Author Topic: Number of Bitshares X at launch  (Read 26923 times)

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Offline bytemaster

Dear Bytemaster, 

Please do whatever will be best for BitShares X in the long run.  This might include maneuvers to dilution.  Choose what's best for BTS as a business.  Forget ABL, forget naysayers, forget trolls, forget lazies, forget people who don't get 'it', clear your mind, and do what we need you to do.  We will support you all the way.

Pursuit of truth,

bitbro


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The naysayers have valid perspective and are critical in helping me get out of mental traps.  I owe a ton to the naysayers that convinced me to use approval voting.   Some of these things are not black and white and in the case of dilution / etc it is not clear for me. 

I will do my best to do right by as many people as a possible.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

bitbro

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Dear Bytemaster, 

Please do whatever will be best for BitShares X in the long run.  This might include maneuvers to dilution.  Choose what's best for BTS as a business.  Forget ABL, forget naysayers, forget trolls, forget lazies, forget people who don't get 'it', clear your mind, and do what we need you to do.  We will support you all the way.

Pursuit of truth,

bitbro


Sent from my iPhone using Tapatalk

Offline bytemaster

Think about this more in terms of a Decentralized Autonomous Country.... the delegates are the government and the shares are the votes that elect them.   Citizenship in this country is purchased and there is a limit on new emigration established by the constitution.   

People want to be a citizen of this country for the benefits that come with it, but of course they have to pay for those benefits via dilution.   If there is a good government that is producing more benefits than the dilution expense then the country will grow.  If it is a bad government it will shrink.

The primary difference is that no one is forcing you to participate in this government and no one is 'born into it'.   If you think the dilution represents a net negative return, then you sell for something with a better return.   Market forces at work.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline Agent86

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Not so fast, my friend. "Dilution" in the VC world is actually a form of financing, i.e., capital-raising. That means the VC gets shares for providing money to the company company. Often, anti-dilution clauses are put in place as a safeguard to protect early investors. This is very different I think from the dilution in a crypto chain that you have in mind.
You can try to draw a distinction but the result is the exact same.  New shares are issued, prior shares are diluted, funds raised from the sale of new shares are used to pay company expenses.

I'm not sure if you understand what a standard anti-dilution clause says:
"An anti-dilution provision is a clause in an option, security, or merger agreement that gives the investor the right to maintain his or her percentage ownership of a company by buying a proportionate number of shares of any future issue of the security."
Guess what, under my plan you get a built in anti-dilution provision! Lucky for you!  All shares are sold on the open market and you are free to buy them so that your total stake is not diluted!

Quote
Your proposed "algorithm" would be very inefficient and wasteful. It defies economic principles. The fact is, a diffuse set of thousands or millions of shareholders doesn't have the information and unity of objectives to efficiently make lower-level employee pay decisions. Why doesn't the median voter in Apple decide the salary of the CFO or a senior vice president? Because it would be terribly inefficient for shareholders to coordinate on a business decision like this, leading to waste and agency problems. That type of decision is best left to management.
"The salary of management is a decision best left to management"  ... I'm not sure where to start with that one.

You have many times said I am conflating day-to-day operation with oversight.  This is not the case.
Even though I called it "DAC employees" in many ways it's analogous to CEO/upper management/BOD, I just don't like those terms for a number of reasons I won't get into.  Call it what you want, but these are people that have broad community trust and can in turn delegate or pay other contractors, less critical employees etc.  Quite likely a new crypto may only have one "DAC employee":  The core dev.

You say my algorithm defies economic principles…  Why, please be specific and elaborate?

Offline pendragon3

Setting aside shares upfront and raising capital are but two examples of tried and true ways. Do you think there is a reason that these two methods have been commonly used in the capital markets for decades, while outright dilution has not?
Completely and provably false. see post: https://bitsharestalk.org/index.php?topic=4713.msg61701#msg61701


Not so fast, my friend. "Dilution" in the VC world is actually a form of financing, i.e., capital-raising. That means the VC gets shares for providing money to the company company. Often, anti-dilution clauses are put in place as a safeguard to protect early investors. This is very different I think from the dilution in a crypto chain that you have in mind.



Quote
There is another problem with dilution strategies that has not really been discussed. That is the following: who will decide exactly how the funds are allocated and used? Which employees get the spoils, and how much they get? Who will decide how much to spend, and on which projects? Which marketing initiatives or infrastructure projects should get priority?

Yes, as I said in my previous post, a smart dilution algo with the right incentive structures is not an immediately obvious problem to solve... it's "not easy"  And that's why it's such a big deal that BitShares is on the verge of cracking the nut.

I submit that the following algo works and creates the right incentives:

Employees are elected by "approval voting."  Along with your "approval" you indicate an appropriate annual salary in bips (gets paid out daily).  Only an employee with over 50% support of stake ends up paid.  Their salary is the median voted by stake (people who did not vote for the employee are included in the median as voting for a "0" salary).

Any "inactive stake" (no transactions for over 1 year and paid inactivity penalty) should be removed from the voting algorithm.  Stake may voluntarily "abstain" and thus remove their stake from the voting algorithm.
https://bitsharestalk.org/index.php?topic=4660.0


Your proposed "algorithm" would be very inefficient and wasteful. It defies economic principles. The fact is, a diffuse set of thousands or millions of shareholders doesn't have the information and unity of objectives to efficiently make lower-level employee pay decisions. Why doesn't the median voter in Apple decide the salary of the CFO or a senior vice president? Because it would be terribly inefficient for shareholders to coordinate on a business decision like this, leading to waste and agency problems. That type of decision is best left to management.


Quote
It will be governance by the masses
uh... it's governance by the shareholders... the only governance that makes any sense.


By "governance by the masses", I meant "day-to-day decision making by shareholders." Hopefully, that was clear.


Quote
It seems that you think that a diffuse group of shareholders can coordinate effectively on the best way to invest and to compensate employees. That seems awfully naive.
yea... except that's how every single company works. 

Every company is ultimately governed by the shareholders; the shareholders elect the board of directors, they can fire the CEO and vote on his comp plan.  They can hire people to make informed decisions on their behalf but the "the diffuse group of shareholders" are ultimately the ones who voted in the leadership and call all the shots.


Name one publicly-traded company--out of the tens of thousands--in which shareholders make the day-to-day business decisions. I'm not talking about high-level governance and oversight, or hiring and firing a CEO, but decisions like paying and hiring rank and file employees or deciding on day-to-day spending, working capital management, and the like.


Quote
Investors are capital-providers. They are not managers.
Wrong again.  If you think your job is done as soon as you write the check, in most cases you can kiss that money good-bye.  You, as the shareholder, are responsible for your investment.  You abdicate this responsibility and power to your own peril.

You seem to somehow acknowledge that investors are smart enough to find a capable trustworthy developer (such as bytemaster) and fund this developer.  And yet as soon as they do this they all of a sudden become incompetent idiots who can never be trusted to make a smart decision again.


Again, you're conflating high-level governance/oversight with day-to-day management of the enterprise. Shareholders almost surely should do the former, but they are ill-equipped to the latter. They don't have the right information or incentives for doing the latter.



Offline Agent86

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Again, you're conflating high-level governance/oversight with day-to-day management of the enterprise. Shareholders almost surely should do the former, but they are ill-equipped to the latter. They don't have the right information or incentives for doing the latter.
I'm not asking them to do the latter.  I am asking them to put money into the hands of those they trust to do the latter on their behalf.

Offline pendragon3

Setting aside shares upfront and raising capital are but two examples of tried and true ways. Do you think there is a reason that these two methods have been commonly used in the capital markets for decades, while outright dilution has not?
Completely and provably false. see post: https://bitsharestalk.org/index.php?topic=4713.msg61701#msg61701


Not so fast, my friend. "Dilution" in the VC world is actually a form of financing, i.e., capital-raising. That means the VC gets shares for providing money to the company company. Often, anti-dilution clauses are put in place as a safeguard to protect early investors. This is very different I think from the dilution in a crypto chain that you have in mind.

Quote
There is another problem with dilution strategies that has not really been discussed. That is the following: who will decide exactly how the funds are allocated and used? Which employees get the spoils, and how much they get? Who will decide how much to spend, and on which projects? Which marketing initiatives or infrastructure projects should get priority?

Yes, as I said in my previous post, a smart dilution algo with the right incentive structures is not an immediately obvious problem to solve... it's "not easy"  And that's why it's such a big deal that BitShares is on the verge of cracking the nut.

I submit that the following algo works and creates the right incentives:

Employees are elected by "approval voting."  Along with your "approval" you indicate an appropriate annual salary in bips (gets paid out daily).  Only an employee with over 50% support of stake ends up paid.  Their salary is the median voted by stake (people who did not vote for the employee are included in the median as voting for a "0" salary).

Any "inactive stake" (no transactions for over 1 year and paid inactivity penalty) should be removed from the voting algorithm.  Stake may voluntarily "abstain" and thus remove their stake from the voting algorithm.
https://bitsharestalk.org/index.php?topic=4660.0

Your proposed "algorithm" would be very inefficient and wasteful. It defies economic principles. The fact is, a diffuse set of thousands or millions of shareholders doesn't have the information and unity of objectives to efficiently make lower-level employee pay decisions. Why doesn't the median voter in Apple decide the salary of the CFO or a senior vice president? Because it would be terribly inefficient for shareholders to coordinate on a business decision like this, leading to waste and agency problems. That type of decision is best left to management.


Quote
It will be governance by the masses
uh... it's governance by the shareholders... the only governance that makes any sense.

By "governance by the masses", I meant "day-to-day decision making by shareholders." Hopefully, that was clear.

Quote
It seems that you think that a diffuse group of shareholders can coordinate effectively on the best way to invest and to compensate employees. That seems awfully naive.
yea... except that's how every single company works. 

Every company is ultimately governed by the shareholders; the shareholders elect the board of directors, they can fire the CEO and vote on his comp plan.  They can hire people to make informed decisions on their behalf but the "the diffuse group of shareholders" are ultimately the ones who voted in the leadership and call all the shots.


Name one publicly-traded company--out of the tens of thousands--in which shareholders make the day-to-day business decisions. I'm not talking about high-level governance and oversight, or hiring and firing a CEO, but decisions like paying and hiring rank and file employees or deciding on day-to-day spending, working capital management, and the like.

Quote
Investors are capital-providers. They are not managers.
Wrong again.  If you think your job is done as soon as you write the check, in most cases you can kiss that money good-bye.  You, as the shareholder, are responsible for your investment.  You abdicate this responsibility and power to your own peril.

You seem to somehow acknowledge that investors are smart enough to find a capable trustworthy developer (such as bytemaster) and fund this developer.  And yet as soon as they do this they all of a sudden become incompetent idiots who can never be trusted to make a smart decision again.

Again, you're conflating high-level governance/oversight with day-to-day management of the enterprise. Shareholders almost surely should do the former, but they are ill-equipped to the latter. They don't have the right information or incentives for doing the latter.

Offline Agent86

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Setting aside shares upfront and raising capital are but two examples of tried and true ways. Do you think there is a reason that these two methods have been commonly used in the capital markets for decades, while outright dilution has not?
Completely and provably false. see post: https://bitsharestalk.org/index.php?topic=4713.msg61701#msg61701
Quote
There is another problem with dilution strategies that has not really been discussed. That is the following: who will decide exactly how the funds are allocated and used? Which employees get the spoils, and how much they get? Who will decide how much to spend, and on which projects? Which marketing initiatives or infrastructure projects should get priority?
Yes, as I said in my previous post, a smart dilution algo with the right incentive structures is not an immediately obvious problem to solve... it's "not easy"  And that's why it's such a big deal that BitShares is on the verge of cracking the nut.

I submit that the following algo works and creates the right incentives:

Employees are elected by "approval voting."  Along with your "approval" you indicate an appropriate annual salary in bips (gets paid out daily).  Only an employee with over 50% support of stake ends up paid.  Their salary is the median voted by stake (people who did not vote for the employee are included in the median as voting for a "0" salary).

Any "inactive stake" (no transactions for over 1 year and paid inactivity penalty) should be removed from the voting algorithm.  Stake may voluntarily "abstain" and thus remove their stake from the voting algorithm.
https://bitsharestalk.org/index.php?topic=4660.0

Quote
It will be governance by the masses
uh... it's governance by the shareholders... the only governance that makes any sense.

Quote
It seems that you think that a diffuse group of shareholders can coordinate effectively on the best way to invest and to compensate employees. That seems awfully naive.
yea... except that's how every single company works. 

Every company is ultimately governed by the shareholders; the shareholders elect the board of directors, they can fire the CEO and vote on his comp plan.  They can hire people to make informed decisions on their behalf but the "the diffuse group of shareholders" are ultimately the ones who voted in the leadership and call all the shots.

Quote
Investors are capital-providers. They are not managers.
Wrong again.  If you think your job is done as soon as you write the check, in most cases you can kiss that money good-bye.  You, as the shareholder, are responsible for your investment.  You abdicate this responsibility and power to your own peril.

You seem to somehow acknowledge that investors are smart enough to find a capable trustworthy developer (such as bytemaster) and fund this developer.  And yet as soon as they do this they all of a sudden become incompetent idiots who can never be trusted to make a smart decision again.
« Last Edit: June 25, 2014, 07:23:14 am by Agent86 »

Offline pendragon3

Agent86, can you explain how you think dilution is so powerful and "right"?  It still just seems like a clever way of altering the deal to redistribute shares.  If the investors accurately price future dilution into the value assessment on which they base their investment, then dilution is equivalent to reserving shares to fund development from the beginning.  The only way dilution results in increased funding for development compared to reserved shares is if the dilution is more extreme than investors anticipate, meaning that the investors are effectively tricked into investing more than they would if they had realistic expectations.

Ok in more direct answer to your question.  Reserving some huge portion of stake up front for a developer is not at all equivalent or as powerful and useful as giving the shareholders the right to decide what investments make sense over time.

It seems that you think that a diffuse group of shareholders can coordinate effectively on the best way to invest and to compensate employees. That seems awfully naive. Investors are capital-providers. They are not managers. They do not have the information or unity of objectives that would allow them to make day-to-day business decisions as efficiently or effectively as an honest, experienced management team. Period.

Offline pendragon3

Agent86, can you explain how you think dilution is so powerful and "right"?  It still just seems like a clever way of altering the deal to redistribute shares.  If the investors accurately price future dilution into the value assessment on which they base their investment, then dilution is equivalent to reserving shares to fund development from the beginning.  The only way dilution results in increased funding for development compared to reserved shares is if the dilution is more extreme than investors anticipate, meaning that the investors are effectively tricked into investing more than they would if they had realistic expectations.
Trog... have you been involved with other crypto communities before?  Do you need me to link for you a bunch of ridiculous threads begging for charity donations from community members to pay for things like attend conferences or pay a developer etc?  Do you realize how ridiculous it is that Charlie Lee who founded Litecoin (worth 300million) can't work full time on litecoin because no one will pay him to work full time on it?  Do you understand the correlation between what I am talking about and the phenomenon of highly valued cryptos with no money to do anything?

I think you're mixing a couple of different issues here. Did the coins you mentioned have a system for setting aside shares upfront for different specialized purposes? I highly doubt these things were on the forefront of the minds of altcoin developers in 2011. Troglodactyl's point was that, aside from tricking unaware shareholders, whatever things you can accomplish with dilution, you can do with non-dilutive methods. And these non-dilutive methods vest decision making authority with developers and entrepreneurs--individuals who are in the best position to make informed, efficient decisions of how to help a chain grow, compete, and prosper.

Dilution is one way to pay employees' salaries. It can easily become a wasteful, inefficient, cynical, and ultimately self-defeating way to achieve spending objectives. It is not the only way to raise funding. Setting aside shares upfront and raising capital are but two examples of tried and true ways. Do you think there is a reason that these two methods have been commonly used in the capital markets for decades, while outright dilution has not? Can you understand how repugnant dilution is to investors? The dangers simply don't outweigh the benefits--not when other methods of paying employees are available.

There is another problem with dilution strategies that has not really been discussed. That is the following: who will decide exactly how the funds are allocated and used? Which employees get the spoils, and how much they get? Who will decide how much to spend, and on which projects? Which marketing initiatives or infrastructure projects should get priority? I can't help but think about what happened to DevCoin, with its highly inflationary system that was intended to compensate people for helping grow the network. In retrospect, the approach didn't work too well. Why not? It was simply too wasteful. Under a dilution strategy, it won't be the developer or entrepreneur who allocates funding and investments. It will be governance by the masses. To implement an open-ended dilution strategy, you are putting your faith in the approach of managing by large committee--with all of its inefficiencies and coordination problems. I think it was Bytemaster himself who said that running a company by committee is a very poor idea.

Offline Troglodactyl

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Agent86, can you explain how you think dilution is so powerful and "right"?  It still just seems like a clever way of altering the deal to redistribute shares.  If the investors accurately price future dilution into the value assessment on which they base their investment, then dilution is equivalent to reserving shares to fund development from the beginning.  The only way dilution results in increased funding for development compared to reserved shares is if the dilution is more extreme than investors anticipate, meaning that the investors are effectively tricked into investing more than they would if they had realistic expectations.
Trog... have you been involved with other crypto communities before?  Do you need me to link for you a bunch of ridiculous threads begging for charity donations from community members to pay for things like attend conferences or pay a developer etc?  Do you realize how ridiculous it is that Charlie Lee who founded Litecoin (worth 300million) can't work full time on litecoin because no one will pay him to work full time on it?  Do you understand the correlation between what I am talking about and the phenomenon of highly valued cryptos with no money to do anything?

Edit:
Ok in more direct answer to your question.  Reserving some huge portion of stake up front for a developer is not at all equivalent or as powerful and useful as giving the shareholders the right to decide what investments make sense over time.  Doing it up front means you are putting all your eggs in one basket and trusting one developer to always take care of you forever.  If he dumps the shares and quits or gets run over by a bus your f*cked.

It's certainly regrettable when good projects are hindered by lack of resources, and I recognize that having an unlimited fountain of money for investment in the system would be terribly convenient, but that's kind of beside the point.

It's a messy issue.  If the rate of dilution is pre scheduled and advertised, people should price it in, and I can see how it could solve the centralized trust issue you mention.  If it's not pre scheduled, ideally people should price in that uncertainty, but it centralizes power to a rather extreme degree, and I think there's a lot of opportunity for fraud.

Dilution allows boomerang shares that can be sold, effectively reclaimed, and sold again repeatedly.  If the customer knows that's what he's buying that's fine, but it's much easier to sell if he doesn't.

Offline Agent86

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Agent86, can you explain how you think dilution is so powerful and "right"?  It still just seems like a clever way of altering the deal to redistribute shares.  If the investors accurately price future dilution into the value assessment on which they base their investment, then dilution is equivalent to reserving shares to fund development from the beginning.  The only way dilution results in increased funding for development compared to reserved shares is if the dilution is more extreme than investors anticipate, meaning that the investors are effectively tricked into investing more than they would if they had realistic expectations.
Trog... have you been involved with other crypto communities before?  Do you need me to link for you a bunch of ridiculous threads begging for charity donations from community members to pay for things like attend conferences or pay a developer etc?  Do you realize how ridiculous it is that Charlie Lee who founded Litecoin (worth 300million) can't work full time on litecoin because no one will pay him to work full time on it?  Do you understand the correlation between what I am talking about and the phenomenon of highly valued cryptos with no money to do anything?

Edit:
Ok in more direct answer to your question.  Reserving some huge portion of stake up front for a developer is not at all equivalent or as powerful and useful as giving the shareholders the right to decide what investments make sense over time.  Doing it up front means you are putting all your eggs in one basket and trusting one developer to always take care of you forever.  If he dumps the shares and quits or gets run over by a bus you're f*cked.
« Last Edit: June 25, 2014, 05:07:06 am by Agent86 »

Offline Stan

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Pendragon3, you are wrong about dilution.   Dilution is not "easy and cheap" it is an extremely powerful force that if harnessed correctly (not easy) is VERY hard to compete against.  The advent of approval voting has made effective, targeted, democratic dilution very close to reality imo.  I don't think it would take much to implement DAC employees (paid through dilution during the growth phase of a DAC); this likely could be coded in a week.  This is a KILLER APP that is so important and powerful it is hard to overstate.  Yes, the word dilution will scare off some unimaginative investors but those are not the investors we need to attract.  You are WAY underestimating how big a role dilution will play in successful DACs.  An "alpha" DAC owned by investors who don't understand dilution will need an amazing amount of luck and lack of competition to stay "alpha"; an amount I don't think is realistic to expect.

The "CPOS" thread kind of turned into a dilution discussion so some info is also there: https://bitsharestalk.org/index.php?topic=4713.msg60250#msg60250

 ;)
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 Troglodactyl

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Agent86, can you explain how you think dilution is so powerful and "right"?  It still just seems like a clever way of altering the deal to redistribute shares.  If the investors accurately price future dilution into the value assessment on which they base their investment, then dilution is equivalent to reserving shares to fund development from the beginning.  The only way dilution results in increased funding for development compared to reserved shares is if the dilution is more extreme than investors anticipate, meaning that the investors are effectively tricked into investing more than they would if they had realistic expectations.

Offline Agent86

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My preference is that BTS X be released without any default dilution in place but some promise to never dilute IS NOT RESPONSIBLE.  Business and competitive needs could make it a virtual necessity and the lack of this power could be more than a missed opportunity, it could easily be a death sentence.  Don't do the wrong thing just because some people have a hard time understanding the right thing.