[BitFunder] TU.SILVER -- Interim Report April 12th, 2013

[MPOE-PR]

I set trends with daily dividends, weekly reports, and interviews with asset issuers. I plan to set trends again in the future and do the best job I can with SILVER.

Ahaha priceless.

[1714005587]

1714005587

[1714005587]

1714005587

[Monster Tent]

SILVER has LAUNCHED! Please see Post #14 for the launch party.
-----
Following is the contract I am using for the issue of TU.SILVER on BitFunder. This contract may be changed by shareholder motion.

=Issuer Detail======
usagi
usagi.meijin@gmail.com
Longtime forum member


=Contract======
SILVER is a company which operates a silver fund enabling investors to hold physical silver. We also sell covered call contracts to pay for secure storage, generate revenue for the company, and pay a modest dividend.

1. Each outstanding share in SILVER represents 1/10th (0.1oz) of 0.999 grade (or better) physical silver.

2. SILVER will allow shareholders to exchange shares for PHYSICAL silver bullion at any time:
2a. Shareholders must trade-in their shares in lots of 5, as the minimum denomination we can ship is a 1/2 oz. silver round.
2b. Shipping is 1 share per 10oz (i.e. 1%) airmailed anywhere in the world, with tracking number and insurance. Additional shipping options are available at the customer's expense. SILVER is not liable for customs, duties, taxes, VAT, etc.

3. SILVER will sell covered call options to generate revenue and pay for secure storage fees.
3a. SILVER will not sell covered call options if the call of the contract would reduce the backing of the fund below one tenth ounce of silver per share (unit).

4. SILVER will hire an advisor to prepare and publish acceptable financial reports twice per year.
4a. The current advisor is DeadTerra.

5. The issuer assumes personal liability for the silver and guarantees investors will retain the ability to claim their physical silver by trading in their shares as outlined in clause #2.

6. We have an exclusive arrangement with BitFunder to support BitFunder as a platform. We will not trade on any other exchange until August 2013.
6a. We can not honor the trade-in program for shares of an unlicensed passthrough operation.


=Executive Summary======
I know the silver market very well and I have an excellent OTC rating. I have sold gold and silver on bitcointalk and on ebay for many years and I only have positive feedback from my customers. I have been watching the silver market for about six years now and I have a great business idea which I believe will work: SILVER. I hope you agree that the contract I've come up with is a good deal.

The core business here is not just allowing investors to buy silver in bitcoins like any other fund -- it's to leverage that position to generate dividends. The SILVER advantage is that if we are stopped out on our cash position, our physical SILVER rises in value to cover the loss and provide reasonable returns, while still allowing us to honor the trade-in program. While if the price of silver declines or remains steady, we generate income from our trading strategy.

The ability to generate dividends along with the promise of backing and the ability to claim your physical silver at any time, makes SILVER a unique business model that I feel will work well. I'm very excited to be able to stand by this contract and you may feel free to contact me by telephone or by e-mail if you have any questions.


=Business Description======
Primary Business: Silver Storage
To start the company we will convert existing ounces of physical silver into units of the fund. We will then sell these units into the market at a premium to spot price, representing the existing premium* on 1/2 oz. coins and need to pay for secure storage. From that point physical silver will be bought and converted to shares of SILVER either out of the cash position of the company or immediate-term loan, then converted to units and sold on the market.

Secure storage costs 0.49% per year in Hong Kong (VIA MAT or G4S). Other vaults around the world have similar rates, although Switzerland is notably higher at 0.99% per year. I am planning to start with the vault in a local bank so that we may inspect the silver at our leisure.

Secondary Business: Selling Covered Calls
We will write covered call contracts against the silver position in order to pay for secure storage fees and generate revenue for shareholders. This will allow us to pay for secure storage fees on an ongoing, permanent basis, and to expand the fund.

Since storage fees are around 0.5% per year and we expect to make ~1% per month on the invested value, this implies we only need to write calls against 6% of the position in order to pay for secure storage. As we will be selling each unit for 5% to 10% above face value, the cash position will cover the risk of loss. As a result, I feel there is a very low risk of breaking the fund's model of retaining one tenth of an ounce of silver per unit. In short, should we get called on such a small position, we will have more than enough cash on hand to settle with no risk to the holders. Failing that, please see clause #5 in the contract.


=Definition of the Market======
TL, DR: I have a passion for silver. Silver has, for longer even than gold, been money. Many languages in the world use the word for silver, as the world for money. The world's supply of silver is precariously low in comparison to historical supply. There is a historical ratio of 15 or 16 ounces of silver to one ounce of gold (due to mining supply), however due to industrial use this has fallen to a 1:1 ratio. Therefore I personally feel the silver story is more than just unique. I believe it presents an opportunity that will change the lives.


=Products and Services======
Product: None, however one share (unit) is guaranteed to represent 1/10th of an ounce of silver, redeemable upon demand.

Services: Exchange program
We will allow investors to exchange shares of SILVER for physical silver on a 5 share for 1/2 oz round basis (or for larger denomination bars upon request, should we have them available). There will be a 1 share fee for shipping anywhere in the world per 10 oz.


=Organization and Management======
Organization and Management:
I am the issuer and responsible for the daily operation of the company.

We have also hired an advisor to provide oversight and prepare financial reports.

Shareholder motions require 60% to pass.

Any shareholder with 5% or more can raise a motion.

I will maintain a forum thread and I will listen to and respond to the community's advice.


=Marketing Strategy======
Out of the profits of the fund we will attempt to buy advertising on bitcoin-based websites like bitcointalk, feedzebirds, or any other community-based advertising services.

I am planning to spend ~10% of revenue on advertising. Not too much, basically just that or a little less.


=Financial Management======
Start up costs will be around 10 BTC for initial advertising and to retain our financial advisor.
I plan to retain 1/3rd of net profit into the company's cash position, take 1/3rd as management fee, and pay 1/3rd as distribution to shareholders.

[Monster Tent]

[BitFunder] TU.SILVER FAQ:

Question 1:
I just took a brief look and found  a problem. Your contract states, "SILVER will act to sell silver on the forums and in auction at a profit, and to sell covered call options against the physical position, to generate revenue and pay for secure storage fees." Are you doing this with the fund's silver? You can't sell shares and sell the silver, too! You can't sell covered calls, what if they get exercised? If this doesn't involve the fund's silver, then why is it in the contract?

A: I've answered this question by changing the Business Description of our security on BTC-TC to the following:

Primary Business: Silver Storage
To start the company we will convert 100 oz. of physical silver into 1,000 units of the fund. We will then sell these units into the market at a premium to face value, representing the need to pay for secure storage and the value from our secondary business model.

Secure storage costs 0.49% per year in Hong Kong (VIA MAT or G4S). Other vaults around the world have similar rates, although Switzerland is notably higher at 0.99% per year. I am planning to start with the vault in the local national bank so that we may inspect the silver at our leisure.

Secondary Business: Selling Covered Calls
We will write covered call contracts against the silver position in order to pay for secure storage fees and generate revenue for shareholders. This will allow
us to pay for secure storage fees on an ongoing, permanent basis, and to expand the fund.

Since storage fees are around 0.5% per year and selling deep, in-the-money covered calls are estimated to generate ~1% per month (long term) in profit,
this implies we only need to write calls against 6% of the position in order to pay for secure storage. As we will be selling each unit for 5% to 10% above face value, I feel there is zero risk of breaking the fund's model of retaining one tenth of an ounce of silver per unit. In short, should we get called on such a
small position, we will have more than enough cash on hand to settle with no risk to the holders. Failing that, please see clause #5 in the contract.

[Monster Tent]

I'm into buying physical silver currently...have been since I was a kid. I am interested in this service though, as companies like http://www.goldmoney.com/ have been doing this for years...interesting to see it from a BTC standpoint.

1. Is anyone doing this now? (besides the physical silver market, CoinAbul etc..)?

2. How soon is the proposed launch date?

SILVER is a lot like the companies like you mentioned, as well as BTC-TC funds like Carnth's BTC-GOLD and John Galt's GOLD fund. The difference between SILVER, and something like BTC-GOLD (besides the fact we deal in silver) is that we sell deep-in-the-money covered call options to pay for secure storage. As a result, we can sell shares cheaper on a per-ounce basis and there are essentially no other fees. With other funds, I'm not sure how they are storing their silver. Our silver will be guaranteed by the vault we hire. The downside is that if there's a sudden violent upswing in the price of silver, we will lose our cash position. The plus side is, that won't affect investors in the fund who will still be able to exchange their shares for physical silver ounces. So no, no one is really doing what we're doing specifically, although there are plenty of places to buy silver or gold in the community now, CoinAbul being one of the best places. I plan to try and support the communuity by buying from them (if their prices remain fair, of course I haven't looked).

The proposed launch date is anytime, but assuming we get the votes by the end of this month (we still need two votes on BTC-TC), we will be able to get the silver and start selling shares around the second week of February. Before then I could only sell maybe 100 shares or so against the silver we have right now.

EDIT: I have been advised to clarify that we will not begin trading until I've finished closing down my other companies. This is true; I will be closing down my other companies before starting up this one. Even if approved today, SILVER will not begin trading until approximately two weeks after I shut down BMF, CPA and NYAN.

[Monster Tent]

I have several questions:

If the silver is put at risk, can you really guarantee that 1 share will always be 1/10th oz.?

Yes I can. First, if anything goes wrong I am personally liable, as stated in the contract. I have changed the contract to make this more clear. This is not just idle talk -- I have a proven track record here. I have given hundreds of my personal bitcoins to my companies in the past when they were in trouble, and again now that I am closing them. So that's how I justify clause #5 in the contract.

But I think what you are really asking is, how I plan to not get into that position in the first place. The answer is easy, I will only write covered calls if we have the cash on hand to pay for it. This is the meaning of rule 3a. You mention it below:

#3a doesn't make sense. Can you give an example? It seems like you are saying you won't sell an option that can be called. If an option is called the value of the fund will drop, risking the 1 share = 1/10th oz guarantee.

I didn't want to say how we would invest in covered calls at first because I wanted it to be a corporate secret. But how I will do it is to leave the cash position on BTC-TC as collateral for investments in silver covered call funds that have a good track record. This means I never expose the company to the unlimited liability of a price spike. That's the secret. Yes, there is a risk of loss to the cash position (the premium to purchase price of silver which we sell shares at) but in such a case the physical silver will be worth "a ton of money" and the loss of the cash position would become a "welcome loss". Example: If for some reason silver spikes from $30 to $100... a 15% cash position would be worth 4.5% or less on the books. It would then presumably go to zero. Yes, it is true that the company would have lost that 4.5% -- but the value of their shares would skyrocket because the physical silver would be worth 3x more than it was before. An estimate would be, if we sold the shares for 0.22, we would lose the 0.02 premium but the shares would be worth 0.6 (3x more value from the silver). [Edit: this does not mean the shares won't be worth 0.62 or 0.66. They very may well be. But in this example at least 0.6 would be guaranteed from the silver.]

On the flipside, if silver declines in price or remains stable we will be able to pay a reasonable dividend, and still guarantee to be able to exchange each ounce of silver.

It is for this reason I am so excited about running such a fund. But you are right, and thanks for pointing out, that saying "zero risk" is probably not a good idea. To clarify, what I meant was there is zero risk compared to just investing in silver. Good catch. My idea here is not to be greedy and risk the underlying position. There is no need to risk the physical position like that. I am not trying to get 1% a month on the total investment. I am just trying to cover secure storage fees and pay a small dividend.

You numbers in the Financial Management section don't add up. Also, 100 oz of silver costs about 200 BTC, not 1000 BTC. Also, in order to pay the 80 BTC in expenses, you need to commit 667 (not 100) BTC worth of silver (assuming you can reliably make 12% profit). So, realistically you have to commit all 1000 BTC of silver to make a decent profit. Can you clarify?

Oops, that was an error on my part. Thanks for letting me clarify this. For those of you who didn't notice, I believe what odolvlobo is referring to is in "Business Description" I stated we would start with 100 oz of silver (1,000 shares). However, in "Financial Management" I gave a projection for an entire year and I had guesstimated we would sell 5,000 shares. In that, the 1,100 BTC assumed we would sell the shares for 0.22 each and assumed that spot price was 0.20 BTC/share. In actuality, I don't know what we will be able to sell shares at, but I do guarantee I will not sell shares at a loss or at a price that will not allow me execute on the business plan. Essentially the numbers in "Financial Management" were an estimate, or outline of what I wanted to do with the company in an ideal situation. Additionally I had mistakenly underestimated the profits at 120 BTC. I corrected it to 140 BTC.

My mistake above is actually a really good example of why I will be hiring an accountant to provide basic oversight and prepare financial statements ;-) I want to make it clear I have learned a lot from running my previous assets! I don't want to fall into the trap that I did last time where I make a simple mistake that gets taken out of context, or there's something I am inexperienced on and I end up causing unintended damage. Yes, there were flaws in my previous companies. I would like to believe I have learned from that and as a result I will do a much better job than someone who has no experience running an asset like this before.

How profits are distributed? You mentioned dividends, but that's all.

About how profits will be distributed; I'm still thinking about that. All of the company's financial information will be prepared by whoever we hire (deprived? maybe smickles? Someone with skills). The net profit will be displayed on that statement and I will announce what will happen once people can see our financial statements. I'll run a shareholder motion if there is any controversy. But right now I am planning to distribute 1/3rd to shareholders, retain 1/3rd for the company's cash position, and 1/3rd to myself as management fees.

Why retain 1/3rd? More lessons from the past. When I ran BMF I had a policy to pay out 95% of incoming dividends. I realized this was a mistake after a few months because it starved the company of growth and the ability to respond to major market moves. So I will decide how to split profits up later but I am leaning towards the 33% - 33% - 33% model above.

How do you plan to benefit from this contract?

I believe that after a while (6 months? 1 year?) there will be a significant amount of money made by this company. Based on my past experience as an issuer, we might sell 25,000 shares over the course of a year. At that size I am estimating 30 BTC a month in net profit. I'm lucky in that it does not take a lot of time to operate this fund. I'm already a silver stacker. I already have a safety deposit box at the bank with gold and silver in it. My bank offers vault storage and is an authorized Perth Mint dealer so I can also store silver in Australia as well as Asia. I already buy silver on a regular basis. What I gain from this is easy to see, if I can order 100 oz at a time I can save money on the silver. Also, I can split the vault fees with the company, which are cheaper than a safety deposit box for larger amounts of silver. Actually now that I think about it, it would be very convenient for me to hold my personal silver as company shares. That is ideal for me. That way I partake in the benefit of being able to trade the shares just like everyone else. That is very convenient for me!

There's one more benefit.. and not such an insignificant one.... if I am given another chance to run an asset I believe people will see I am in actuality a very trustworthy individual. I'm sure there are people that will eat their hat if I am allowed to list. But the truth is I really feel I deserve another chance. If I can just list this company I am certain I can change people's minds and build more trust here. Yes I was a jerk in the past to some people who I feel attacked me and said some pretty ridiculous things, but that doesn't mean I am a scammer or a fraud. As things turned out it's clear I am not a scammer or a fraud. So I see now it would have been better to just deal with those people nicely and let history prove I was right. That's what I have learned. So I will be honest I want to clear my name. That's probably 50% of it for me right there.

You wrote three times that there is zero risk from trading and this cannot be true -- unless you personally guarantee the value of the fund.

Yes that is precisely what I am doing, I am personally guaranteeing the value. But I want to make it clear that's not why I believe I can maintain the backing. I believe I can maintain the backing because the business plan is sound. Yet, I will remain there in case I am needed to pay out anything that is owed. Ok, I think I've answered most of what else you said above so I'll stop here. I hope you can see I'm very enthusiastic about this and I hope that tells you a lot about where I feel I can take this company. Thanks for the questions. I wish more moderators would give me a chance like you did!

[Monster Tent]

Silver has been LAUNCHED!

Welcome to the launch party. I will be looking around in the next few days for community websites to advertise on. If you have any suggestions please let me know. I will of course be advertising here on bitcointalk.org, and I will be paying for the first round of ads out of my own pocket.

I have 14 oz. of silver on my desk which I will use as an initial stock for 140 shares (http://kongzi.ca/silver). Our advisor will be given this information shortly.

Initial financial data which I am using is as follows:
S = Spot price is $31.66 from kitco.com
S+P = $33.25 from store.firstmajestic.com
MTGOX weighted average price $17.31682

This implies the cost to order silver bullion is 1.92btc/oz. After a small markup for trading fees, exchange fees, secure storage, etc. I think I can peg the market around 0.21 to 0.22/share at current silver prices. Keep your eye on the silver price! I will be using the following formula to come up with an approximate price and then adjusting slightly to meet demand:

[(S+P) / MtGox Weighted Avg.] + ~7%

Additionally I have launched with 10 shares available at 0.20/share and 10 shares issued at 0.192/share. This is a one time offer. We can't keep selling shares at spot or I won't be able to afford secure storage.

I am open to any comments on this pricing mechanism. I will attempt to analyze the demand and offer shares at a higher or lower price depending on demand (but not so cheap as we lose money).

And something else which I will say precisely once. Thank you to the community for giving me another chance. And now, it's party time! *cuts the red ribbon*

So the promise to wait till all your other companies shut down before you started trading was complete horse shit ?

[Deprived]

Now that I am on BitFunder, all I need to worry about is doing a good job with SILVER. That is my only concern at this point.

I'm disappointed that you've gone ahead with this before closing your other companies down.

At present you have their assets up for auction - yet your comments on a LOT of those securities is just 'will contact asset issuer soon'.  There's assets there that I'd have bid on had I even been confident your claim was acknowledged by the issuer (without them being relisted anywhere yet).  It's unfortunate for investors in your previous companies that you're now going to focus on SILVER rather than giving them your full attention for the last week of your closing down process.

I'm no silver expert but I suspect silver would still exist in a week's time had you chosen to focus on closing down your other assets for the next week before starting this.

[usagi]

So the promise to wait till all your other companies shut down before you started trading was complete horse shit ?

Hi Monster Tent, thank you for allowing me to answer this question today. Although you seem to have forgotten to quote the post you are responding to, I believe you are referring to this:

2. How soon is the proposed launch date?

The proposed launch date is anytime, but assuming we get the votes by the end of this month (we still need two votes on BTC-TC), we will be able to get the silver and start selling shares around the second week of February. Before then I could only sell maybe 100 shares or so against the silver we have right now.

EDIT: I have been advised to clarify that we will not begin trading until I've finished closing down my other companies. This is true; I will be closing down my other companies before starting up this one. Even if approved today, SILVER will not begin trading until approximately two weeks after I shut down BMF, CPA and NYAN.

In the above post I clearly laid out a sequence of events:
1. assuming we get the votes (and list) by the end of the month
2. we will be able to get the silver
3. and begin trading around the second week of February.

This isn't a promise not to list "until after I shut down BMF..." etc. What the EDIT: states is simple; I was advised to clarify my earlier statement to point out we will not begin trading until after my other companies have shut down. Deprived gave me the advice, because he felt pointing that out might make some LTC-GLOBAL moderators vote YES. But it's clearly not a condition I placed anywhere on the application form or in the contract; it's just something that was going to happen because it was going to happen.

So why did we offer shares for sale early? Simple. We have 14 oz. of silver on hand right now. You will notice in my response to w. I stated we would be able to sell around 100 shares at launch based on silver we already had. I have provided photographic evidence of my ownership of this silver on BitFunder.

This actually works out better not just for the company but for people like you. You can see how we operate with a very small amount of silver (14 oz.) before I start buying monster boxes. You can use this time to make an evaluation of how I actually do business and if you see any problem, you can point it out now and we can correct it before it becomes a serious problem.

Thanks again for asking such a great question. Keep 'em coming, and together we can make SILVER the best asset in the community.

Sincerely,

usagi

p.s. A condensed version of this will be put up in the FAQ section. Please make sure to edit your quote of the FAQ post because it's out of date now.

[usagi]

Now that I am on BitFunder, all I need to worry about is doing a good job with SILVER. That is my only concern at this point.

I'm disappointed that you've gone ahead with this before closing your other companies down.

At present you have their assets up for auction - yet your comments on a LOT of those securities is just 'will contact asset issuer soon'.  There's assets there that I'd have bid on had I even been confident your claim was acknowledged by the issuer (without them being relisted anywhere yet).  It's unfortunate for investors in your previous companies that you're now going to focus on SILVER rather than giving them your full attention for the last week of your closing down process.

I'm no silver expert but I suspect silver would still exist in a week's time had you chosen to focus on closing down your other assets for the next week before starting this.

I understand your concern, and others probably share your concern as well. So thank you for allowing me to point out my earlier response to
odolvlobo: "I'm lucky in that it does not take a lot of time to operate this fund. I'm already a silver stacker. I already have a safety deposit box at the bank with gold and silver in it." Please do not remain concerned. You may have noticed I am selling my personal gold and silver to offer a bonus package to my shareholders as I close down my companies. It actually saves me a lot of time to just issue these shares in SILVER (as announced) versus dealing with individual customers then driving all the way into the city to the post office to ship the silver by hand.

Please rest assured this will actually save me time and afford me more options to make my shareholders happy as I close down my other companies. At any rate, if you are concerned about BMF or NYAN's shut down process, please post your questions in the appropriate thread. I've taken the liberty of quoting your message and responding to your other question on the NYAN shutdown thread. Thanks and have a great day!

[MPOE-PR]

"I'm lucky in that it does not take a lot of time to operate this fund. I'm already a silver stacker. I already have a safety deposit box at the bank with gold and silver in it."

Is this no doubt significant pile of bulion acquired from the proceeds of selling your guitar or from the advance against future pay at your place of virtual employment?

[nebulus]

"I'm lucky in that it does not take a lot of time to operate this fund. I'm already a silver stacker. I already have a safety deposit box at the bank with gold and silver in it."

Is this no doubt significant pile of bulion acquired from the proceeds of selling your guitar or from the advance against future pay at your place of virtual employment?

ouch

[usagi]

"I'm lucky in that it does not take a lot of time to operate this fund. I'm already a silver stacker. I already have a safety deposit box at the bank with gold and silver in it."

Is this no doubt significant pile of bulion acquired from the proceeds of selling your guitar or from the advance against future pay at your place of virtual employment?

ouch

Not really an ouch, i'm just ignoring MPOE-PR so I didn't see his question. His question doesn't belong in this thread, so I've taken the liberty of answering this in the correct thread. Thanks for pointing it out.

[nebulus]

The right answer is "Fuck off, none of your business!"

[usagi]

The right answer is "Fuck off, none of your business!"

FFS dude who do you think you are to tell me how to act in public?

[nebulus]

The right answer is "Fuck off, none of your business!"

FFS dude who do you think you are to tell me how to act in public?

The public

[ldrgn]

Not sure if SILVER will have this problem too but if you're preparing financial statement-like things please keep values in fiat and use standard fair value accounting for any silver or BTC.  This company may not keep much BTC around but you did have this problem with the earlier Usagi companies where you did all your reporting in BTC which is useless.

[superbit]

That's my concern with something like this.  If holding and incomes is PM or FIAT and as an investor you are long on BTC then even positive returns can get wiped out easily in exchange, or am I missing something?

[Deprived]

Not sure if SILVER will have this problem too but if you're preparing financial statement-like things please keep values in fiat and use standard fair value accounting for any silver or BTC.  This company may not keep much BTC around but you did have this problem with the earlier Usagi companies where you did all your reporting in BTC which is useless.

Disagree on this - investors are buying shares with BTC so accounting should be in BTC.

[Deprived]

That's my concern with something like this.  If holding and incomes is PM or FIAT and as an investor you are long on BTC then even positive returns can get wiped out easily in exchange, or am I missing something?

You're not missing anything.

Investments in PM are pretty much either a hedge against BTC falling or a short on BTC (and, at the same time, a bet that PM rises vs fiat - otherwise you'd do better just converting to fiat and holding it).  If BTC rises faster than PM then you make a loss.

[superbit]

That's my concern with something like this.  If holding and incomes is PM or FIAT and as an investor you are long on BTC then even positive returns can get wiped out easily in exchange, or am I missing something?

You're not missing anything.

Investments in PM are pretty much either a hedge against BTC falling or a short on BTC (and, at the same time, a bet that PM rises vs fiat - otherwise you'd do better just converting to fiat and holding it).  If BTC rises faster than PM then you make a loss.

That's what I figured.

I could see the value in people with a pile of bitcoins investing in a fund that then paid them out dividends in fiat.  I suppose it wouldn't be anonymous but it would be legit taxable income.