Author Topic: Are there other funding models to pay for development?  (Read 4204 times)

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Offline starspirit

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Another possible variation to help fund development and speed growth, without diluting BTS supply, is to issue a new token that has preference over network revenue. Let's call this a BTSP, short for "BTS Preferred".

Suppose BTSP are sold and raise funds of X. X can be used to fund a level of project development in excess of delegate based pay. The BTSP capital is repaid by having first preference over bitShares network revenue, until full repayment of [X+accumulating interest], has been completed. By structuring BTSP in this way, there is no impact at all on BTS supply - however, BTS owners are giving away the first cut of profits as a trade-off for faster development of the network.

As with any such structure, there are a number of variables that can be played with. For example:

Denomination - X can be denominated in BTS. Or it could be denominated as a fiat currency equivalent value of BTS.
Interest - can be preset, or subject to market bidding when capital is raised
Profit cut -  could be a meaningful proportion of network revenue (100% or less), and/or subject to a ceiling, or if project specific, might even relate to specific types of revenues
Performance triggers - repayment only begins if pre-specified development outcomes are met, or adopted into the protocol
Payment - could occur by using buybacks, settlements, or distributions.

If BTS owners were to accept the idea of sharing network revenue in order to allow deeper funding pools and faster network development (presumably subject to some sort of BTS vote), then it is also possible to invite alternative development teams to share in the development of the core protocol, and find community segments willing to fund them. This would require sound profit models, and the license arrangements with CNX might need some modification to deal with this flexibility.

If people are happy with the rate of development coming through on 2.0, this might not be considered necessary right at this point. In future I do think bitShares ultimately retains more control over development if it has a number of means to fund itself.



Offline starspirit

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Taken from the hangout thread:

bytemaster,

What is your view on bitShares borrowing from the market to help fund development? Depending on the size of such loans, the possibility of dilution may not sit well with those who think of BTS as a currency, but if we think of BTS as a growing business in need of development capital, giving bitShares more flexible options in its own capital structure could increase our ability to manage for growth while still doing it all on the block-chain. Clearly this is partly a question of philosophy.

[BM, if you want more colour on it beforehand, see discussion here... https://bitsharestalk.org/index.php/topic,16973.msg217478.html#msg217478]

I'm not Bytemaster, but I'm happy to answer since I'm not technically required to know what I'm talking about.
(After all, this is not rocket science.)

But the question is not where to obtain BitShares, it's the fact that you intend to liquidate them that matters.
Whether you borrow or print or "earn" them doesn't matter if you intend to HODL until 2099.
Now if you issue a vesting asset that someone can use as collateral to borrow against outside BitShares, then you've got something.

They will be spending other assets while the BTS stay locked up until a time far, far away when BTS will be the global reserve currency and no one will care if you sell them into a deeply liquid market.

That said, viewed as a business, that is exactly what Silicon Valley startups do.  They issue equity for work, which the workers are happy to take with the hope it will result in higher value than a paycheck if the company is successful.  But if you get into a situation where the workers must immediately liquidate their shares to buy food, then you are hurting your share price.

This is fine in normal startups where investors understand that they will not be able to sell for many moons.
It is not so fine if investors can sell now and buy back later when all the hard work is complete.

Disclaimer:  I am not an economist, I only play one late at night to amuse myself.

 :)
Thanks for your comment Stan.

The main purpose of the loans would be to have a deeper pool of development funds than currently available through delegate pay alone, so that bitShares can directly pay for all the developers it needs, and pay them a competitive rate. It doesn't directly tackle the questions you raise about how those payments should be packaged to align the interests of the developers with the stakeholders, as well as ensure they are not unduly pressuring the price of BTS through sales. But now you raised it, I'll add some thoughts on these issues, which are also important.

I suspect whether you pay the developers in BTS, bitUSD or something else doesn't really matter from their perspective, as long as they are free to convert one to the other at market prices. And it doesn't matter from the perspective of BTS owners, because whatever currency you pay them in is the same currency that has to be extracted from the market in the first place to lend to the bitShares development pool (just to be clear, lent funds must be taken from the market - they are not produced by dilution). There is only a timing difference in the end, although if such loans were spread over time, a lot of the timing differences would smooth out anyway. What the market will be concerned with is any potential dilution to make maturity payments should the reserve pool be insufficient.

As far as alignment goes, some developers will want the security of a competitive income stream, and then they can decide after the fact if they want to save some of this in the form of BTS or not. This is like a typical employee wage. Others will be happy to get paid at a higher rate, by sacrificing secure wages now in order to be paid in equity that only vests after some period (say 3 years). bitShares should also be happy to pay these people at a higher rate, because the interests of both parties are aligned by future share performance. This is like startup equity. And there may be other developers whose risk tolerance sits somewhere in the middle.

I doubt there is any easy way to meet your suggestion for a developer to get vested equity, and be able to borrow against that to cover daily expenses. If they could do this, they would be building a risky leveraged position for themselves. Their only realistic choice is somewhere on the spectrum of secure income to vesting equity. And that may come down to each individual.

I hope this helps and I have not gone on a completely different tack. I'll copy these comments to the original discussion thread so that we don't steal fuzzy's thread here.

Offline Stan

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There is also the Bitcoin model - create a crypto, then create value for it. Cover costs by being among the first believes to dedicate mininga and development time.

I love DPOS and POS algos. But for distribution I prefer mining. There are really great algorithms now that allow for good distribution. It also has a viral effect.

I know BTS community is against mining, but if you think about ProtoShares (PTS) -  believers in the ideas mined and did well overall.

My take on that is that there are 600 coin distributions out there already for every demographic imaginable.
Dog lovers, permaculture enthusiasts, mars colonizers, economically aware libertarians, you name it.
So you can roll you own "fair mix"by sharedropping on custom tailored mix of chains to exactly the kind of supporters you want to attract.
If you use mining, you just get a demographic of geeks who know how to set up a mining rig.
Worse, you get a demographic of big mining pools who will suck up your "fair distribution" and resell them at their true market value.
If they are going to ultimately be sold to people who actually want them, you might as well sell them yourself and raise development funds in the process.


Stan, my point was, I'd like to see your "SmartCoins" allow to define custom distribution including mining. That's all. :)

EDIT: also better in terms of regulation.

Perfectly valid.  There are more mining lovers than dogelovers so why not?

As long as you are doing it because you consciously have selected that demographic.
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Offline Stan

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If they are going to ultimately be sold to people who actually want them, you might as well sell them yourself and raise development funds in the process.

Yes.

But according to bitcointalk, this makes you a "scam".  As does making any amount of money, ever.

Indeed. 

If you pick a blue chain you wake up in your bed and believe whatever you want to believe.
If you pick our red chain, you stay in wonderland and I show you how far this rabbit hole goes.




« Last Edit: June 17, 2015, 01:30:02 am by Stan »
Anything said on these forums does not constitute an intent to create a legal obligation or contract of any kind.   These are merely my opinions which I reserve the right to change at any time.

Offline bitmeat

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There is also the Bitcoin model - create a crypto, then create value for it. Cover costs by being among the first believes to dedicate mininga and development time.

I love DPOS and POS algos. But for distribution I prefer mining. There are really great algorithms now that allow for good distribution. It also has a viral effect.

I know BTS community is against mining, but if you think about ProtoShares (PTS) -  believers in the ideas mined and did well overall.

My take on that is that there are 600 coin distributions out there already for every demographic imaginable.
Dog lovers, permaculture enthusiasts, mars colonizers, economically aware libertarians, you name it.
So you can roll you own "fair mix"by sharedropping on custom tailored mix of chains to exactly the kind of supporters you want to attract.
If you use mining, you just get a demographic of geeks who know how to set up a mining rig.
Worse, you get a demographic of big mining pools who will suck up your "fair distribution" and resell them at their true market value.
If they are going to ultimately be sold to people who actually want them, you might as well sell them yourself and raise development funds in the process.


Stan, my point was, I'd like to see your "SmartCoins" allow to define custom distribution including mining. That's all. :)

EDIT: also better in terms of regulation.
« Last Edit: June 17, 2015, 01:20:31 am by bitmeat »

Offline Ander

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If they are going to ultimately be sold to people who actually want them, you might as well sell them yourself and raise development funds in the process.

Yes.

But according to bitcointalk, this makes you a "scam".  As does making any amount of money, ever.
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Offline Stan

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There is also the Bitcoin model - create a crypto, then create value for it. Cover costs by being among the first believes to dedicate mininga and development time.

I love DPOS and POS algos. But for distribution I prefer mining. There are really great algorithms now that allow for good distribution. It also has a viral effect.

I know BTS community is against mining, but if you think about ProtoShares (PTS) -  believers in the ideas mined and did well overall.

My take on that is that there are 600 coin distributions out there already for every demographic imaginable.
Dog lovers, permaculture enthusiasts, mars colonizers, economically aware libertarians, you name it.
So you can roll you own "fair mix"by sharedropping on custom tailored mix of chains to exactly the kind of supporters you want to attract.
If you use mining, you just get a demographic of geeks who know how to set up a mining rig.
Worse, you get a demographic of big mining pools who will suck up your "fair distribution" and resell them at their true market value.
If they are going to ultimately be sold to people who actually want them, you might as well sell them yourself and raise development funds in the process.



« Last Edit: June 17, 2015, 01:05:44 am by Stan »
Anything said on these forums does not constitute an intent to create a legal obligation or contract of any kind.   These are merely my opinions which I reserve the right to change at any time.

Offline Helikopterben

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I think we should wait to see if the cnx deal works until the blockchain is profitable.  If so, then shareholders could vote to buy out cnx and/or licensing.  It sounds like this may be a possibility depending on how quickly bitshares 2.0 can be put into production.

Offline starspirit

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On Investment Loans

As this method gained some interest, I wanted to expand some ideas on it.

In modern markets there are many variations on capital structures, ranging through shares, preferred shares, convertible bonds, corporate bonds, asset-backed securities etc. Each of these have different implications for capital movement, dilution and interest. Likewise here, there would be a wide range of structures that could be considered.

For example, there would be no need to pay coupons (simplifying administration) if the loans were structured like zero coupon bonds. These could then trade at a floating discount to par in the market.

The maturity payment could be set to a maximum dilution on BTS (i.e. a maximum percentage of the market cap). In that way, BTS never effectively defaults or becomes bankrupt and can always be an ongoing concern. Its just a risk the market needs to price in.

Or to minimise dilution, the tokens could get repaid first from any future revenues, with BTS holders only getting paid once the debt is fully repaid with interest.

If profitability is reached early, or funds are raised by other means, there might be options to repay the loan early.

So really a number of different parameters can be considered, to effect different outcomes, and each has different impacts on demand and interest.

The community would then also have many more choices for participating in the bitshares enterprise, as to whether they wish to hold the full-risk BTS token, or some more conservative token that supports it.

The first step though is to consider whether we wish to walk down this road. There would need to be much debate.

Offline bitmeat

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There is also the Bitcoin model - create a crypto, then create value for it. Cover costs by being among the first believes to dedicate mininga and development time.

I love DPOS and POS algos. But for distribution I prefer mining. There are really great algorithms now that allow for good distribution. It also has a viral effect.

I know BTS community is against mining, but if you think about ProtoShares (PTS) -  believers in the ideas mined and did well overall.


Offline starspirit

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On the further implications of the OP

Thinking out loud here.

Ideas 1. and 2. are really treating BTS as equity-type tokens in a startup business, rather than the more traditional view many might hold of BTS competing as a currency. These methods would not be appropriate to a currency at all, because of their [ed: potentially] dilutive effects, depending on the actual token structure, and whether market cap growth exceeds the growth in obligations.

[Edit: clarified with potentially dilutive, because they may not need to be dilutive if the value of BTS ends up rising more than the accumulated obligation]

But business equity could well be a more accurate vehicle to achieve the goals of BTS. We can debate the core purpose of BTS, but one justifiable view is that BTS aims to develop and own the technology and platform on which a profitable and free ecosystem will be built. That is inherently a business endeavour. We have already taken a tentative and controversial step in that direction through allowing some dilution to fund development. But we've done that within the bounds of what might be acceptable within the crypto-currency space, which imposes limits on funding as we know. Instead we could give ourselves the full flexibility of any traditional business as follows:

BTS = equity in the technology and infrastructure of the system, like any other business, but on a block-chain!

XCoin(s) = currency (to be developed) that will compete directly in the crypto-currency / fiat space (not pegged)

In other words, we give BTS the flexibility of any other business, and we don't have to give up creating our own superior currency (independent money) or many variations of such currency. We just create those as well! But the XCoin does not bear any development expenses (beyond covering network cost of transactions) or any equity reward. It could potentially be produced with little marginal cost as a byproduct of the bitShares protocol.

The full business flexibility in the BTS operational structure could also serve as a template for other businesses moving to the block-chain. (I'm thinking BTS owners should share with CNX in the reward from this to the extent they co-develop it.)

In this way, there would be no need for the community to split on this issue, because they could simply choose how much of BTS vs XCoin they desire to hold and use. [In general, offering user choice within the bitShares protocol is the best way to keep a united community].
« Last Edit: June 17, 2015, 01:25:53 am by starspirit »

Offline cylonmaker2053

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Equity crowdfunding is another possibility a la something like Kickstarter

Offline fuzzy

2. Investment Loans - What if we borrowed from the market for investment purposes, effectively leveraging the business? For example, we issue $2m USD loan tokens to the market, paying say 25% pa (or a market-determined rate), repayable in 2 or 3 years. Payment is made at expiry by the block-chain diluting the necessary value of BTS shares. If the business has invested well, the market cap should have risen by much more than $2m. If there is not sufficient equity for payment, loans may need to be rolled if the market is willing, or else default terms would kick in.

This is also a great idea that only BitShares is capable of implementing at the moment and that would add a whole new dimension to BitShares: credit. The problem of credit is that it requires trust and that's a hard problem to crunch. But the specific case that you propose doesn't have this drawback because the borrower isn't a user but the network itself. Since the network can't run away or make misrepresentations and it's financial health can be readily evaluated at any moment it is a pretty good counterparty for a lender. The network could issue bonds like governments issue bonds. Bonds would be denominated in bitAssets or BTS depending on the use case, pay a coupon monthly and be traded on the market so that lenders wouldn't even need to be locked in a fixed term commitment but only accept the risk that they could suffer a loss if they sell before maturity at a time where the price is low.

This is genius.   +5%

Yes, monsterer...it certainly is.
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Offline monsterer

2. Investment Loans - What if we borrowed from the market for investment purposes, effectively leveraging the business? For example, we issue $2m USD loan tokens to the market, paying say 25% pa (or a market-determined rate), repayable in 2 or 3 years. Payment is made at expiry by the block-chain diluting the necessary value of BTS shares. If the business has invested well, the market cap should have risen by much more than $2m. If there is not sufficient equity for payment, loans may need to be rolled if the market is willing, or else default terms would kick in.

This is also a great idea that only BitShares is capable of implementing at the moment and that would add a whole new dimension to BitShares: credit. The problem of credit is that it requires trust and that's a hard problem to crunch. But the specific case that you propose doesn't have this drawback because the borrower isn't a user but the network itself. Since the network can't run away or make misrepresentations and it's financial health can be readily evaluated at any moment it is a pretty good counterparty for a lender. The network could issue bonds like governments issue bonds. Bonds would be denominated in bitAssets or BTS depending on the use case, pay a coupon monthly and be traded on the market so that lenders wouldn't even need to be locked in a fixed term commitment but only accept the risk that they could suffer a loss if they sell before maturity at a time where the price is low.

This is genius.   +5%
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Offline klosure

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A lot of good ideas in this thread

1. "Equity dilution" - What if we gave up on the notion that BTS is like a currency? We could treat it more like a startup business. First we would need a clear profit model for our core products - that is, how will these be monetised and what could they be worth. Then, there would be no reason why we could not dilute $2m worth of shares in a year, if we thought that was the investment required for the project to deliver a revenue stream well in excess of this down the track. If the market embraces the direction of the business, capital gains should more than exceed the dilution.
As tonyk says in his reply, dilution can support funding only if the investor and recipient of the diluted shares agrees not to sell his holdings until there is a real market to absorb the sales. The investor can bring either capital or sweat equity. In the first case, we can try to attract investors by auctioning OTC a large position at a price significantly lower than market price under condition that the investor commits not to sell for a specific amount of time. The second case can be implemented easily with a minor change to the delegate model: instead of simply specifying a pay rate, delegates would also specify a vesting schedule as a simple percent-per-day selling cap. For instance, a delegate specifying 0.1 percent-per-day vesting effectively agrees to let his position vest over a period of 1000 days, or ~ 3 years. Developers will therefore be voted in not only based on their profile but also on their willingness to accrue equity versus cash flow.

2. Investment Loans - What if we borrowed from the market for investment purposes, effectively leveraging the business? For example, we issue $2m USD loan tokens to the market, paying say 25% pa (or a market-determined rate), repayable in 2 or 3 years. Payment is made at expiry by the block-chain diluting the necessary value of BTS shares. If the business has invested well, the market cap should have risen by much more than $2m. If there is not sufficient equity for payment, loans may need to be rolled if the market is willing, or else default terms would kick in.

This is also a great idea that only BitShares is capable of implementing at the moment and that would add a whole new dimension to BitShares: credit. The problem of credit is that it requires trust and that's a hard problem to crunch. But the specific case that you propose doesn't have this drawback because the borrower isn't a user but the network itself. Since the network can't run away or make misrepresentations and it's financial health can be readily evaluated at any moment it is a pretty good counterparty for a lender. The network could issue bonds like governments issue bonds. Bonds would be denominated in bitAssets or BTS depending on the use case, pay a coupon monthly and be traded on the market so that lenders wouldn't even need to be locked in a fixed term commitment but only accept the risk that they could suffer a loss if they sell before maturity at a time where the price is low.

3. Project equity - Development projects could be privatised as far as possible, where there is a clear revenue stream possible. Developers can either take the risk themselves, share it with a group of backers, or take a salary and pass it all to the backers. At a granular level, it may even be possible that any modules accepted into the core protocol could receive a revenue stream from its direct use, or use by other modules.

That's also a possibility. Although the development of the core can't be privatized due to operational risk and infrastructure ownership considerations, everything that isn't strictly required as core functionality could be externalized to private companies: bidges, wallet programs, trading tools, charting and reporting websites, community websites etc. Although this doesn't solve the problem of funding the core development, it could help alleviating it by getting rid of developments that need not be developped by the core development team. For instance, it would be relatively easy to prune the current wallet out of the codebase.
« Last Edit: June 16, 2015, 08:50:16 am by klosure »