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Author Topic: [BTC-TC] Deprived Mining Speculation (DMS)  (Read 198331 times)
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Deprived
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June 07, 2013, 05:21:04 PM
Last edit: June 10, 2013, 10:13:54 PM by Deprived
 #1

IMPORTANT : The account to send DMS.PURCHASE to (to receive DMS.MINING and DMS.SELLING) is DeprivedMining

CLIFF'S NOTES

DMS.MINING - Behaves like a 5 Mega-Hash/Second PMB (The things people call perpetual mining bonds).
DMS.SELLING - Is a bet that people will pay too much for DMS.MINING.
DMS/PURCHASE - Is a way to get one each of MINING and SELLING at a price that will probably deliver a modest profit if the pair are both held.

The real profit comes from correctly pricing MINING and SELLING and trading with people who get it wrong.

It is strongly recommended to read more of this thread before buying ANY of them.  Investing/trading MINING or SELLING has the potential to make significant losses OR profits.

OVERVIEW

Deprived Mining Speculation is a fund comprised of three seperate securities listed on BTC-TC.  These three securities share a pool of assets to which they each have a different set of rights.  Two of the securities will receive dividends from the pool of assets, the third only exists as a means of enforcing certain consistency on the behaviour of the other two.

DMS.MINING - This acts like a 5 Mega-Hash/Second PMB (Perpetual Mining Bond).  It is NOT a bond (and nor are any PMBs).  Daily dividends will be paid out.

DMS.SELLING - This acts as the backing for a DMS.MINING.  These provide the capital that allows investors in DMS.MINING to receive back significantly more in dividends than they paid for their shares.  If DMS.MINING never receive back what they paid then DMS.SELLING keep the extra.  If difficulty rises sharply then these will also receive dividends - as the capital needed to back DMS.MINING becomes lower.

DMS.PURCHASE - This represents 1 unit of DMS.MINING + 1 unit of DMS.SELLING.  These are the only shares that will be sold by the issuing account on the market.  DMS.MINING and DMS.SELLING are obtained by transferring unit(s) of DMS.PURCHASE back to the issuer - who will then transfer an equal and matching number of DMS.MINING and DMS.SELLING to you.  This is a messy way to sell paired securities - but the only practical AND trackable way to ensure that there are always an equal amount of DMS.MINING and DMS.SELLING.

The selling price of DMS.PURCHASE is defined by formula - and (unless mining difficulty rises massively) will drop over time as dividends are paid out.  The selling/trading prices of DMS.MINING and DMS.SELLING are entirely left to those trading in DMS.PURCHASE to set - there will be no sales of them by the issuing account.  The issuer/manager (Deprived) WILL sell these himself - but on exactly the same footing as everyone else : paying the same amount for a DMS.PURCHASE and competing with all other traders in the market-place.

The majority of capital raised will (where possible) be invested very conservatively - in bonds/debt from well-established businesses and in secured (on reputable securities provided as collateral) loans to individuals.  This allows the cash paid out to DMS.MINING and DMS.SELLING to be more than the selling price of DMS.PURCHASE - reducing the margin traders need to make on the relative pricing of those two for investment here to be profitable.  

In most scenarios the benefit (and risk) of that investment gos to DMS.SELLING holders - DMS.MINING investors received payments calculated based on difficulty whilst DMS.SELLING receive whatever is left over (which includes all income from investment).  This means that although the rate of return of our investment will be low (due to being only in very safe investments and not all capital being invested) DMS.SELLING can still receive a decent return IF bought at the right price - as they will be effectively receiving the earned income on ALL capital not just the portion raised from DMS.SELLING.  That balances the risk they bear - that they have no guaranteed minimum payment at all.  DMS.SELLING investors will be able to determine which securities/issuers are considered 'safe' for investment or for use as collateral when taking a loan from the fund - but investment will be restricted strictly to investments which repay 100% of capital so as to protect the interests of DMS.MINING.

A management fee of 3% is charged on all sales of DMS.PURCHASE.  Originally I was going to take management fee on dividends - but that becomes less transparent and far more complicated, involving taking fees at a number of different dividend points (and having to take a management fee on buy-backs and redemptions as well).  I believe this compares very favourably to all alternatives where the management fee is disclosed.  Sales of 500 BTC worth of DMS.PURCHASE would be needed just for me to break even on the listing fees.

DMS.MINING

This security behaves very much like a PMB (the misnamed Perpetual Mining Bonds).

Every day (at or around 16:00 GMT/UTC) it pays out an amount equal to what 5 Mega-Hash of mining power operating at 100% would be estimated to mine.  The difficulty used in this calculation is the one at the previous midnight GMT/UTC - so assuming an even distribution of times at which difficulty changes it will pay out very slightly more on average than a PMB with identical theoretical hashing power.

DMS.MINING shares are backed by the following capital:

  • The funds raised by selling the DMS.MINING
  • The funds raised by selling a DMS.SELLING
  • The profit (or loss) made by very conservatively investing/lending out the majority of this capital.

In practice the first two items in this list are combined into the funds raised by selling a DMS.PURCHASE.

This differs from a conventional PMB - in that there IS a maximum which any DMS.MINING can ever receive.  The pricing of DMS.PURCHASE has been set such that, in my view, that maximum is unlikley to ever be received in practice.  Should it ever appear likely that maximum WILL be reached then the fund is designed such that when that realisation is made all remaining funds would be distributed immediately (or as soon as investments could be liquidated) to DMS.MINING.  So although you could end up getting less you WOULD receive a good chunk of it earlier - shortening the time-span over which you need to measure your ROI.

It is my view that in all likely scenarios these can be compared pretty directly to PMBs - with some small differences in how you value them when comparing.  I'll deal with how to make comparisons in more detail later.

DMS.SELLING

DMS.SELLING is at root a chance to bet that people will pay more for PMBs in general (and DMS.MINING in particular) than they're worth.

If you believe that DMS.MINING are worth less than people are paying for them then DMS.SELLING is what you want to be investing in (provided the profit you'd expect to make, when expressed as an APR, meets your personal investment criteria).

The value of DMS.MINING + DMS.SELLING is exactly equal to the value of DMS.PURCHASE.

If it is your belief that DMS.MINING investors will receive back less than they paid for their shares then (if you are correct) if you were to either:

  • Buy a DMS.SELLING for the NAV/U of a DMS.PURCHASE minus the price of a DMS.MINING OR
  • BUY a DMS.PURCHASE, convert it and sell the DMS.MINING

You would be looking at receiving, over the lifetime of the fund BOTH of the following as profit:

  • The difference between the price paid for the DMS.MINING and the total amount they actually receive back.
  • All income generate from investment of your capital (tied up in the DMS.SELLING) AND a matching DMS.MINING holder's investment.

Some of that would be returned gradually in dividends - and the remainder either when the fund closed or you sold your DMS.SELLING.

You do, however, need to make around 3.5% profit (to cover the management fee and trading fees) before you will actually be in profit.

DMS.PURCHASE

These exist only to facilitate issuing of DMS.MINING and DMS.SELLING in pairs.  Some investors may, however, consider them as investments in their own right.  I'll try to explain why this isn't a good idea long-term (or very short-term) but why it MAY be a reasonable thing to do for intermediate periods.

The price at which DMS.PURCHASE are sold is strictly defined in the contract - and not subject to arbitrary modification by the issuer.  At any given time DMS.PURCHASE will have a clear NAV/U (all assets will be disclosed and only investments with a fixed face-value will be invested in).  The issuing account will:

  • Sell DMS.PURCHASE at NAV/U + 5%
  • Buy back DMS.PURCHASE at NAV/U - 2%

The spread between those two prices is mainly because of a 3% management fee being taken.

The NAV/U of DMS.PURCHASE will change because of the following factors:

  • It will (hopefully) rise as the result of income from investments.
  • It will rise very slightly whenever more units are or units are redeemed (though is balanced to a degree by loss of investment efficiency potentially resulting from both of these).  It is necessary to protect existing investors by adding a small margin on sales/redemptions - and in defining those margins I have intentionally erred on the side of protecting existing investors.
  • It will fall whenever dividends are paid.

When the NAV/U falls because of dividends, all DMS.PURCHASE will have received EXACTLY the amount in dividends that the NAV/U fell by - so there is no loss to DMS.PURCHASE holders resulting from this.  That means that, unless our investments lose, the value of (DMS.PURCHASE NAV/U + fund returned) will slowly rise above the NAV/U at the time you bought them.

On the face of it you have to make up the 7% spread before actually being in profit - however if this fund is actively being used then that is NOT the case.  When you want to sell your DMS.PURCHASE you just have to list them at the minimum increment below the price at which the fund is trying to sell new units.  If you can sell at that price then you only need see 0.4% growth in (NAV/U + payments received) over the NAV/U when you invested to be in profit.

In short, DMS.PURCHASE CAN be a (slightly) profitable AND liquid investment themself IF the following are true:

  • There is sufficient demand for them that no Asks last long below the official sales wall.
    DMS' investments make some profit.

The split between the prices of DMS.MINING and DMS.SELLING - and which get paid what dividends has absolutely zero impact on this.

This is totally unsuitable for very short-term (you still have to overcome 0.4% in trading fees).  And for longer term there will ALWAYS be better investments (specifically, the ones DMS itself invests in).  But lack of availability and/or liquidity MAY make DMS.PURCHASE a reasonable vehicle for leaving BTC with for a period greater than a few weeks but less than many months.

You can, of course, also convert your DMS.PURCHASE into a DMS.MINING and a DMS.SELLING - and received precisely the same benefits if you held a DMS.PURCHASE.  That comes with the draw-back that you can no longer cash out quite so quickly - but with the benefit that you can sell either or both.

COMPARISON OF DMS.MINING WITH PMBS IN GENERAL

I'm not going to produce a list of PMBs and compare them with DMS.MINING - rather I'll explain how investors should do it themselves.  Why?

  • Any such comparison would be out of date as soon as it was made - an out of date comparison is worse than not having one in many respects.  I do not want to commit to maintaining such a list - so will not post one now.
  • Any actual comparison relies heavily on subjective issues - in particular the reliabilty/trustworthiness of the issuer.  I do not believe a thread for my own security is the correct place for me to comment on my opinions of other issuers.  I break that rule in the next section - by commenting on ThickAsThieves, but only because our securities are more directly comparable and I have a very high opnion of him so won't be saying anything controversial.

Here are some of the factors you should take into account when comparing DMS.MINING to PMBs.  The first two are the most important - the rest are in no particular order.

The trustworthniness and reliability of the issuer.  This determines whether you should even consider investing at all.  If someone is a known scammer - or has failed to deliver on promises/guarantees before - then you should not proceed further with looking into what they offer.  There's no point comparing the price of apples and oranges - similarly the cost of MH/S from a scammer cannot be compared to the cost of the same from a reputable individual.  Note that trustworthiness and reliability are two different things.  Someone can have every intention of delivering what they promise but fail to do so through entirely predictable reasons or just through incompetence.  Such a person MAY be trustworthy but is definitely unreliable.  In many respects incompetents are worse than scammers - as scammers vanish after taking one set of cash whilst incompetents hang around blaming everyone but themselves and frequently get given extra bites of the cherry.

The Hashing Power of the securities.  Obvious - but easy to over-look if in a hurry.  DMS.MINING offers 5 MH/S - so if comparing with a PMB that offers 1 MH/S you need to start from a base point of comparing 5 of that PMB with one DMS.MINING.

The redemption terms.  these are in decreasing order of value:
  • Redemption at face-value/initial purchase price.  No PMB offers this - but if one does AND pays out based on hashing power then it should be valued at a LARGE multiple of its nominal hashing power.
  • Redemption at a multiple of most recent dividend.  If two securities you wish to compare offer this then clearly the one with the higher multiple is worth more.
  • Redemption based on market value.  This is the worst option - as it allows the issuer to affect the buy-back price either by neglect or by flooding the market.  If this is the only option then you also hit major problems with repurchase if the security ever delists, changes exchange or has no activity for a long period (where 1 sale at a low price could allow repurchase at very unfavourable terms).  There is also something inherently bad about a contractual clause which explicitly gives the issuer a financial motivation to drive the price of their security down.

Where an issuer gives themself more than one option for repurchase you should always assume they will perform any buy-back at the alternative least favourable to investors.  You may end up being pleasantly surprised - better that than making an investment decision based on an assumption of charity from an issuer.

What is actually paid out.  If the PMB pays out what is actually mined then it is likely to be worth less than DMS.MINING as it almost certainly won't have 100% up time and 100% efficiency.  If the PMB pays out BTC transaction fees then that gives it a small edge in the other direction.

What security there is.  With DMS.MINING there is a non-zero risk of loss of capital in our investments - reducing the capital available to be paid out.  With PMBs there MAY exist a isk of loss in the event of fire, theft or hardware failure.  What insurance the PMB has - and what assets they can and would use to honour their commitments in the event of loss of mining capacity - are important risks to consider.

Third-Party Risk.  With DMS.MINING there exists the risk of loss through BTC-TC scamming or being hacked and being unable to replace funds.  If a PMB relies on a third party (such as a hardware manufacturer) then there exists a risk of non-delivery or non-adherence to their warranty by such a third-party.  You need to assess the likelihood of such risks.

Caps on Maximum Payout.  The amount that will be paid out by DMS in respect of any DMS.MINING share is capped at the investment in that share plus its partner DMS.SELLING plus any profit made from investment.  If you believe there is any likelihood of that cap being exceeded then you should value PMBs higher than DMS.MINING (if all other factors are equal).

Sustainability. DMS.MINING can continue to pay dividends all the while capital remains.  Many PMBs rely on hardware which only has 6 or 12 month warrranties - yet promise to pay out forever.  You need to assess their credibility and capability in terms of delivering on that promise.

There are other factors beside these - and likely I've missed out one or two important ones - but hopefully this gives some food for thought and shows how comparing securities is about far more than just looking at price and hashing power/share.


COMPARISON OF DMS.MINING WITH TAT.VIRTUALMINE

This is an obvious comparison for potential investors to make.  I'll try to give a balanced view on it here.  If ThickAsThieves wants to respond I'm happy to move his comments to below mine in this section - so investors can see his view on the same footing as mine.

I'll start by looking at a range of factors to be considered - and how the two securities compare.

ISSUER : The trustworthiness and reliability of the issuer are a major part of valuing any security.  I have no doubts over TAT's trustworthiness and reliability and pretty certain he has the same view of me.  I don't believe potential investors should place a premium on either security because of this factor.  Obviously if you've personally dealt with one of us in the past then you may personally have a preference.

DIVIDENDS : These are ALMOST identical.  TAT should be valued VERY slightly higher than MINING because its dividends are based on the difficulty 24 hours previous to dividend time whilst DMS are based on only 18 hours previous.  This is a tiny - but real - difference.

BUY-BACK :  TAT has a buy-back at 200 days at current dividend, MINING at 365 days. We can define a range within which the premium must lie as follows:

The highest markup MINING should have would be if both securities performed a buy-back immediately after you bought their shares.  In that situation you would receive 365/200 more from MINING - suggesting an 82.5% premium on the price of MINING would be warranted.
The lowest markup MINING should have would be if both securities traded without buyback until dividends had fallen to near zero.  At that point the buy-back on both would be identical in practical terms (next to nothing) and no premium at all is warranted.

I would say that a realistic premium in terms of this factor lies nowhere near either extreme but that there is definitely a significant premium for MINING over TAT to be applied because of it.

MAXIMUM RETURN : TAT has no maximum on the amount which investors can receive.  Investors in MINING are limited to only being able to receive back the price of one DMS.PURCHASE plus the profits made from investment of capital.  This either has no impact at all on value or an absolutely enormous one.  At current prices of TAT it works out roughly as follows:

  • If you believe the total payout on a TAT share over its lifetime will be less than around 2.5 times what you paid then this factor has absolutely no impact.
  • If you believe the total payout on a TAT share over its lifetime will exceed around 2.5 times what you paid then you should value TAT shares ABOVE MINING ones and can totally ignore the benefits of MINING's better buy-back clause over TAT's.

I believe the first of these two options is the correct one.  And it's safe to assume TAT believes the same - or he wouldn't be selling the shares at this price at all.  But we could both be wrong.

There is, however, a related issue where TAT does have an edge.  TAT shares have payments guaranteed by ThickAsThieves - even if ASIC-MINER were to crash.  There is no such guarantee in respect of MINING shares - if our investments or loans fail then that capital will not be replaced.  Whilst every step reasonable will be taken to minimise this risk it IS a real risk - and TAT shares should be assigned a premium when valuing on this basis.  This is only a risk if losses exceed the revenue from investment - so I'd rate it as very low.  You'd need to form your own judgement on this one.

My conclusion is that MINING shares SHOULD have a value significantly higher than TAT's - because of the better (for investors) buy-back clause.  All other factors are, in my view, either much smaller in comparison to that or unlikely to be relevant.  But form your own opinion.  And bear in mind that the price of DSM.MINING will be set by the market NOT me (unless noone else buys DMS.PURCHASE).
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((This is a copy of the contract used for all three securities that collectively form DMS.  Formatting will be tided up once assets have gained moderator approval and the contract becomes final.))

This security is one of three that together form Deprived Mining Speculation - a framework allowing investors to speculate on both sides of the "Perpetual Mining Bond" paradigm whilst also receiving modest growth on their invested capital.  These three securities collectively represent a fund - with shares in each security having different entitlements to portions of the assets of the fund.

The contract for all three securities is being posted in each of the three - they are so tightly interlocked that they need to share a single contract.  (Note to moderators - if you've read the contract for one of these three securities then you've read the contract for all three.  They're identical).

OVERVIEW OF SECURITIES

DMS.MINING - This largely mirrors in behaviour those securities known as Perpetual Mining Bonds.  That term is a misnomer - they are in general not perpetual and are never bonds (they have no face value and no plan for repaying capital).  Units in DMS.MINING will pay out as though they were PMBs - distributing via dividend payments calculated from a nominal hashing-power per unit.  If the fund as a whole closes then these receive a final payment first.  DMS.MININING will pay dividends similar to those paid on a 5 MH/S PMB.

DMS.SELLING - These units effectively underwrite the payments to DMS.MINING units.  They receive dividends if the projected value of backed DMS.MINING units falls significantly below actual capital.  They receive all remaining capital  in the event of fund closure.  Conceptually ownership of one of these allows you to SELL a MINING unit as you have provided the capital to back that unit.

DMS.PURCHASE - This security primarily exists as a means to provide an auditable distribution of units in the other two securities.  It can, however, be viewed as a low-risk and low-return investment opportunity itself.  One unit of DMS.PURCHASE is almost exactly equivalent to one unit each of DMS.MINING and DMS.SELLING - receiving payments whenever either of them does (the only minor difference is in voting rights).  The primary way in which units of DMS.MINING and DMS.SELLING are issued is in return for turning in (sending to issuer) a unit of DMS.PURCHASE.  This ensures that every MINING unit is backed by a SELLING unit.

At root this then becomes almost a zero-sum game.  Each sale of a PURCHASE unit adds some extra capital which will, eventually, be returned split in some fashion between the MINING and SELLING units represented by one PURCHASE unit.  An investor then has the option of selling one or both of the MINING and SELLING units - depending on their own evaluation of the likely profitability of both and the market prices.

An investor can also, in theory, hold either the PURCHASE unit or exchange for it a MINING and a SELLING unit and hold both of those.  Those two scenarios would both end up with the same result - that the investors would receive back 97% of their investment, less exchange fees, plus any earnings/growth made by use of the capital.

The ongoing price of PURCHASE units is tightly defined in this contract.  The price of MINING and SELLING units is left entirely to the market.  It would seem likely (but not inevitable) that the pirce of 1 MINING unit + 1 SELLING unit would be around the price of one PURCHASE unit.

There will always be exactly the same number of issued MINING and SELLING units (they are only ever released in pairs).

MANAGEMENT FEES

A management fee of 3% is taken from funds received from selling DMS.PURCHASE.

No other management fees are taken.

NAV/U AND PRICE OF DMS.PURCHASE

DMS.PURCHASE are the only element of this security group where the price is determined by formula or by the manager.  DMS.MINING and DMS.SELLING will trade at whatever price their owners want to sell at and the market will bear.

From launch (placement of first Asks by the Manager) until the first dividend is paid these (DMS.PURCHASE) will be sold at a fixed price determined by the manager based on current difficulty.  This price will be set at 405 days of DMS.MINING dividends at the current difficulty at that point.

From that point onwards the price will be amended whenever a dividend is paid (to any of the unit types) or the manager notices any significant change in the NAV of the fund.  The price will be calculated as follows:

1.  The total assets controlled by the fund will be calculated - this generates a NAV (Net Asset Value).

2. This will be divided by (PURCHASE outstanding + SELLING outstanding).  This is the NAV/U (Net Asset Value per Unit) of the overall fund and represents the current book value of one PURCHASE or (one SELLING + one MINING).

The new selling price of PURCHASE shall be 1.05 times the NAV/U calculated in step 2.  This ensures that after the 3% management fee is taken slightly more is left than the current NAV/U.  The small extra amount (under 2%) compensates existing investors for the dilution of their earnings from the fund's investments.

CONVERSION OF DMS.PURCHASE

It is anticipated that most purchasers of DMS.PURCHASE will want to convert these into a DMS.MINING and a DMS.SELLING and sell one or both of those units.  The initial procedure for doing this is simply to send your unit(s) of DMS.PURCHASE to the issuer (DeprivedMining).  As soon as the Manager notices this transfer he will transfer to the sending account the same number each of DMS.MINING and DMS.SELLING which can then be held or placed for sale on the market as desired.  Please be VERY careful to make sure you spell the account name correctly - if you send to the wrong person then this will NOT be reimbursed by the Manager or the fund.

It is recommended NOT to send them at around the time dividends are paid - as you risk the transfer occurring during dividend payment and leading to some hassle needed to manually pay whatever dividends you missed.

If activity on these security reaches a level which warrants it then this procedure may be amended or automated at Manager's discretion.

EXCHANGE FOR DMS.PURCHASE

If a potential investor holds loans or securities (that are white-listed for investment by this fund) and wishes to, then at Manager's discretion a swap may be made of DMS.PURCHASE for those loans or securities.  Such a swap must be made with DMS.PURCHASE valued at its current official selling price and the loans or securities valued at their face value (with any difference in either direction being settled in BTC).  If the investor indicates that he intends to exchange for DMS.MINING and DMS.SELLING then he may be provided with those and skip the intermediate step of being sent DMS.PURCHASE and then immediately returning them.

This avoids unnecessary hassle for all parties involved.

If such an exchange occurs then the Manager will be paid his management fee of 3% as though the units of DMS.PURCHASE had been bought through the market.  Any such exchange must be specifically reported by the Manager in the thread for this fund - though the identity of the investor need not be disclosed (unless it is the Manager in which case that must be disclosed).

DIVIDENDS FOR DMS.MINING

Dividends will be paid daily, targetted for payment at 16:00 GMT.  Manager may makes the payments a few hours early or late (scheduling is not an optimal option due to the need to ideally adjust downwards PURCHASE price at the same time).

The daily dividend paid is calculated as follows:

5,000,000 * Block Reward * 86400 * (65535/2^48)/Difficulty

5,000,000 being the notional 'Hashing Power' of one unit

Block Reward currently being 25 (BTC per block found)

86400 being the number of seconds in a day.

65535/2^48 being the constant that needs to be divided by difficulty to calculate the likelihood of generating a block in a single hash.

DIfficulty is the difficulty of mining BTC at the midnight prior to the dividend payment.

This calculation is the standard one used to calculate the average mining output of hash-power assuming no stales and no down-time.

The calculated dividend is paid out to each DMS.MINING (and also to any DMS.PURCHASE that are outstanding).

DIVIDENDS FOR DMS.SELLING

Whenever a DMS.MINING dividend is paid an assessment will be made of whether a DMS.SELLING dividend should also be paid.  This will be done as follows:

NAV/U post (DMS.MINING) dividend will be divided by the dividend just calculated for DMS.MINING.  This produces the number of days at current difficulty for which dividends could be paid from current capital.

If that number is greater than 410 then a dividend will be issued for DMS.SELLING (and any outstanding DMS.PURCHASE) such that it would reduce capital to exactly 400 days of dividends at current difficulty.  If the number is less than 410 then no dividend will be paid.

This serves to keep capital at around 1 year's dividends (the buy-back price) plus just over a month extra to allow for short-term variance in difficulty.

BUY-BACK TERMS

It is the intention of Manager that this fund should be a long-term prospect (the prices of all three securities will gradually fall) however an option must exist for a shut down.  In the event of shutdown then DMS.MINING (and any outstanding units of DMS.PURCHASE) would first receive a dividend equal to the LOWER of :

a) All funds held by the securities,

b) 365 times the daily dividended due at current difficulty.

The scenarios in which closure under these terms could happen are:

a) Manager proposes a shut down and this is approved by a vote of DMS.SELLING units AND is voted in favour of by a majority of voting units not held by the Manager.  It is envisaged that this scenario would happen if difficulty rose massively AND there was no further interest in purchase of more DMS.MINING bonds.

b) Capital falls such that it is too low to pay 100 days of DMS.MINING bonds for 2 successive difficulties (i.e. before AND after a difficulty change).  In that scenario it is apparent that all of the capital will go to DMS.MINING holders (and DMS.SELLING holders got it totally wrong) so closure and payment of all funds to them immediately is the only fair course of action.

Following payment of the dividend to DMS.MINING, any remaining funds are divdended to DMS.SELLING (and to any outstanding units of DMS.PURCHASE).

Manager may, at his discretion, choose to make final payments by means of a forced purchase rather than through dividends (incurring trading fees but freeing the tickers up for reuse).

INVESTMENT OF CAPITAL

Capital amounting to at least 50 days of DMS.MINING dividends at current difficulty must be held as BTC in the issuing account at all times.  The remainder of capital may be invested or loaned out. All such investments and loans must be very low risk - investment is NOT the primary purpose of these securiities but IS necessary to make holding DMS.SELLING worthwhile compared to other options.

Investments (including loans to other companies) must meet ALL of the following criteria:

    They must be BTC denominated.
    They must have a precise face value with guaranteed redemption at that face value (other than small administrative fees)
    They must anticipate paying a return of at least 10% per year
    They must be backed by significant assets making the risk of default absolutely minimal
    Issuer must have no history of defaulting, paying substantially late or failing to deliver on promises/guarantees made by themselves or companies managed/operated by them.
    Issuer must have a significant track record of successfully managing business(es) in accordance with their contracts and with a profitable outcome for investors.

The only such investment white-listed at the launch of this IPO will be Manager's own fund LTC-ATF - with lending to LTC-ATF allowed.  All other potential investments must be approved by a majority vote of DMS.SELLING.

Loans made to individuals must meet the following criteria:

    They must be fully secured by assets held as collateral by the Manager.
    Assets used as security must be BTC-denominated, be clearly profitable and be issued by a company/individual where there is no history of default, paying substantially late or failing to deliver on promises/guarantees.
    Assets held as security must must be sufficent so as to cover oustanding debt in the event of the largest drop in their value considered likely by the Manager.

Asset issuers and other counter-parties will be approved for white-listing (to have their securities accepted as collateral) by a majority vote of DMS-SELLING.  Initially only three such issuers/counter-parties will be white-listed : Deprived (Manager of this fund and thus already considered acceptable by all investors), Burnside (operator of BTC.CO where this asset is listed) and Friedcat (issuer of ASIC-MINER).

Entities may be removed from the fund's white-lists by a majority vote of DMS.SELLING.

Votes may only be initiated by the Manager (at his discretion).  Investors may propose candidates for white-listing - but have no right or ability to compel a vote to be held.

The detail of loan agreements may be defined by the Manager but must be approved by a majority vote of DMS.SELLING before any loans may be made.

White-listing of an asset (for investment) or an issuer (for securities with exposure to them to be usable as collateral) does NOT compel the Manager to invest in or accept those assets.

VOTING AND CONTRACT CHANGES

Any change to the contract requires a  2/3 majority of all outstanding units AND a majority of all units voting but not held by Manager in favour for EACH of DMS.MINING and DMS.SELLING.  DMS.PURCHASE is not expected to have sufficient outstanding units at any time to contribute usefully to a vote.

Voting IS also explicitly required in the following circumstances:

    To add white-listed securities for investment.
    To add white-listed issuers.counter-parties to whome exposure is allowed on collateral for loans.
    To shut the fund down (other than when it is done without vote if capital stays below 100 days of dividend).

For the first two of these only a simple majority of DMS.SELLING is required.  For the third it is additionally required that a majority of units voting but not held by Manager vote in favour of closure.  These votes are only extended to DMS.SELLING as it is DMS.SELLING's funds that are primarily at risk - any losses from investment fall upon them first.

REDEMPTION OF SHARES

Whilst it is the intention that all trade should be via the market a mechanism will be in place to allow redemption at a small penalty,

An investor may only redeem either:

    Shares of DMS.PURCHASE
    A bundle containing an equal number of DMS.MINING and DMS.SELLING shares.  Each such pair being identical in value to one DMS.PURCHASE

No redemption is possible of unmatched DMS.MINING or DMS.SELLING - not only do they not have any fixed value. it would imbalance the 1:1 ratio between them that needs to always be maintained.

In princple redemption occurs by 98% of the NAV/U for the share(s) being paid to the investor.  Manager should redeem shares on these terms unless doing so would reduce the capital coverage to under 50 days of dividends.  If redemption would reduce capital below 50 days of dividends then Manager must cease making new investments until capital is available to honour any outstanding redemption requests.

In short, a good-faith effort will be made to provide a facility for fast redemption - but it cannot be guaranteed where to do so would cause loss to existing investors or reduce liquid capital cover for DMS.MINING below acceptable levels.  Investors should NOT rely on immediate redemption always being available.

ACCOUNTING

At least once a fortnight (with the goal being weekly) a detailed list of all assets and debts held by the fund will be produced.  The only information which will be withheld will be the names of individuals to whom loans have been extended - the amount, terms and collateral for each loan WILL be listed.  Full details of all investments held will be provided and all wallets/portfolios for accounts managed by the fund will be exposed where it is practical and safe to do so (specifically that means anyone will be able to verify the contents of the wallet and all shares held on BTC-TC).

If the level of activity warrants it then more frequent briefer reports will also be produced summarising the fund's status.

Manager may, at his discretion, provide reports at the time of each dividend - but is not obliged to do so.

DEFECTS OR ERRORS IN BTC CLIENT/PROTOCOL/BLOCK-CHAIN

It is conceivable that at some point defects, errors, exploits or bugs could occur in the BTC protocol, block-chain or some other area of infra-structure/software such as to cause ambiguity over what current difficulty was (for example consider if the block-chain forks - there are then two different potential difficulties).

In such situations Manager will use his best judgment to make payments (and allocate funds) so as  to be fair to all investors.  Where the situation is unclear (for example which fork will be abandoned) dividend payments may be delayed until things become more clear.

The guiding principle is that DMS.MINING should receive dividends as though they had been operating real mining power at 100% efficiency on the proper BTC block-chain.

UNFORESEEN CIRCUMSTANCES

It is possible that cirumstances could arise where the Manager is unable or unwilling to continue operating the fund.  Should this position arise then immediately the Manager must:

    Cease making new investments,
    Liquidate investments where possible,
    Cease selling new DMS.PURCHASE
    Offer redemption at 100% (less any exchange fees) of NAV/U for DMS.PURCHASE and bundles of equal numbers of DMS.MINING and DMS.SELLING where it is possible to do so whilst retaining at least 50 days dividend cover in liquid BTC for the remaining DMS.MINING.

Manager must further seek to either:

    Find a replacement manager to be approved by a majority vote by both all outstanding DMS.MINING and all outstanding DMS.SELLING.
    Propose a split of funds between DMS.MINING and DMS.SELLING to be approved by a majority vote by both all outstanding DMS.MINING and all outstanding DMS.SELLING.

In the event of a vote with a proposal to split funds being left up for 7 days and (in either vote) the total of (Yes votes + No votes) being less than 50% of all outstanding shares then the Manager will determine a fair (in his best judgement) split of funds and execute final payments in accordance with that decision.  This clause is added specifically to address the scenario where most shares have been redeemed with a large part of those remaining outstanding being unable or unwilling to participate in reaching closure.
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June 07, 2013, 05:21:31 PM
Last edit: June 08, 2013, 06:31:43 PM by Deprived
 #3

FAQS

FAQS RELATING TO PRICING

How will the price of the various securities be set?

The price at which the fund itself will sell DMS.PURCHASE is defined by formula.  After IPO it is the value of current DMS.PURCHASE plus 5%.  When a DMS.PURCHASE is sold, 3% of the received funds are paid as a management fee.  The remaining markup, after deduction of exchange fees, is reimbursement to current investors - as the sale of new units dilutes their current investment (reducing their earned income).

DMS.MINING and DMS.SELLING are priced by anyone who wants to sell them.  In theory their prices should add up to somewhere around the value of one DMS.PURCHASE.  The fund itself does not enforce that consistency - but I'm certain any arbitrage opportunities provided by a mismatch will rapidly be taken up.

What are the relative values of DMS.MINING and DMS.SELLING?

These are not defined by the fund - nor by myself.  Obviously I have my own views on this - but will not share them for a few reasons:

  • I want to see how the market values them - I can't determine that if I begin by making a pronouncement of what I consider their value is.
  • I intend to trade them myself.  Defining (and exlaining how I arrive at) my own valuations would reduce my own ability to trade based on my own judgment.
  • If my own valuations are wrong then I risk having misled and misinformed people into losing money.  Investors need to define the relative values of these themselves.  My goal here is to provide an opportunity to invest/speculate - not to advise on how you should do it (other than general, obvious and common-sense advice).
  • There is a risk of my valuations being taken as gospel - and very little trade at all occurring as most investors ALL try to trade based on the same assumptions of value.

You can, however, safely assume the following:

The value of a DMS.MINING must lie below the amount at which a buy-back can occur.  If you pay more than that for them then, in a normal PMB you would be relying on the operator's generosity not to sell to you then buy-back.  Here you're relying on more than that - you're relying on the collective good-will/charity of all current and potential future investors.

The easiest way to work out the value of a DMS.SELLING is to work out the value of a DMS.MINING.  A DMS.SELLING is worth what a DMS.PURCHASE is worth less what a DMS.MINING is worth.  Because there is a near infinite supply of DMS.PURCHASE its value can never be above the price at which it is sold by the fund (but that price can and will change in accordance with the contract).

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June 07, 2013, 05:21:43 PM
Last edit: July 13, 2013, 08:48:09 PM by Deprived
 #4

DETAILS OF ASSETS

The holdings of this fund will be comprised of cash (BTC only), low-risk investments and loans.  Wherever possible I will provide a means to verify these assets - where it isn't possible I will maintain in this post a list of such assets.


CASH

At present (and likely nearly all the time) cash will all be on BTC-TC.  The wallet balance can be views in the public portfolio at the following link :

https://btct.co/portfolio/gbg8CQ==


SECURITIES HELD ON BTC-TC

At present no securities are held on BTC-TC.  If they are in the future then they will be viewable in the public portfolio on that site :

https://btct.co/portfolio/gbg8CQ==


SECURITIES HELD ON LTC-GLOBAL

The only security likely to be held here is LTC-ATF.B1.  There are no other BTC-denominated securities listed on that exchange.  Our current holdings of LTC-ATF.B1 can be viewed at :

https://www.litecoinglobal.com/portfolio/fsA2Cw==

LTC-ATF.B1 have a face value of 0.01 BTC on which weekly interest of 0.6% is paid by dividend.

The number currently held can be seen in each report (or checked live at the link above).


COINLENDERS

Manager is authorised to invest up to 20% of all capital in Coinlenders.  At present we have the following investments there:

A 200 BTC 30-day CD.
An updated value for this CD (including interest) is provided whenever I produce reports.


JUST-DICE

Manager is authorise to invest up to 10% of all capital in Just-Dice.

Current Deposit : 100 BTC
An updated balance is provided whenever I produce reports.


CALCULATING TOTAL ASSETS HELD BY THE FUND

In theory this is as simple as adding the cash in our wallet to the total value of all other investments held.  In practice it isn't quote so simple for two reasons:

1.  BTC-TC extensively caches data.  So the wallet balance shown (and number of securities held - though this will rarely change) could be out of date by up to 5 minutes.
2.  A management fee of 3% is due on all new sales of PURCHASE (and also on the value of securities accepted in exchange for either PURCHASE or for bundles of MINING/SELLING).  So to calculate an accurate value you need to work out the management fee due - which will be 3% of (all sales of PURCHASE since last management fee was taken PLUS the value of any assets reported in this thread as accepted in return for shares).

In practice there should be no need for anyone to calculate this - I WILL report on historical values once we actually have some history.  However if you want to double-check the accounting you can - just note the reported holdings at one dividend payment then after the next check the transaction history for PURCHASE and see if it all adds up (remember to deduct the 0.2% exchange fees).
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June 07, 2013, 05:55:47 PM
 #5

Looks good, excited to learn more about this (following). A few questions:

 - Will there be a PT for this on Bitfunder or will it be exclusively listed on BTC-TC?

 - Will you be providing estimated returns on investment (roi, etc)?

Thanks,
VJ

Making Apps and Websites for people. I charge reasonable rates ($30-40/hour in BTC).
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June 07, 2013, 06:19:24 PM
 #6

Looks good, excited to learn more about this (following). A few questions:

 - Will there be a PT for this on Bitfunder or will it be exclusively listed on BTC-TC?

 - Will you be providing estimated returns on investment (roi, etc)?

Thanks,
VJ

For now it'll be exclusively on BTC-TC.  For one thing, Bitfunder currently has no system in place for voting - and voting is essential for DMS.SELLING to be able to choose which issuers/investments they believe to be a safe investment.  It's also necessary for there to be able to be a vote on closure if the situation ever arises where that is worth considering (that could either be if DMS.MINING have done so badly that DMS.SELLING want to take profits OR it could be the opposite - that DMS.MINING are doing so well that DMS.SELLING want to just cut their losses, though the latter is less likely unless there's a sharp increase in difficulty followed by the an extended period of little/no change).

If interest turns out to be very high then I could consider a pass-though on Bitfunder without voting rights.

I will NOT be providing any estimates of ROI for DMS.MINING or DMS.SELLING.  I can't - as those depend on the prices at which units sell which will neither be stable OR under my control.

I WILL maintain records of DMS.PURCHASE prices - and once some time has elapsed can then produce those in tabular form (with past dividends) showing how the fund's investment has performed.
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June 07, 2013, 06:46:41 PM
 #7

What do you plan the IPO price to be on each of the three securities?
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June 07, 2013, 06:57:53 PM
 #8

What do you plan the IPO price to be on each of the three securities?

DMS.PURCHASE will be sold at a price defined by a forumula given in the contract :

"From launch (placement of first Asks by the Manager) until the first dividend is paid these (DMS.PURCHASE) will be sold at a fixed price determined by the manager based on current difficulty.  This price will be set at 405 days of DMS.MINING dividends at the current difficulty at that point."

What that price is depends on what difficulty is when the securities receive moderator approval.  AFter that the price will slowly fall as dividends are paid out.

DMS.MINING and DMS.SELLING are NOT sold by IPO.  Those are sold on the market by investors who buy a DMS.PURCHASE, swap it for 1 each of DMS.MINING and DMS.SELLING and then sell one or both of those at whatever price they want.

I'll be buying some DMS.PURCHASE with my personal account and selling both the .MINING and .SELLING after swapping mine.  What price I (try to) sell at depends on how competing securities are priced at that time - and on what prices other people who buy DMS.PURCHASE and exchange them try to sell at.  Don't expect a huge sell wall of either MINING or SELLING at one price up.

And remember - if you want (say) a DMS.MINING you have TWO ways to get one.  Buy a DMS.MINING or buy a DMS.PURCHASE, convert it and then sell off the .SELLING unit.  Which way works out cheapest may well vary over time and provides plenty of ways for those who want to trade to try to make a profit.
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June 07, 2013, 07:10:04 PM
 #9

fascinating. These structured products will finally allow for the market to price and illustrate what the equilibrium discount rate is for PMBs.
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June 07, 2013, 07:24:57 PM
 #10

fascinating. These structured products will finally allow for the market to price and illustrate what the equilibrium discount rate is for PMBs.

Yes - I've tried as much as I can to genuinely allow the market to set the price.  There's no artifical constraints (or over-supply) on supply and no limitations on how the MINING and SELLING elements can be priced (other than that their prices added together should roughly equal the fixed price of a PURCHASE - arbitrageurs will ensure that they do for sure).

I'm by no means confident that I'll sell enough to recoup the listing fees - but it's (in my view) an interesing enough experiment to warrant a 15 BTC risk anyway.  And the up-side isn't too terrible for me if there's good volume.  Like everyone else I can try to make profit by pitting my wits against the market in the pricing of the seperate elements.  And if noone else buys PURCHASE then what I lfail to recoup in management fees I can make back in margins in selling the two halves post-split.
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June 07, 2013, 08:40:23 PM
 #11

Because of the flexible market control over total volume, this would be great for true price discovery on PMBs (and the .SELLING counterpart, whatever that asset is best conceptualized as) and for letting investors position themselves anywhere on the mining difficulty prognostication continuum.   I would love to see this approved.

Regarding creation of additional DMS.PURCHASE units after the first dividends have been paid, do I understand correctly that would cheaper to, say, create 5000 DMS.PURCHASE units all at once rather than 2500 DMS.PURCHASE units on day 1, and then 2500 DMS.PURCHASE units on day 2, because the funds I used to create 2500 units from day 1 would now be baked into the NAV and increase cost on day 2 derived from the 1.05*(NAV/U) calculation?








BTC:  1K4VpdQXQhgmTmq68rbWhybvoRcyNHKyVP
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June 07, 2013, 08:54:38 PM
 #12

Absolutely fascinating product Deprived. Best of luck.

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June 07, 2013, 10:00:25 PM
 #13

Absolutely fascinating product Deprived. Best of luck.

+1, looks like you put a lot of thought in to this.  I predict this is bad news for existing PMBs
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June 07, 2013, 10:06:30 PM
 #14

I was wondering if you can include your estimates in a chart form at a later date
http://i.imgur.com/lzpvjDQ.gif
Similar to this
Read through the announcment
COMPARISON OF DMS.MINING WITH PMBS IN GENERAL
TBD.
Jumped the gun a bit and will wait for your estimates Smiley
I wish you the best of luck this looks similar to insurance fund's actually and some mutual funds for bitcoin will keep watching
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June 07, 2013, 10:09:33 PM
 #15

Am just adding the following into the contract for all three securities:

--- Addition to contract starts here ---

EXCHANGE FOR DMS.PURCHASE

If a potential investor holds loans or securities (that are white-listed for investment by this fund) and wishes to, then at Manager's discretion a swap may be made of DMS.PURCHASE for those loans or securities.  Such a swap must be made with DMS.PURCHASE valued at its current official selling price and the loans or securities valued at their face value (with any difference in either direction being settled in BTC).  If the investor indicates that he intends to exchange for DMS.MINING and DMS.SELLING then he may be provided with those and skip the intermediate step of being sent DMS.PURCHASE and then immediately returning them.

This avoids unnecessary hassle for all parties involved.

If such an exchange occurs then the Manager will be paid his management fee of 3% as though the units of DMS.PURCHASE had been bought through the market.  Any such exchange must be specifically reported by the Manager in the thread for this fund - though the identity of the investor need not be disclosed (unless it is the Manager in which case that must be disclosed).

--- Addition to contract ends here ---

An example may explain why this is being added.

Say an investor/speculator holds 20 BTC worth of BTC-BOND (a real bond on BTC-TC and exactly the type of investment I'd expect us to invest in).  Without this clause here's what would have to happen:

1.  Investor sells their bonds back to namworld - who may not have the cash on hand to do so immediately.  Namworld would then have to sell those bonds again - paying market fees in the process.
2.  Investor buys DMS.Purchase.
3.  Investor sends DMS.Purchase to issuer.  Issuer sends DMS.MINING and DMS.SELLING to investor.
4.  DMS now has 20 BTC more cash that is earning nothing - so time (and fees) have to be used investing it.

With the clause here's what happens.
1. Investor sends the BTC-BOND to issuer.
2. Investors sends DMS.MINING and DMS.SELLING to investor.
3. Issuer reports in this thread (or a replacement) that 2000 BTC-BOND were accepted in exchange for X DMS.MINING and X DMS.SELLING.

Think that makes very clear how this addition helps all parties involved (other than BTC-TC which loses out on some trade fees - but will then likely get some from sale of either the MINING and or SELLING which may not have existed at all had this streamlined method not been available).
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June 07, 2013, 10:11:34 PM
 #16

Seems interesting I was wondering if you can include your estimates in a chart form
http://i.imgur.com/lzpvjDQ.gif
Similar to that
Edit
COMPARISON OF DMS.MINING WITH PMBS IN GENERAL
TBD.

Jumped the gun a bit will wait for your estimates Smiley


I'm not intending to make a comparison to (or of) actual PMBs - more to explain HOW investors should do it themselves.  There's a bunch of reasons why I'm not doing it - I'll explain those in one of the first posts when I get around to that section.
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June 07, 2013, 10:34:11 PM
 #17


I'm not intending to make a comparison to actual PMBs - more to explain HOW investors should do it themselves.  There's a bunch of reasons why I'm not doing it - I'll explain those in one of the first posts when I get around to that section.

Thanks for the clarification I'll let you finish posting all the sections before asking to many more questions as they will probably be explained in detail and do not want to ask redundant questions Smiley But will ask this question for now

Using the current info

Regarding the Buy Back Terms

It is the intention of Manager that this fund should be a long-term prospect (the prices of all three securities will gradually fall) however an option must exist for a shut down.  In the event of shutdown then DMS.MINING (and any outstanding units of DMS.PURCHASE) would first receive a dividend equal to the LOWER of :

a) All funds held by the securities,

b) 365 times the daily dividend due at current difficulty.

My question's are

Is their a priority list on the dissolution between DMS.Mining and DMS.Purchase
Related to the amount of shares owned
Or is it similar to
Financiers
Bondholders
Shareholders
In priority

In the event that one security shuts down will there be an option to convert to shares in another fund if such a fund is created at the time of dissolution perhaps to adjust for a difficulty change in a new issuing by the issuer.

A similar question applies to
Manager must further seek to either:
Propose a split of funds between DMS.MINING and DMS.SELLING to be approved by a majority vote by both all outstanding DMS.MINING and all outstanding DMS.SELLING.

And whether their is a convertibility option in such a case or if a new issuing has no relationship at a future date with the current offering
Clarification: Not a 1:10 split case I meant in the case of a new issuance

I can see how this applies to exchanges of units from one fund to another but I wanted to ask for the clarification on the application of such issues in terms of fund dissolution and fund splitting/ Class A or B dividend's if a preferred option is created.

Thanks again Smiley
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June 07, 2013, 11:53:46 PM
 #18


I'm not intending to make a comparison to actual PMBs - more to explain HOW investors should do it themselves.  There's a bunch of reasons why I'm not doing it - I'll explain those in one of the first posts when I get around to that section.

Thanks for the clarification I'll let you finish posting all the sections before asking to many more questions as they will probably be explained in detail and do not want to ask redundant questions Smiley But will ask this question for now

Using the current info

Regarding the Buy Back Terms

It is the intention of Manager that this fund should be a long-term prospect (the prices of all three securities will gradually fall) however an option must exist for a shut down.  In the event of shutdown then DMS.MINING (and any outstanding units of DMS.PURCHASE) would first receive a dividend equal to the LOWER of :

a) All funds held by the securities,

b) 365 times the daily dividend due at current difficulty.

My question's are

Is their a priority list on the dissolution between DMS.Mining and DMS.Purchase
Related to the amount of shares owned
Or is it similar to
Financiers
Bondholders
Shareholders
In priority

In the event that one security shuts down will there be an option to convert to shares in another fund if such a fund is created at the time of dissolution perhaps to adjust for a difficulty change in a new issuing by the issuer.

A similar question applies to
Manager must further seek to either:
Propose a split of funds between DMS.MINING and DMS.SELLING to be approved by a majority vote by both all outstanding DMS.MINING and all outstanding DMS.SELLING.

And whether their is a convertibility option in such a case or if a new issuing has no relationship at a future date with the current offering
Clarification: Not a 1:10 split case I meant in the case of a new issuance

I can see how this applies to exchanges of units from one fund to another but I wanted to ask for the clarification on the application of such issues in terms of fund dissolution and fund splitting/ Class A or B dividend's if a preferred option is created.

Thanks again Smiley

On planned dissolution there would be no priority whatsoever.

One DMS.MINING + one DMS.SELLING is exactly equal to one DMS.PURCHASE in value - so dividends would be paid (in the same amount) to DMS.PURCHASE as they were paid to DMS.MINING.  And after DMS.MINING had been paid off, to DMS.SELLING at the same time as to DMS.PURCHASE.

If a replacement fund were being opened then I'd certainly consider allowing trading of these for ones in the new fund.  I'd definitely be looking at the new fund buying out remaining investments of the current one - as it would get invetsments without paying market fees and this fund would get its cash back (to pay out) a little quicker.

In the event of unplanned dissolution (the "I can't continue" scenario) it's slightly different - as the split of assets between DMS.MINING and DMS.SELLING can't be defined by me.  The contract specifices that this could be detemined by vote - in practice most shares would be sold back well before that happened.

With a buy-back at 100% NAV/U on DMS.PURCHASE anyone holding both SELLING/MINING can immediately convert them to a PURCHASE and sell back.  Anyone holding only one type can either sell that - or buy the other and cash out.  With the buy-back being at full value arbitragers are going to ensure the market is pretty efficient - and that anyone who wants out can do so at a very small loss at most.

We'd rapidly reach the point where only shares left were those of people who were away and those of people holding a handful of one type.  With zero investment income as investments get closed there's no incentive at all for anyone to stay invested if they don't have to  - in a fund where the manager has stated he's quitting - when they can cash out immediately at nearly full value just by selling or buying as needed.

Where we DO hit a brick-wall is if ALL (or mainly all) that's left are people who aren't around at all to vote - meaning no vote can conceivably pass.  I'll amend the contract and add in a clause that if a vote is put up and less than 50% of all outstanding shares vote either yes or no then the manager can distrbute the remaining funds in whatever manner he believes is fairest.  There has to be SOME means to split it - and if a majority of outstanding shares aren't even voting then that's only real option.
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June 08, 2013, 12:16:30 AM
 #19

OK some points now that I have gone through the thing fully, first some minor mistakes i noticed:

"2. This will be divided by (PURCHASE outstanding + SELLING outstanding).  This is the NAV/U (Net Asset Value per Unit) of the overall fund and represents the current book value of one PURCHASE or (one SELLING + one MINING)."

You mean "Mining outstanding + Selling outstanding", right? Sorry if this is a nitpick.

"NAV/U post (DMS.MINING) dividend will be divided by the base dividend (i.e. before management fee) just calculated for DMS.MINING. "

I thought management fees were only upon issuance and not for dividends?

"This serves to keep capital at around 1 year's dividends (the buy-back price) plus just over a month extra to allow for short-term rises in difficulty."

You mean short-term falls, correct?



Now for the meat of my thoughts upon a full reading

1) I don't like the whole investment of capital thing and the resultant credit risk exposure that the miners and especially sellers bear. It is probably too late to change and  I am sure you have already considered and rejected this, but; Maybe you should eliminate the 3% fee, take on the obligation for payment yourself and instead invest the capital however you would like (since the face of Purchase is now your obligation) and whatever ROI you generate is your compensation for managing these instruments. Sort of like what life insurance companies do.

2) How will you differentiate instruments across time? For example, say you sell a purchase today. Lets also say that you issue and sell another purchase 4 months from now. Because the value of the Purchase (or mining + selling since they will be split) will degrade, additional issuances will have increasingly lower value. You have basically set a life expectancy on this as the instruments will approach zero. If there is sufficient volume when you IPO, you may want to consider additional issuance as being differentiated (i.e. Series A vs. Series B) and with  new value for the mining hash rate.
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June 08, 2013, 01:19:24 AM
 #20

OK some points now that I have gone through the thing fully, first some minor mistakes i noticed:

"2. This will be divided by (PURCHASE outstanding + SELLING outstanding).  This is the NAV/U (Net Asset Value per Unit) of the overall fund and represents the current book value of one PURCHASE or (one SELLING + one MINING)."

You mean "Mining outstanding + Selling outstanding", right? Sorry if this is a nitpick.

No - I mean what I said.  I could equally well have said PURCHASE outstanding plus MINING outstanding.

Let X be the number of MINING
X will also be the number of SELLING (they're only ever issued in pairs)

So MINING + SELLING would be same as 2*MINING OR 2*SELLING.

1 PURCHASE = 1 MINING + 1 SELLING

When I calculate the NAV/U I'm calculating the number of PURCHASE that have been sold less the number that have been bought back.

Some of those PURCHASE will still be PURCHASE - others will have been converted into a pair of (1 MINING and 1 SELLING).  SO to calculate the effective number outstanding I have to add the ones that are still PURCHASE to the ones that have been converted.  The latter number (the converted ones) can be determined from EITHER the outstanding MINING OR the outstanding SELLING (those 2 counts being identical).

Remember when a PURCHASE is converted it ceases to be outstanding - as it is returned to issuer.

"NAV/U post (DMS.MINING) dividend will be divided by the base dividend (i.e. before management fee) just calculated for DMS.MINING. "

I thought management fees were only upon issuance and not for dividends?

Corrected - missed that one when I changed the basis of management fee from being taken on all outgoing payments.

""This serves to keep capital at around 1 year's dividends (the buy-back price) plus just over a month extra to allow for short-term rises in difficulty."

You mean short-term falls, correct?

Actually it's both.  The main danger is a short-term rise (a spike) where I pay out a dividend to SELLING then after the spike, when the drop back happens, capital has fallen below the target level for the revised (correct) difficulty.  Have changed it to "to allow for short-term variance in difficulty".

Short-term rises (what I had) was unclear.  Short-term falls don't need correcting for - being short-term there's no problem if capital isn't in place for them.  It's both together which are the problem - so variance is likely the most accurate term to use.


Now for the meat of my thoughts upon a full reading

1) I don't like the whole investment of capital thing and the resultant credit risk exposure that the miners and especially sellers bear. It is probably too late to change and  I am sure you have already considered and rejected this, but; Maybe you should eliminate the 3% fee, take on the obligation for payment yourself and instead invest the capital however you would like (since the face of Purchase is now your obligation) and whatever ROI you generate is your compensation for managing these instruments. Sort of like what life insurance companies do.

It's not an ideal solution - but without some revenue generation investment (especially on the SELLING side) would have to be done within very precise ranges for any investors to make a profit.  There's a few reasons why I rejected your suggestion (it's one I considered):

1.  I already manage a trading fund - which has as much cash as it needs and has no problem raising more if needed (my inbox is full of PMs from people who'd love to buy into it).  So it would make littlle sense for me to take on this project if my reward was only to keep profit that I could already keep the vast majority of anyway through existing endeavours.
2.  Supply would be artificially constrained.  If I assessed the maxmimum amount of loss likely to be sustained on investments at X% then my ability to issue PURCHASE would be restricted to an amount where X% of total sales met the amount of personal cash I was willing/able to risk.  As it stands, supply IS still limited - in that if capital raised exceeds available investment opportunities of suitable quality then return on investments will fall, possibly to the extent of lowering the perceived value of SELLING and so halting further sales of PURCHASE.  But that's a far higher limit.
3.  It is entirely likely that investing all capital (or the amount allowable to be precise) will not be possible in the short-term.  There are relatively few suitable investments - and loans will take a while to get going.  If I were only paid from investment proceeds then issuing more PURCHASE would leave me accepting risk (just holding cash in my own wallet is risk - albeit very small) without ANY benefit.
4.  It would leave open messy areas in terms of liability - for example if BTC-TC vanished would I personally be liable for ALL investment?  There's no way I'd want to take on significant risk for low-return safe investments - as the relatively low profits don't warrant me having to keep the entire amount available in case of disaster.  The alternative - that I pass on such risks whilst keeping all the profit - is surely unpalatable for investors.

2) How will you differentiate instruments across time? For example, say you sell a purchase today. Lets also say that you issue and sell another purchase 4 months from now. Because the value of the Purchase (or mining + selling since they will be split) will degrade, additional issuances will have increasingly lower value. You have basically set a life expectancy on this as the instruments will approach zero. If there is sufficient volume when you IPO, you may want to consider additional issuance as being differentiated (i.e. Series A vs. Series B) and with  new value for the mining hash rate.

The price at which further issuances of this will be sold is defined in the contract - and will fall so as to remain at around the same multiple of hashing power.  Pricing based on NAV/U ensures no loss for existing investors - and dividends to SELLING ensure that capital doesn't grow excessively (as a multiple of MINING dividends) in the event of fast rising difficulty.

The price of all three will fall over time - and yes, if difficulty rises raidly for a sustained period, eventually will reach the point where the price for units becomes tiny.  That's IF SELLING haven't voted by then to do a buy-back of course.  If the price were to fall so low as to begin to lose definition on the market (i.e. not enough decimal places) then it may well make sense to open a new one with a higher hashing denomination and cease sales on this one.

But in the short-term that's unlikely to be an issue - and splitting short-term sales up across different Series would just add work for me, add listing fees and split liquidity.  I can't help feeling I may be missing some element of your point here - as I'm not seeing how there'd be a need to even consider a new Series just because (if) IPO volume was high.

Thanks for the feedback - always great to know at least one person actually read the whole contract.
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