Bitcoin Forum

I have an interesting idea for an offering but I will need to periodically perform reverse splits.
(i.e. 1000 shares reverse split to 990 shares).  Do any exchanges support share splits?

Yes, that would be no problem on BitFunder. :)

I've considered adding the ability to do a split.  Normal splits would be a piece of cake.  Reverse splits though, I'm confused a little as to how that would work.

Eg: taking 1000 shares to 100.  What do you do when someone owns just 1 share?

Cheers.

Most "real" exchanges would enforce liquidation at FMV.  So in a 10:1 reverse split if someone had 116 shares they would receive 10 post split shares and BTC value for the remaining 6.   

In my instance I am looking to make a real gold trust (i.e. 50+ ounces).  To cover operating costs periodically I would perform a reverse split (i.e. a 100 to 99 reverse split would be a 1% effective fee).  Optimally the contract would cover how liquidation is handled in a reverse split.  For my contract if possible I would value liquidated shares at GOLD/BTC spot at the time of liquidation.

I gotcha, that makes sense.

A 100 to 99 would result in a lot of liquidated shares, because not many would divide evenly, I think that most shareholders would end up with at least one liquidated share at some percentage of the new share price.  That's not a huge deal, but to buy that share back they'd need more BTC for the share, plus more BTC for the transaction fee on the purchase.

To facilitate the process you'd need to keep a decent sized pool of BTC in your account for the reverse splits.  The system could definitely estimate the necessary reserves, etc, beforehand, but you have to keep that in mind when planning your business model.

Cheers.

Agreed.  Maybe reverse split isn't the optimal way to handle operating costs.  It also creates the potential for issuer abuse/manipulation if the contracts are worded unfairly.  I do encourage implementing at least "normal" splits (you could even charge the asset issuer a fee, maybe normal trade fee as an added source of revenue).

An alternative is to simply adjust the value of each share.  i.e. at inception 1 share = 1/1000th of an ounce.  If there is a 1% per quarter operating fee then after the first quarter 1 share = 1/1010th of an ounce.  This is however ugly.  It means the value of a share (in terms of how much underlying asset) is represents is constantly changing.

Another option would be to request a split of trading fees with the exchange (many traditional ETFs are partially funded this way).  That combined with arbitrage opportunities could cover operating costs.  Given the current nature of asset exchanges this may be the easiest option.  If any exchanges are interested in a revenue split drop me a PM.

That would be a pretty interesting (and simple) feature to introduce.  An asset (at creation time) could specify the transaction fee premium.  Then I'd have to make sure that we clearly display it on the trading page so there is no confusion, but it would definitely make for an interesting way to support some of these assets.

OOC, what rate would you require?  and would you be willing to be a "beta" asset in this regard?

Cheers.

Honestly I don't know.  A lot would depend on how much volume a well designed asset could generate.  Taking a stab in the dark I think 0.1% would be a good place to start.  0.2%+0.1% (issuer premium) = 0.3%.  I don't see that being prohibitive.  The market could likely support more but we won't know until someone tries.  I would be willing to beta an asset.

Cool.  I'll be back home in a day or two.  Will work on support for it then.