One question about PMB(Perpetual mining Bond).....

[SOSLOVE868]

I just want to know....all the PMB contract sold in the market never mentioned under what situation the issuers  will buying back those contract?
For example,If a bond contract start at IPO price of 0.5BTC today,   if one day the daily dividend pay to contract is pay at 0.0000001 or less BTC per this contract..... more over if dividend reached this level, then the bond also will be trading incredibly low price in the market....this caused almost free for the issuer to keep the initial capital or to payback a little bit BTC to buying it back.......I just want to know...does there are any other way to prevent this possible situation to destroying the principle amount paid in those PMB contract? ?I mean like instead of perpetual hash rate to roughly promise to hold certain percentage of total market hashrate??? Since investors are obligate for incredible high risk for holding those bond!!!!!! Moore's law indicate computer calculating power will be double each 18 months, in BTC the hashrate will double itself in much much shorter period!!!!

[1714063635]

1714063635

[1714063635]

1714063635

[FloatesMcgoates]

The dividend should usually be fixed in the contract as a function of various input factors that are outside the control of the issuer, so the issuer cant arbitrarily lower dividends for one day.

[Eric Muyser]

The dividend should usually be fixed in the contract as a function of various input factors that are outside the control of the issuer, so the issuer cant arbitrarily lower dividends for one day.

Yah, but he has a point about attempting to maintain a percentage of the network hashrate. People aren't even attempting to do that, they're just taking out loans (creating bonds/stocks) for diminishing returns (less effective hashes).

So for a mining bond based on difficulty, the issuer gains a lot of capital during the IPO, and can buy the shares back at a later point (like a year) cheaper. It's great for him, but it's also great for the first comers too. The people after the IPO and near the end of the spectrum get the short end of the stick. The issuer would have a difficult time maintaining the % of network hashrate, but if he could, then it would be a sounder investment for the long run. As it stands, a bond like TAT.VM relies on the difficulty increasing and the dividends dwindling, because if they didn't then he would go broke. Right now he's paying out more per day than he's making per day, but he gets a nice fat cheque he invest in something else to (hopefully) profit enough to cover the loss. Thus he and the initial investors do well I'm not sure any mining bond out there is maintaining a network % with the huge delays in shipments. Maybe one day though..

[SOSLOVE868]

The dividend should usually be fixed in the contract as a function of various input factors that are outside the control of the issuer, so the issuer cant arbitrarily lower dividends for one day.

Yah, but he has a point about attempting to maintain a percentage of the network hashrate. People aren't even attempting to do that, they're just taking out loans (creating bonds/stocks) for diminishing returns (less effective hashes).

So for a mining bond based on difficulty, the issuer gains a lot of capital during the IPO, and can buy the shares back at a later point (like a year) cheaper. It's great for him, but it's also great for the first comers too. The people after the IPO and near the end of the spectrum get the short end of the stick. The issuer would have a difficult time maintaining the % of network hashrate, but if he could, then it would be a sounder investment for the long run. As it stands, a bond like TAT.VM relies on the difficulty increasing and the dividends dwindling, because if they didn't then he would go broke. Right now he's paying out more per day than he's making per day, but he gets a nice fat cheque he invest in something else to (hopefully) profit enough to cover the loss. Thus he and the initial investors do well I'm not sure any mining bond out there is maintaining a network % with the huge delays in shipments. Maybe one day though..

I think if the issuer could ensure its dividend by give a promise to holding % of total network...then the PMB will be come much more reasonable to hold it for long-term...other wise ,the holding of ABM for me just another speculate race.......because all PMB does not have a maturity date!!!!!this could be very dangerous for all investors who purchased those bond contract in the late time!!!

[🏰 TradeFortress 🏰]

All current PMBs are priced way too high. You are not going to make a profit regardless.

[Deprived]

All current PMBs are priced way to high. You are not going to make a profit regardless.

This.

Reinvestment is NOT some silver bullet that will turn a loss-making investment into a profitable one.  You can simulate reinvestment by reinvesting your dividends.

Mining bonds/shares typically work by the issuer taking a cut of all generated coins.  This cut is taken in one or both of two places:

1.  A premium you pay when you buy in.  So you pay $X*Y per share when it only costs them $Y - with X being >1.
2.  A percentage cut taken out of mined coins.

If (as is the case in nearly all PMBs) those factors combine to make it unprofitable then no amount of reinvestment will change it in a predictable manner (it may increase or decrease your loss).  All it will do is make the losses less visible in the short-term - and, in general, increase your overall loss as a percentage of the capital you invest (that's because reinvestment compounds interest - in this case a negative rate of interest).

Now there IS a price-point at which ANY PMB becomes a profitable investment.  But just about all of them are priced above that - and it may well be the case that in many operations even without a management cut that point lies below their cost (for a simple example imagine someone selling a mining bond/share based on CPU mining of BTC - even if they didn't make a penny from it themselves investors would lose nearly all thier investment).

The fundamental mistakes investors make are four:

1.  Starting with the idea that mining is somehow magically profitable regardless of the detail.
2.  Assuming that those selling investments even intend to make a profit for their investors.
3.  Assuming that issuers who DO believe they'll make a profit for investors are actually competent to make that judgment.
4.  Believing that the price at which something is sold on an exchange is somehow magically linked in some manner to the actual value of that something.

Ignorance and Laziness basically - not understanding the math behind it, compounded by being incapable/unwilling to put in the effort to do so.

[Franktank]

This.

Reinvestment is NOT some silver bullet that will turn a loss-making investment into a profitable one.  You can simulate reinvestment by reinvesting your dividends.

Mining bonds/shares typically work by the issuer taking a cut of all generated coins.  This cut is taken in one or both of two places:

1.  A premium you pay when you buy in.  So you pay $X*Y per share when it only costs them $Y - with X being >1.
2.  A percentage cut taken out of mined coins.

If (as is the case in nearly all PMBs) those factors combine to make it unprofitable then no amount of reinvestment will change it in a predictable manner (it may increase or decrease your loss).  All it will do is make the losses less visible in the short-term - and, in general, increase your overall loss as a percentage of the capital you invest (that's because reinvestment compounds interest - in this case a negative rate of interest).

Now there IS a price-point at which ANY PMB becomes a profitable investment.  But just about all of them are priced above that - and it may well be the case that in many operations even without a management cut that point lies below their cost (for a simple example imagine someone selling a mining bond/share based on CPU mining of BTC - even if they didn't make a penny from it themselves investors would lose nearly all thier investment).

The fundamental mistakes investors make are four:

1.  Starting with the idea that mining is somehow magically profitable regardless of the detail.
2.  Assuming that those selling investments even intend to make a profit for their investors.
3.  Assuming that issuers who DO believe they'll make a profit for investors are actually competent to make that judgment.
4.  Believing that the price at which something is sold on an exchange is somehow magically linked in some manner to the actual value of that something.

Ignorance and Laziness basically - not understanding the math behind it, compounded by being incapable/unwilling to put in the effort to do so.

+1

[odolvlobo]

You can estimate the total revenue (before costs) of a 1 Mh/s "perpetual mining bond" using this formula:

Total Revenue (BTC) = 0.00045 * (1 + 1/r), where

r is the estimated increase in difficulty every two weeks for the next couple years or so. For example, if the increase is 30%, r is 0.3.

For the past 6 months, the increase in difficulty has been about 15% every two weeks. It would not be so unreasonable to assume that the rate will continue for some time as more ASICs come online, and their hashing power continues to improve rapidly. So, at that rate, a 1 Mh/s "bond" will generate about 0.0033 BTC in dividends over its lifetime (before costs). If you pay more than 0.0033 BTC per 1 Mh/s, you will lose money.

Moore's Law (roughly speaking, processing power doubles every 18 months) gives an increase in difficulty of 1.8% every two weeks. The total income of 1 Mh/s assuming Moore's Law is 0.025 BTC.

[odolvlobo]

And while I'm on a roll. Let's clear up two misconceptions about "perpetual mining bonds".

1. A "perpetual mining bond" is not a bond. It doesn't have a face value and it doesn't pay interest. Your investment is never returned to you.
2. A "perpetual mining bond" is not perpetual. It lasts only as long as the operator decides to stick around.

[SOSLOVE868]

And while I'm on a roll. Let's clear up two misconceptions about "perpetual mining bonds".

1. A "perpetual mining bond" is not a bond. It doesn't have a face value and it doesn't pay interest. Your investment is never returned to you.
2. A "perpetual mining bond" is not perpetual. It lasts only as long as the operator decides to stick around.

+1