[BTC-TC] Deprived Mining Speculation (DMS)

[Deprived]

I've caught up on transfers again.

The inconsistency in the capitalisation of issuer names has now been corrected  - thanks burnside for fixing that promptly.  I don't believe there was any actual risk (you can't create accounts with same name but different capitalisation) but it removes some confusion.

It's interesting to watch the spreads on SELLING and MINING tighten as, even with relatively few traders, competition forces it.  We're already past the point where you can BUY MINING 'hash-power' for LESS than you can SELL TAT 'hash-power' - suggesting that the market's definition of PMB value (in DMS) will be even lower than TAT had already reduced it to.

I'd argue that selling less than I do is playing with fire. If you compete with the costs of actual hardware you will find people buying your product rather than real mining, which will distort the potential for increased difficulty over time.

At roughly .03-.035 and below, DMS mining is a "deal" in this sense.

Yeah - there IS definitely a theoretical risk that if enough people buy this (and yours) instead of real mining then difficulty will slow down rising and the shares would turn out to have been sold too cheaply.

But of course the selling price isn't down to me now - anyone can sell at whatever price they want.  I will not attempt to control the price either by price-fixing OR by restricting volume.  And risks like that are just one people selling MINING need to take into account to ensure they aren't selling too cheap (and so giving someone else profit at their own expense).

[Deprived]

Some of you may notice that the securities now have an indicator on them that some their details have been changed.

The change was simply that the following text was added at the top of the Executive Summary for all three:

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

I CANNOT change the contract myself now (and do not want to).  On BTC-TC contracts can only be changed manually by burnside (and he'll only do it after making sure the change isn't unfair and was approved by shareholders).  In my view that's the correct policy - an issuer should NEVER be allowed to edit the actual contract themselves once they've started selling shares.

So don't panic or feel the need to re-read the whole thing looking for changes whenever you see that icon - there'll be a few changes in the short-term as I add more detail into the explanatory sections and/or address requests for clarification from investors or other interested parties.

[FloatesMcgoates]

The current NAV/U is 0.065258 as per the ask price for a DMS.PURCHASE

The current daily dividend from DMS.MINING will be 5*(1 day dividend from TAT.VIRTUALMINE) = 5*(0.00003223) = 0.00016115

The (NAV/U) / (Dividend) will be 0.065258/0.00016115 = 404.9

In this case, only DMS.MINING will receive a dividend.

Lets say in several days time, the difficulty increases by 20%

.00016115*(.80) = 0.00012892
(NAV/U) / (Dividend) = 0.065258/0.00012892 = 506.189

506 is greater than 410, so DMS.SELLING will receive a dividend x based on:
(0.065258/(x+0.00012892)) = 400;
x = 0.000034225

--------------------------------------------------------------------------------------------------------------
I know my above understanding of this security is flawed because the NAV of DMS.PURCHASE changes. I am unclear as to how exactly the NAV is calculated as I am unsure where I can find "The total assets controlled by the fund".

Can you point me to where this value can be found?

[Deprived]

The current NAV/U is 0.065258 as per the ask price for a DMS.PURCHASE

The current daily dividend from DMS.MINING will be 5*(1 day dividend from TAT.VIRTUALMINE) = 5*(0.00003223) = 0.00016115

The (NAV/U) / (Dividend) will be 0.065258/0.00016115 = 404.9

In this case, only DMS.MINING will receive a dividend.

Lets say in several days time, the difficulty increases by 20%

.00016115*(.80) = 0.00012892
(NAV/U) / (Dividend) = 0.065258/0.00012892 = 506.189

506 is greater than 410, so DMS.SELLING will receive a dividend x based on:
(0.065258/(x+0.00012892)) = 400;
x = 0.000034225

--------------------------------------------------------------------------------------------------------------
I know my above understanding of this security is flawed because the NAV of DMS.PURCHASE changes. I am unclear as to how exactly the NAV is calculated as I am unsure where I can find "The total assets controlled by the fund".

Can you point me to where this value can be found?

At present the value of total assets controlled by the fund isn't listed anywhere.

But right now it's just the BTC raised from selling DMS.PURCHASE (less management fee due).

If you look in the financials section of any of the securities you'll see this link :

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

If you go to it, it shows you the current assets held on BTC-TC by the fund - INCLUDING wallet balance.  That wallet balance IS the total assets controlled by the fund - until I invest some of it.  If you do the math you'll find that to be equal to PURCHASE SOLD * Sales price * .998.

The multiplication by .998 is because we pay a fee of 0.2% on all sales.

3% of that is due to me as management fee - I'll take that before paying first dividend (the 3% is only due on sales - not on balance - it's only for the first day that balance will equal sales).

So after paying management fee and first dividend the NAV/U will fall by 3-4% and the new sales price will be set at 5% above that : i.e. very slightly above current price (within a few days it'll drop below that).

I'll probably also do first investment before paying first dividend - exchanging bonds issued by my trading fund (LTC-ATF) for MINING/SELLING.  Those are bonds with a face-value of .01 BTC with a senior claim on all assets held by LTC-ATF (well over double the value of all bonds - with over 90% of that actually being cash) that pay 0.6% per week.  That'll give us a little bit of invome right away - investments into other issuers will need approval by investors first (I'll discuss that more - and raise first votes - tomorrow).  The bonds being traded in will be ones already held by me personally - not new debt (LTC-ATF is not issuing new debt at present and is about to return some more capital to investors).

If that's done before next dividend payment then it will be detailed here - and the 4th post in this thread will be updated to contain sufficient information such that investors can work out EXACTLY what we hold (and hence exactly what NAV/U is) other than any management fees owed but not yet paid.

[burnside]

I'm curious, as I'm not really sure how BTC-TC works behind the scenes regarding dividend scheduling - are the currently queued dividends static or based on the number of units sold as of when the dividend was queued? (There have been 1139 units sold as of this post and there are a little less than 17 hours remaining until the first dividend, if I'm not mistaken.) In other words, if you sell more units in the interim, will the currently queued dividend amount change to correlate with the number of outstanding units at the ex-dividend time?

This really is a fascinating set of securities, I'm watching very closely to see how the market acts on them.

There are two ways to schedule a dividend.

- Lump sum payment spread across all shares in circulation at the time the dividend is paid, or
- Fixed amount per share distributed to all shares in circulation at the time the dividend is paid.

For this asset I'm certain Deprived is using the latter payout method.

Dividends can be processed give or take ~10 - 15 minutes from when they're scheduled, depending on if there are any other dividends scheduled around that time on other assets, etc.

Cheers.

[FloatesMcgoates]

Also, if I understand this security correctly:

1.) The dividends from DMS.MINING will asymptotically reach 0
2.) The dividends from DMS.SELLING will asymptotically reach 91.25% APR. (365/400)

Is this correct?

[Kyune]

Also, if I understand this security correctly:

1.) The dividends from DMS.MINING will asymptotically reach 0
2.) The dividends from DMS.SELLING will asymptotically reach 91.25% APR. (365/400)

Is this correct?

There are some unstated assumptions about future increases in mining difficulty in your projections, are there not?  The dividends from each of these assets could vary greatly depending on how mining difficulty unfolds in the future.

[FloatesMcgoates]

Also, if I understand this security correctly:

1.) The dividends from DMS.MINING will asymptotically reach 0
2.) The dividends from DMS.SELLING will asymptotically reach 91.25% APR. (365/400)

Is this correct?

There are some unstated assumptions about future increases in mining difficulty in your projections, are there not?  The dividends from each of these assets could vary greatly depending on how mining difficulty unfolds in the future.

True, my assumptions were based on extrapolation of the current trend of continually increasing mining difficulty.

[Kyune]

Also, if I understand this security correctly:

1.) The dividends from DMS.MINING will asymptotically reach 0
2.) The dividends from DMS.SELLING will asymptotically reach 91.25% APR. (365/400)

Is this correct?

There are some unstated assumptions about future increases in mining difficulty in your projections, are there not?  The dividends from each of these assets could vary greatly depending on how mining difficulty unfolds in the future.

True, my assumptions were based on extrapolation of the current trend of continually increasing mining difficulty.

My understanding is that in an environment of continually increasing mining difficulty, the dividends of DMS.MINING and DMS.SELLING will BOTH asymptotically approach zero.  It's the rate at which they approach zero -- largely determined by the speed that mining difficulty increases -- that determines which asset gets a bigger slice of the ever-shrinking pie.  But if I've understood it correctly, both assets should theoretically decrease in value each time there is a jump in difficulty, and ultimately reach zero.

Of course, I could be massively confused.

[FloatesMcgoates]

Also, if I understand this security correctly:

1.) The dividends from DMS.MINING will asymptotically reach 0
2.) The dividends from DMS.SELLING will asymptotically reach 91.25% APR. (365/400)

Is this correct?

There are some unstated assumptions about future increases in mining difficulty in your projections, are there not?  The dividends from each of these assets could vary greatly depending on how mining difficulty unfolds in the future.

True, my assumptions were based on extrapolation of the current trend of continually increasing mining difficulty.

My understanding is that in an environment of continually increasing mining difficulty, the dividends of DMS.MINING and DMS.SELLING will BOTH asymptotically approach zero.  It's the rate at which they approach zero -- largely determined by the speed that mining difficulty increases -- that determines which asset gets a bigger slice of the ever-shrinking pie.  But if I've understood it correctly, both assets should theoretically decrease in value each time there is a jump in difficulty, and ultimately reach zero.

Of course, I could be massively confused.

Dividends from DMS.SELLING can approach zero while also giving 91.25% APR. It all depends on the price of DMS.PURCHASE

[Deprived]

Also, if I understand this security correctly:

1.) The dividends from DMS.MINING will asymptotically reach 0
2.) The dividends from DMS.SELLING will asymptotically reach 91.25% APR. (365/400)

Is this correct?

There are some unstated assumptions about future increases in mining difficulty in your projections, are there not?  The dividends from each of these assets could vary greatly depending on how mining difficulty unfolds in the future.

True, my assumptions were based on extrapolation of the current trend of continually increasing mining difficulty.

My understanding is that in an environment of continually increasing mining difficulty, the dividends of DMS.MINING and DMS.SELLING will BOTH asymptotically approach zero.  It's the rate at which they approach zero -- largely determined by the speed that mining difficulty increases -- that determines which asset gets a bigger slice of the ever-shrinking pie.  But if I've understood it correctly, both assets should theoretically decrease in value each time there is a jump in difficulty, and ultimately reach zero.

Of course, I could be massively confused.

The remaining capital in the fund will tend towards 0 - whether difficulty rises, falls or stays the same (I'm ignoring for now buy-backs - those take capital to 0 immediately with the majority of it going to MINING).

What will change massively is the extent to which each of MINING and SELLING receive that capital back.

Let me give two extreme examples - reality lies somewhere in between.

If difficulty were to stay the same (or fall) then there's ZERO chance of SELLING ever receiving a single payment - as capital would never be over 410 weeks of dividends.  After some period of time, capital would drop below 100 weeks' of MINING dividend prompting a forced closure with everything being given to MINING.

At the other extreme if difficulty rose to 100 times present at next change then after the change the vast majority of all remaining capital would immediately be sent to SELLING (leaving 400 weeks of a miniscule MINING dividend as capital) and MINING would never get back anything much more than what they received before next difficulty change.

We can be pretty certain neither of the above will happen - though in theory results not too far from either are not unfeasible.  The skill is to estimate where in the interval between those extremes real future difficulty changes will lie - and buy/sell appropriately.

And remember that whatever you work out for MINING DOES apply almost unchanged to ALL PMBs - even ones that have hardware.  Their payouts are calculated in almost exactly the same as ours.  The only place where there is a significant difference is if you believe the reality will closely mirror the first scenario (difficulty staying the same or falling in the short to medium term) - if you believe that is likely then you should value PMBs significantly higher than MINING (as our cap on payout becomes relevant).

[Deprived]

I'm around for about another hour - then off to bed.  I'll process all conversions I receive prior to that - once I've gone there'll be no more MINING or SELLING given out until I get back online tomorrow.

There's another use for this fund which hasn't been touched on yet.  Investing in MINING and SELLING allows you to gamble on the medium to long-term trend of difficulty, but trading options on PURCHASE allows you to speculate on short-term difficulty changes with very high precision.

Once you've mastered the math of how PURCHASE price will change (which will become a LOT clearer after the first dividend tomorrow - when I'll post all of the calculations and numbers with explanations) you can (with hardly any time at all making a spreadsheet) predict precisely what the PURCHASE price would be if the next difficulty change was any value you like (the only bit you can't precisely predict is any increase in NAV/U from sales or income from investment).  That then allows writing options based on any cut-off point on difficulty you want.

Whilst you CAN in theory write such options on MINING or SELLING instead, PURCHASE is the best to write them on as its price is determined entirely (other than the minor factors mentioned earlier) by formulae dependent at root solely on difficulty.  Whether there's enough spread in the range of views people hold (strongly enough to bet on) is of course the main limiting value on the utility of this - but the opportunity is definitely there.

[cusdog]

I'm guessing that is the driver behind your prediction about a fair amount of purchase not being converted? It will be interesting if there is indeed sufficient liquidity and activity for a reasonable option market on the instrument. I have my doubts. My prediction, if there ever is a solid option market, would be that pure short-term difficulty bets would be synthetically created through mining and selling before purchasing. While the process is slightly more complicated (especially since you cannot directly short), those markets are going to have 5x+ the volume which will lend itself to a smoother options market.

[Deprived]

My prediction, if there ever is a solid option market, would be that pure short-term difficulty bets would be synthetically created through mining and selling before purchasing. While the process is slightly more complicated (especially since you cannot directly short), those markets are going to have 5x+ the volume which will lend itself to a smoother options market.

You could be right about that - especially as not only is the price of them lower (but can reflect the same change - hence making them mor efficient) but people can also write CALLs based on holding assets that they believe are long-term viable even if the option isn't exercised.  With writing CALLs on purchase the writer has to commit to holding purchase - meaning they give up the opportunity cost of being able to sell one part (mining or selling) if at any time in the interim prices move to as to make that attractive.

It's highly likely no big option market will develop at all - and options would only be used occasionally where two people wanted what boils down to an escrowed bet.

On which note I'm off to bed.  Sales for the first half day have surpassed what I expected on Purchase (I didn't expect much over 100 BTC worth) and are around what I expected on Mining (there won't be significant sales there until a dividend has been paid - all the investors who don't read the forums or contracts want to see a dividend) and Selling (people have already given away money by buying MINING when they could have bought purchase and sold the selling into bids and ended up with MINING for up to 10% less - volume just won't be high there for a bunch of reasons, inability to do very simple math being one of them).

Will deal with any transfers in when I get back online.

[Birdy]

Interesting, but also quite complicated.
I gave it a try with a small BTC amount and bought some DMS.Purchase, breaking them into Mining and Selling worked fine so far.
But now I need to make my mind up when to sell what of those xD

[cusdog]

Spreads have narrowed and mining is trading at a 20% discount to TAT.

[Deprived]

Per the contract I just exchanged in 10,000 LTC-ATF.B1 in return for units of MINING and SELLING.

LTC-ATF.B1 is a bond, issued by my trading fund LTC-ATF.  Although it's traded on LTC-GLobal (in LTC) it has a face value of 0.01 BTC on which 0.6% interest is paid each week.

No new LTC-ATF.B1 are being issued at present (it's actually unlikely any ever will be - as my belief is LTC-ATF can now raise capital cheaper than that if it needs it).  The bonds traded in are ones personally owned by me - either bought via the market or bought directly from other investors who wanted to sell back.  No bonds are availalable cheaper on the market (the cheapest Asks are at about 10% over face value).

There is no currency risk associated to these.  The face value is fixed in BTC - and backed by BTC-denominated assets exceeding the value of all debt.  The bonds are further backed by all LTC-denominated assets of LTC-ATF.  In total the bonds are backed by assets worth well over double the value of all debts/liabilties of LTC-ATF.  At this instant 91.28% of all of those assets are cash - either LTC or BTC on various exchanges (most of which is backing Bids).  The dividends are paid in LTC - this will be exchanged back to BTC (by LTC-ATF) at the same exchange-rate used when calculating the dividend payment for this fund immediately after dividend payment (because the debt is BTC-denominated LTC-ATF has to exchange some LTC back to BTC anyway to maintain its ratio of currencies, so this saves LTC-ATF some tiny fees whilst ensuring zero non-BTC exposure for this fund, even on dividends)

In short, they're about as low-risk as you'll get.  This is also likely to be about all of them that this fund gets (unless anyone wants to trade some in at face value).  The bonds are redeemable at 99% of face-value to LTC-ATF.  In practice I'll just buy them back myself at 100% of face value when the fund needs to get rid of them.  They will generate just over 0.6 BTC per week for the fund (LTC-ATF rounds dividends up to be round numbers, so the effective percentage paid per week is slightly over 0.6%).

As of this instant these now constitute around 25% of all assets of the fund.  That percentage will drop as more PURCHASE are sold.

10,000 LTC-ATF.B1 is 100 BTC face-value.
1532 each of MINING and SELLING have been transferred to my personal account along with change of 0.024744 BTC.

I will now update the fourth post of this thread so it can be used to calculate all of our assets with a reasonable degree of accuracy at all times.

[Deprived]

Please do not send any more PURCHASE to me until after the dividends have processed - I do not want PURCHASE sitting with me and not receiving dividends.  I'll process any exchanges made nearer dividend time.

Don't panic if you haven't sent in PURCHASE to exchange - all dividends paid to MINING also go to PURCHASE (as PURCHASE is a MINING + a SELLING).

I'll leave the ask-wall of PURCHASE up until a few minutes before dividend payment.

Details of the dividend payment and all other accounting info should be up within about 10 minutes of the dividend actually processing (which could be at any point in the 15 minutes after 16:00 GMT).  A fresh ask for PURCHASE will then be placed up at the new price (which will be very slightly above the current price - probably the only time its price will ever rise).

[Deprived]

Bid has been taken down.

As this is the 1st day of trading the management fee can be calculate from current assets.

Wallet (315.51791603) + Investments (100 BTC) = 415.51791603 BTC
A management fee of 3% is due on that - 12.465 BTC.

This will be transferred now and the balance after that used for calculating the report.

On future days the management fee will be calculated on new sales.

I've nearly made back the 15 BTC listing fees in one day - a pleasant surprise.

[Deprived]

Below is a copy/paste from my spreadsheet showing all calculations made in respect of dividends.  I'll explain all the lines today - on future days I'll just copy/paste the report here (with the calculation of management fee above it in same post).

BTC Balance (BTC-TC)    303.05291603
10000 LTC-ATF.B1    100.00000000
TOTAL ASSETS    403.05291603

The data above shows the value of the fund immediately prior to dividend payment.  This is AFTER the deduction of (any) management fees due.

Outstanding MINING   6248
Outstanding SELLING   6248
Outstanding PURCHASE   129
Effective Units   6377

The next block of data records outstanding shares.  Although the number of outstanding shares on BTC-TC is cached, the issuer can work out the exact number by looking at their own holdings.  Effective units is PURCHASE + (either of MINING or SELLING).  If there are different numbers of MINING and SELLING then this will say "ERROR" and it means I've just been very careless.  Effective units is the number by which NAV is divided to find NAV/U.

Block reward   25
Difficulty   15605633
Hashes per MINING   5000000

This data are the variables used to calculate dividends.
   
Daily Dividend    0.00016113
50 days (Min Liquid)    0.00805649
100 days (Forced Close)    0.01611298
365 days (Buyback)    0.05881238
405 days (IPO)    0.06525757
400 days (Post SELLING div)    0.06445192
410 days (Pre SELLING div)    0.06606322

This block of data show the calculated daily dividend and (for reference) various relevant values for "X days of dividends at current difficulty".)
   
NAV Post MINING Div    402.02539127 <-- This is the total assets calculated earlier less (daily dividend * effective units)
NAV/U Post MINING Div    0.06304303 <-- This is the NAV calculated in the previous row dividede by effective units and is NAV/U after payment to MINING
Days Dividend Post Div   391.26 <-- This is number of days of dividends left as capital.
SELLING Dividend    -         <-- If the previous row is greater than 410 then the dividend to pay SELLING is calculated here.
NAV Post SELLING Div    402.02539127 <-- NAV after paying any dividend due to SELLING
NAV/U Post Selling Div    0.06304303  <-- NAV/U after paying and dividend due to SELLING
PURCHASE selling price    0.06619518 <-- Price to sell PURCHASE at.  That's the NAV/U in previous row *1.05
PURCHASE buy-back price    0.06178217 <-- Price at which the fund will buy-back PURCHASE (or MINING + SELLING).  98% of NAV/U.

The actual wallet balance after this dividend (plus 100 BTC for our LTC-ATF.B1) matches the calculated post-div NAV to 5 decimal places.  The last few digits will rarely match due to rounding errors.

You will note that the days of dividend left after this report have dropped from 405 to 391.  That's not as alarming as it may seem - and today will be the only day it drops significantly (normally it will drop by 1 or less).  The drop is because 3% management fee was taken - when you buy a PURCHASE initially at 405 days' dividend, 12 of those days are going in management fee.  The remaining drop is due to transaction fee on sales and, of course, a 1 day reduction from actually paying a dividend.

If the management fee seems harsh, remember it's only taken once - there's no other management fees at any times.  A 3% fee is VERY cheap compared to just about every other security out there.  I just don't try to hide or the disguise the fee.

All questions, comments and suggestions for changes/additions are welcome.