I’m considering investing in an online crypto currency casino. While I’m quite sure it’s a good idea, I’d like to know if anyone can find any flaw in my reasoning.
By investing, your deposit is added to the casino bankroll, so that players gamble against it. You get a share of the site profits proportional to how much of the bankroll you own. So if the bankroll is 99 and you invest 1, the total becomes 100 and you earn 1% of the casino profits (your share changes as other people invest or divest).
The casino I’m thinking about is Just Dice, which is the oldest casino of this kind. It originally worked with Bitcoins, but now it uses another currency, called CLAM. The owner, Dooglus on Bitcointalk forums and Reddit, has been a very active and trustworthy user for years. The casino had a bankroll of about 50000 BTC for months and there was never any solvency issue (
https://blockchain.info/charts/balance?address=14o7zMMUJkG6De24r3JkJ6USgChq7iWF86×pan=all). I don’t see him running away with the money.
While using a small currency may seem negative, in this case it actually boosts expected returns drastically. That’s because CLAM is a proof of stake currency, and while Just Dice’s bankroll is only about 40% of the total CLAM supply, it stakes about 85% of the coins (so more than double than it “should”). This is more beneficial the highest the inflation rate is, and CLAM’s inflation rate is still quite high nowadays (1 block is mined per minute and the reward is 1 CLAM, so 1440 coins a day are created, or 525600 a year, while 2.78 million coins exist).
Just Dice’s edge is 1%, and it charges a 10% fee to investors. I have made an spreadsheet with the expected annual returns (
https://docs.google.com/spreadsheets/d/13REkpErWxlXs2T5kNHKZlHsNvyuGAxezfB_iaUrskQ4/edit?usp=sharing), considering both that the market cap in USD stays constant (which is extremely conservative as I’ll explain later) and coin price stays constant (which is more reasonable). In the first case you should expect an annual return of 26.71% in USD, 53.14% if CLAM’s price doesn’t change. These returns are already quite impressive, but you should expect even higher ones if BTC keeps rising, as it affects CLAM’s price favourably.
Historically investing in Just Dice’s has been extremely profitable, much more than those expected returns. $1 invested on 3/7/2015 would be more than $26.54 on 11/27/2017 (
https://bitcointalk.org/index.php?topic=238613.msg26095416#msg26095416). That’s a compound annual return of 232%.
These are some scenarios you can expect while you buy and hold Just Dice:
1. Other investors withdraw and sell all the CLAM they earn (staking plus casino profits), which are gambled afterwards. Your share of JD’s bankroll keeps increasing, so you both stake more and get more from player's losses. Market cap value doesn’t change (it slightly increases as long as you hold).
2. Other investors just hold too. CLAM are being hoarded and therefore they become more valuable. People wanting to gamble $X now have to buy less CLAM. Less CLAM are wagered, but your CLAM increase in value.
3. Other investors withdraw their coins and they are staked somewhere else. The effect of this is a bit better than if others investors just hold like you, as you keep getting a bigger share of the coins won from players.
4. Other investors withdraw their coins and then they are not being staked (they are hold by traders at exchanges, for example). This scenario is even better as your share of the staked coins also rises.
5. CLAM start being accepted in more places, and therefore their demand increases.
6. BTC rises. CLAM partially rises too, because of BTC owners being able to gamble more USD and because of some people wanting to diversify among different crypto currencies.
7. BTC drops. CLAM partially drops, but the amount of wagered CLAM per day increases as more need to be used to gamble the same amount of USD.
So basically, it's reasonable to expect the market cap to keep rising, instead of staying constant.
