favor of dilution if it were denominated in BitUSD?

jaran

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I'm one of those that believe everything should be done with fees and this whole delegate share dilution stuff should be done away with.

To me the fees are the income of the DAC and should get deposited in the DAC account  and convert the fees into a stable asset such as bitUSD.  Shareholders can then use funds to hire employees etc from this account.

Then share dilution should only be done at the DAC level with a vote to SALE shares to the public and deposit those funds in the DAC account...

I know others have suggested more elegant well thought out ideas regarding this basic model elsewhere..

This whole employees getting paid with share dilution is not working.  I have never seen it work in the real world either.  It has way too many problems such as the employees dont have a stable income...shareholders might be getting ripped off if the price all of the sudden goes way up etc.




Offline Troglodactyl

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Competition for the wallet with lowest fees doesn't happen until there's a large user base that's in for the long haul.  Even then, many users will just use the setup they're used to unless the fees are ridiculous.

Adding it at the protocol level is just unnecessary, and adds significant long term privacy concerns.

This is a solved problem. The model used by the light and web wallet developers will also function for referrals.

Offline Globally Distributed

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There's a win win here.  Instead of increasing fees at the protocol level by increasing the minimum relay fee or block inclusion fee, you can raise default fees in whichever wallet you wish to market, and send them wherever you want.  The web wallet already charges non-network usage fees per transaction to pay for development, and modprobe's light wallet is also already designed so that anyone can run a light server, and charge additional transaction fees to the users who use that server.  With slight modification, any light wallet should be able to send transaction fees to the address that payed for its account registration, or to the first account they received from, or whatever other method is chosen to designate a referrer account.

Protocol level changes are less flexible and more controversial, and should be avoided whenever a solution exists at the application level.

Referrals & fees should be decided at protocol level IMO.  Without a solid base for marketing in the DAC, wallet marketing may have much less staying power as the wallets compete to have the lowest fees.
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Offline davidpbrown

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Good idea.

There will come a point that we need to be careful about what delegates are getting paid. I've paid little attention to those, as it's a soap opera like time investment keeping up with it but if the 100% delegates are devs and others that we know are delivering value, then there's likely no issue until marketcap is ?x5. One solution to delegates get too rich, would be that they could be seen to splash that cash at will, in ways that support BitShares broadly.

Raising transactions fees and seeing referrals kick in, would be ideal.
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Offline Ben Mason

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I agree, raising the fees to help pay for referral at this time is a great idea....