[BTC-TC] ET.DIFF: Future to speculate on next difficulty change

[eltopo]

The ET.DIFF assets are a construct of 3 securities to speculate on the next change in bitcoin mining difficulty.

ET.DIFF.FUTURE: Is an asset that only exists to be converted into ET.DIFF.LONG and ET.DIFF.SHORT
ET.DIFF.LONG: Is a bet that the next difficulty change will increase more than current market prices suggest
ET.DIFF.SHORT: Is a bet that the next difficulty change will increase less than current market prices suggest

As you may realize, the construct of ET.DIFF resembles the superb DMS assets by Deprived. It's an opportunity to offer investors an easy way to short a security without the issuer having to bet against his own investors.

I appreciate your feedback on ET.DIFF!

Contract

The ET.DIFF assets are a construct of 3 securities to speculate on the next change in bitcoin mining difficulty.

The contract for the 3 securities ET.DIFF.FUTURE, ET.DIFF.LONG and ET.DIFF.SHORT is the same.

ET.DIFF.FUTURE is a security that only exists to be converted into ET.DIFF.LONG and ET.DIFF.SHORT. After a difficulty change, ET.DIFF.FUTURE will be put up to sell at a price of 0.0204 BTC, 0.02 plus 0.0004 BTC management fee (2%). After buying ET.DIFF.FUTURE, Investors have to send their shares to the account ETOPS and will get back the same number of shares of ET.DIFF.LONG and ET.DIFF.SHORT. The NAV/U (Net Asset Value per Unit) of ET.DIFF.FUTURE is always 0.02 and is the same as the combined book value of ET.DIFF.LONG and ET.DIFF.SHORT.

While trading, ET.DIFF.FUTURE can be sold back to the issuer at a price of 0.02. After a difficulty change, every outstanding ET.DIFF.FUTURE (that was not converted to ET.DIFF.LONG and ET.DIFF.SHORT) gets a dividend of 0.02, followed by a force-buyback at a price of 0.00.

ET.DIFF.LONG is a security that speculates on the next difficulty change. ‘LONG’ in this case means, that the buyers estimation about the next difficulty change is higher than the current market prices of ET.DIFF.LONG and ET.DIFF.SHORT suggest. ET.DIFF.LONG can be bought directly or by buying ET.DIFF.FUTURE and selling ET.DIFF.SHORT.

After a difficulty change, ET.DIFF.LONG gets a dividend calculated in the following way:

((current difficulty - last difficulty) / last difficulty) / 100 * 4

• The current difficulty is the new difficulty after the change
• The last difficulty is the difficulty before the change
• 4 is a factor to quadruple the dividend, reducing the profit needed by the investor to break even, but it also introduces a cap on dividends at 0% difficulty increase at the bottom and 50% difficulty increase at the top

If difficulty increases by more than 50%, the dividend will be capped at 0.02 for ET.DIFF.LONG. In this case the dividend for ET.DIFF.SHORT will be 0.00.
If difficulty does not increase or decrease, the dividend will be 0.00 for ET.DIFF.LONG. In this case the dividend for ET.DIFF.SHORT will be 0.02.
The dividend is rounded to 8 decimal places.
After the dividend has been paid, there will be a force-buyback of all outstanding ET.DIFF.LONG at a price of 0.00.

ET.DIFF.SHORT also speculates on the next difficulty change. ‘SHORT’ in this case means, that the buyers estimation about the next difficulty change is lower than the current market prices of ET.DIFF.LONG and ET.DIFF.SHORT suggest. ET.DIFF.SHORT can be bought directly or by buying ET.DIFF.FUTURE and selling ET.DIFF.LONG.

ET.DIFF.SHORT is the direct opposite to ET.DIFF.LONG, as it gets all dividends that are not paid out to ET.DIFF.LONG.

After a difficulty change, ET.DIFF.SHORT gets a dividend calculated in the following way:

0.02 - dividend paid to ET.DIFF.LONG

• 0.02 is the NAV/U of ET.DIFF.FUTURE and the sum of all dividends to be paid out
• Dividend paid to ET.DIFF.LONG is the dividend paid to ET.DIFF.LONG

The dividend is rounded to 8 decimal places.

After the dividend has been paid, there will be a force-buyback of all outstanding ET.DIFF.SHORT at a price of 0.00.

Conversion of ET.DIFF.FUTURE

To converte ET.DIFF.FUTURE into ET.DIFF.LONG and ET.DIFF.SHORT, transfer ET.DIFF.FUTURE to the account ETOPS on BTC-TC. As fast as possible, the same amount of ET.DIFF.LONG and ET.DIFF.SHORT will be sent back to the sender (the process will be automated if possible).

The process after a difficulty change

In the 24 hours after the difficulty has changed, trading on all 3 securities will be halted, followed by the dividend payment to all outstanding shares (0.02 to ET.DIFF.FUTURE, and the corresponding dividends to ET.DIFF.LONG and ET.DIFF.SHORT according to the result of the dividend calculations). After the dividend payment is finished, all outstanding shares of the 3 securities will be bought back at a price of 0.00. After the force-buyback is finished, the trading of all 3 securities will be resumed and new shares of ET.DIFF.FUTURE will be put up at a price of 0.0204.

Important: The securities cannot be halted automatically. So after a difficulty change, the dividend payment to the securities will be known, but the trading will continue several hours until it will be halted manually. Every security bought at a price above the known dividend will result in a loss.

Risks

Third party risk: Investors have to trust BTC-TC and the issuer. Any malfunction or hack at BTC-TC or the possibility that the issuer might not be trustworthy and embezzle investors deposits could result in a total loss of the investment.

Caps on dividend payout: In the possible case, that difficulty increases more than 50%, the dividend for ET.DIFF.LONG will be capped at 0.02. Dividend for ET.DIFF.SHORT will be 0.00 and ET.DIFF.FUTURE will get 0.02. If difficulty does not increase or decrease, the dividend will be 0.00 for ET.DIFF.LONG. In this case the dividend for ET.DIFF.SHORT will be 0.02 and ET.DIFF.FUTURE will get 0.02.

All proceeds from the sales of ET.DIFF.FUTURE are held in the account ETOPS for the benefit of the holders of the ET.DIFF securities. The assets of the account can be seen at any time by going to https://btct.co/portfolio/frc5DKI= . The proceeds are held until a difficulty change, at which time they are used to pay the ET.DIFF.LONG, ET.DIFF.SHORT, and ET.DIFF.FUTURE dividends, and the remainder (the management fee) is paid to the fund manager. Any fees associated with maintaining or operating ET.DIFF are paid by the manager, and are not paid from the proceeds of sales.

To impede account hacks, the issuer account at BTC-TC uses 2FA.

Contract changes

The contract can be changed one-sided by the issuer every time after a force-buyback is done. The changes have to be announced on BTC-TC and bitcointalk forums at least 3 days before they take effect.

Blockchain errors or other unforeseen circumstances

If there are any problems to calculate dividends (like a broken blockchain), the issuer will do his best to calculate fair dividends, based on last market prices or the average of the last 3 difficult changes. The decision about the calculation is up to the issuer.

Examples

Difficulty changes from 86,933,018 to 111,111,111:

Dividend for ET.DIFF.LONG:

((111,111,111 - 86,933,018) / 86,933,018) / 100 * 4 = 0.01112493

Every outstanding ET.DIFF.LONG would get a dividend of 0.01112493.

Dividend for ET.DIFF.SHORT:

0.02 - 0.01112493 = 0.00887507

Every outstanding ET.DIFF.SHORT would get a dividend of 0.00887507.

The combined dividend payout for ET.DIFF.LONG and ET.DIFF.SHORT is always 0.02.

End Contract

[1715609747]

1715609747

[1715609747]

1715609747

[1715609747]

1715609747

[1715609747]

1715609747

[1715609747]

1715609747

[eltopo]

FAQ

Q: How do you “read” the market prices to recognize the estimated difficulty change by the market?

A: If you want it precisely, you have to put the prices in the suitable formula. If you want a roughly estimate, take the market price of ET.DIFF.LONG, divide it by 2 and multiply it by 100 (a market price of 0.01 for ET.DIFF.LONG would estimate a difficulty increase of 25%: 0.01 / 4 * 100 = 0.25 = 25%)

Q: Why do you pay a dividend followed by a force buyback of 0.00 instead of simply buyback at the right price?

A: Because there are no fees to be paid this way. Buyback fee is 0.2%, and 0.2% of 0.00 is… 0.

Q: Where can I view the public portfolio and account balance?

A: Here: https://btct.co/portfolio/frc5DKI=
The account balance should always be higher than (outstanding ET.DIFF.FUTURE + outstanding ET.DIFF.LONG) * 0.02

Q: So you think you can create a security with your rather short posting history, without a published real name and an improvable english?

A: Yeeeeeees

[eltopo]

Dividend payout scheme depending on difficulty change:

Code:

Diff change	DIVIDEND LONG	DIVIDEND SHORT	SUM (DIV LONG + DIV SHORT)
<= 0%		0		0.02		0.02	
5%		0.002		0.018		0.02
10%		0.004		0.016		0.02
15%		0.006		0.014		0.02
20%		0.008		0.012		0.02
25%		0.01		0.01		0.02
30%		0.012		0.008		0.02
35%		0.014		0.006		0.02
40%		0.016		0.004		0.02
45%		0.018		0.002		0.02
>= 50%		0.02		0		0.02	

Calculation based on following formula:

Dividend ET.DIFF.LONG = ((current difficulty - last difficulty) / last difficulty) / 100 * 4

Dividend ET.DIFF.SHORT = 0.02 - dividend for ET.DIFF.LONG

[coco23]

I like the idea, much more appealing than the other difficulty futures out there!

So you basically reset the whole thing after each difficulty change (so every 1.5-2 weeks).
Depending on how it goes it would be nice to see similar contracts for longer period of time as well (several months).

[Progressive]

What about the 0.2% fee you pay for selling the ET.DIFF.FUTURE? Are you covering it from your management fee?

[eltopo]

I like the idea, much more appealing than the other difficulty futures out there!

So you basically reset the whole thing after each difficulty change (so every 1.5-2 weeks).

Right.

Depending on how it goes it would be nice to see similar contracts for longer period of time as well (several months).

If demand would be there, I could think about it.

What about the 0.2% fee you pay for selling the ET.DIFF.FUTURE? Are you covering it from your management fee?

Yes

[Progressive]

Will there be a notification before the start of this security? (e.g. 24h before) Or will you be selling the futures as soon as the security is approved?

EDIT: Could you also provide some reasons why to trust your pseudonym? What does prevent you from withdrawing and disappearing with all the funds?

[eltopo]

Will there be a notification before the start of this security? (e.g. 24h before) Or will you be selling the futures as soon as the security is approved?

Yes, there will be a notification long enough before trading starts.

EDIT: Could you also provide some reasons why to trust your pseudonym? What does prevent you from withdrawing and disappearing with all the funds?

There is no reason to trust me, and there's nothing that prevents me from running with the funds. The portfolio and wallet will be public, that's all I can do (just like any other issuer).

[Progressive]

that's all I can do (just like any other issuer).

Maybe you could ask burnside to disable bitcoin withdrawals from the ETOPS account (you could only withdraw with burnside's asistence). I think he has offered something similar before.

[twentyseventy]

I like it! Great idea, eltopo!

[eltopo]

that's all I can do (just like any other issuer).

Maybe you could ask burnside to disable bitcoin withdrawals from the ETOPS account (you could only withdraw with burnside's asistence). I think he has offered something similar before.

That would be ok with me. I'll contact him about it.

[FloatesMcgoates]

Excellent idea, my only request is that please for the love of god use an automated transfer bot. I remember the days before Deprived started using the bot you had to sit and hope that he got online or whatever before a profit opportunity slipped.

[eltopo]

I'm on it, at least as I don't wanna do every transfer by hand 

[eltopo]

It seems there are no further questions about the asset or contract, so I will register it on BTC-TC tomorrow.

The transfer bot is tested right now and works as intended so far.

[Rannasha]

The transfer bot is tested right now and works as intended so far.

Which one do you use?

[eltopo]

My own 

[eltopo]

The securities are now unlocked on BTC-TC and waiting for approval by LTC-GLOBAL voters.

[Rannasha]

Great, it will be nice to have more future-like securities to speculate with

I did notice a minor typo in your contract:

0.01 + (current difficulty - last difficulty) / last difficulty) / 100 * 2

You have 1 opening bracket and 2 closing brackets.

[balanghai]

Great so will it only cover the next difficulty or will it include some other factors?

[Rannasha]

Great so will it only cover the next difficulty or will it include some other factors?

It's only the difficulty that matters. With each difficulty-adjustment, dividends are paid out according to the formula posted (basically: the higher the difficulty increase the higher the dividend for ET.DIFF.LONG and the lower the dividend for ET.DIFF.SHORT) and all shares are removed. At this point, the thing starts from scratch again, and people can trade to predict the next difficulty increase.

[eltopo]

Great, it will be nice to have more future-like securities to speculate with

I did notice a minor typo in your contract:

0.01 + (current difficulty - last difficulty) / last difficulty) / 100 * 2

You have 1 opening bracket and 2 closing brackets.

Thanks, it's corrected now.

[Deprived]

Security seems fine - though only responsive in the range -50% to +50% per change.

The upper end isn't an issue but the lower end is.

I don't think anyone expects difficulty to FALL in the coming months, so allowing for it to in the payouts is inefficient.

The formula for payout on LONG is :

0.01 + ((current difficulty - last difficulty) / last difficulty) / 100 * 2

That means a payment of 0.01 if difficulty doesn't change at all - and more if it rises.  That seems wasteful in an environment where a fall just isn't likely - it means half of all capital invested is paying fees without ever being exposed to any useful risk.  In effect the shares are half the price and an additional extra amount is being tied up, shuffled around and having fees paid on it when everyone knows it'll just go back to LONG at the end.

I think if you remove the "0.01 +" and change the 2 to a 4 you'd have an instrument which sold at the same price but where the range for LONG/SHORT was twice as wide.  As you're (sensibly) allowed to change the formula between iterations you could change it back when difficulty rises reduce a bit.

Your goal should be that .02 range represents all difficulty-change possibilities which there's a non-trivial chance of happening and ONLY those.

I'd also suggest a table showing sample settlement values for LONG/SHORT for some difficulty changes - such as 0%, 10%, 20%, 30%, 40%, 50%.

And maybe add extra brackets into the formula to make it perfectly clear that "/100*2" does NOT mean "/(100*2)".

[woodrake]

Hi,

I'm a BTC TC moderator (username "woodtech"), but given the difficulties using the comments there to discuss a security felt it better to come to the thread.

Trust

First, Can you provide us with some assurance of your personal integrity? I do not wish to offend, but you are asking people to hand over large sums of cash and there is little evidence of who you are or your credentials. You have no trust rating on this forum and been a member for barely three months. There is no LinkedIn profile link on the securities nor any other indication of your real identity.

You said it yourself:

Third party risk: Investors have to trust BTC-TC and the issuer. Any malfunction or hack at BTC-TC or the possibility that the issuer might not be trustworthy and embezzle investors deposits could result in a total loss of the investment.

Why should we trust you? You are asking for 1000000 x 0.0204 BTC = 20,400 = $2.5m. That is a massive IPO for someone virtually unknown and hiding behind a virtual identity. I'm perhaps being a little mean but have made it my mission to raise the bar in terms of BTC TC and LTC Global securities. If I can be satisfied I will happily change my vote.

Balancing the equation

The combined dividend payout for ET.DIFF.LONG and ET.DIFF.SHORT is always 0.02.

Where is this net yield coming from? Surely the three securities should be net zero change in terms of their internal balance sheets, so there is no room for paying out net dividends?

I may have misunderstood here though; is the 0.02 transferred in from ET.DIFF.FUTURE, and if so how often does that happen?

Fees

$50k as a management fee each is a little debatable, however it is a one off which I'm less comfortable with. How do you get remunerated going forwards for running this security?

I'd be a lot happier if you were taking a smaller slice of the total invested at each difficulty change. Place a rough value on your time and estimate how long it will take you to do the administration. I'd suggest that your original 2% spread over a year (ie. 0.065% per 12 day window) indefinitely would be much better.

Also, I liked Deprived's suggestion of some tables. Would help clarify things.

Kate.

[eltopo]

Security seems fine - though only responsive in the range -50% to +50% per change.

The upper end isn't an issue but the lower end is.

I don't think anyone expects difficulty to FALL in the coming months, so allowing for it to in the payouts is inefficient.

The formula for payout on LONG is :

0.01 + ((current difficulty - last difficulty) / last difficulty) / 100 * 2

That means a payment of 0.01 if difficulty doesn't change at all - and more if it rises.  That seems wasteful in an environment where a fall just isn't likely - it means half of all capital invested is paying fees without ever being exposed to any useful risk.  In effect the shares are half the price and an additional extra amount is being tied up, shuffled around and having fees paid on it when everyone knows it'll just go back to LONG at the end.

I think if you remove the "0.01 +" and change the 2 to a 4 you'd have an instrument which sold at the same price but where the range for LONG/SHORT was twice as wide.  As you're (sensibly) allowed to change the formula between iterations you could change it back when difficulty rises reduce a bit.

Your goal should be that .02 range represents all difficulty-change possibilities which there's a non-trivial chance of happening and ONLY those.

I'd also suggest a table showing sample settlement values for LONG/SHORT for some difficulty changes - such as 0%, 10%, 20%, 30%, 40%, 50%.

And maybe add extra brackets into the formula to make it perfectly clear that "/100*2" does NOT mean "/(100*2)".

I thought about changing the factor depending on how much the difficulty changes in a period. But I wasn't sure if investors would accept a formula and contract that change every now and then. So I sticked to the 2x factor.

But it would be no problem to change it to a more "appealing" formula for the next time as difficulty isn't likely to fall.

Are there any other opinions on how this should be handled?

[woodrake]

See changes to my earlier post in case you're mid reply!

[eltopo]

Hi,

I'm a BTC TC moderator (username "woodtech"), but given the difficulties using the comments there to discuss a security felt it better to come to the thread.

Trust

First, Can you provide us with some assurance of your personal integrity? I do not wish to offend, but you are asking people to hand over large sums of cash and there is little evidence of who you are or your credentials. You have no trust rating on this forum and been a member for barely three months. There is no LinkedIn profile link on the securities nor any other indication of your real identity.

You said it yourself:

Third party risk: Investors have to trust BTC-TC and the issuer. Any malfunction or hack at BTC-TC or the possibility that the issuer might not be trustworthy and embezzle investors deposits could result in a total loss of the investment.

Why should we trust you? You are asking for 1000000 x 0.0204 BTC = 20,400 = $2.5m. That is a massive IPO for someone virtually unknown and hiding behind a virtual identity. I'm perhaps being a little mean but have made it my mission to raise the bar in terms of BTC TC and LTC Global securities. If I can be satisfied I will happily change my vote.

Balancing the equation

The combined dividend payout for ET.DIFF.LONG and ET.DIFF.SHORT is always 0.02.

Where is this net yield coming from? Surely the three securities should be net zero change in terms of their internal balance sheets, so there is no room for paying out net dividends?

I may have misunderstood here though; is the 0.02 transferred in from ET.DIFF.FUTURE, and if so how often does that happen?

Fees

$50k as a management fee each is a little debatable, however it is a one off which I'm less comfortable with. How do you get remunerated going forwards for running this security?

I'd be a lot happier if you were taking a smaller slice of the total invested at each difficulty change. Place a rough value on your time and estimate how long it will take you to do the administration. I'd suggest that your original 2% spread over a year (ie. 0.065% per 12 day window) indefinitely would be much better.

Also, I liked Deprived's suggestion of some tables. Would help clarify things.

Kate.

Hi Kate,

thanks for your feedback.

I think you misunderstood some parts of the contract. This is a future, so I'm not selling 1,000,000 "shares" (I could also set up 1,000,000,000 it would change nothing), I sell the amount investors want to buy. After a difficulty change, everything that was collected by the sales from ET.DIFF.FUTURE will be paid back to investors (minus management fee). So if I sell 100 ET.DIFF.FUTURE, I will get 100 x 0.0204 = 2.04 BTC. After the difficulty change, 2 BTC is paid out in dividends and 0.04 is the management fee. The yield for investors is coming from trading between the investors themselves (the construct is the same as the DMS assets from Deprived).

Concerning trust and my virtual identy: I asked Burnside to lock my account for withdrawal, so I can only withdraw with the help of Burnside as BTC-TC admin. This suddenly makes me as trustworthy as Burnside 

If I was able to clear up your doubt, I'd be happy if you change your vote!

[FloatesMcgoates]

I don't think woodtech knows what this security even is,

You are asking for 1000000 x 0.0204 BTC = 20,400 = $2.5m. That is a massive IPO

Is clearly an incorrect assessment.

[Rannasha]

Concerning trust and my virtual identy: I asked Burnside to lock my account for withdrawal, so I can only withdraw with the help of Burnside as BTC-TC admin. This suddenly makes me as trustworthy as Burnside 

I'm not sure how flexible Burnsides account-locking-features are, but for this asset to function properly, you have to be able to transfer units (the FUTURE -> LONG + SHORT transfer), so the account should not be locked out of this. But if the account can transfer units out, there is still the possibility for malicious transfers (i.e. transfer 10000 units to a secondary account, sell everything on the open market and withdraw the funds), so a simple withdrawal-lock isn't enough to completely remove the counterparty risk.

I make no claims about whether eltopo is trustworthy or not, simply that the proposed mechanism of an account lock is insufficient to make the question of his trustworthiness moot.

Then again, many securities/funds/whatevers on BTC-TC offer at best relatively minimal guarantees to the trustworthiness of the issuer, so this security is not any different in that regard.

[eltopo]

Burnside has not answered yet. I suppose the lock has only an affect on BTC withdrawals out of BTC-TC, and not transfers or other things needed for operation.

[Progressive]

The lock needs to be on transfer of BTC also - otherwise you could transfer the BTC to another account and withdraw from it.
If burnside locks both withdrawals and BTC transfers then I will have no trust issues (Rannasha has a good point).

The points mentioned by Deprived are very interesting, I didn't think about this:

That means a payment of 0.01 if difficulty doesn't change at all - and more if it rises.  That seems wasteful in an environment where a fall just isn't likely - it means half of all capital invested is paying fees without ever being exposed to any useful risk.  In effect the shares are half the price and an additional extra amount is being tied up, shuffled around and having fees paid on it when everyone knows it'll just go back to LONG at the end.

I think if you remove the "0.01 +" and change the 2 to a 4 you'd have an instrument which sold at the same price but where the range for LONG/SHORT was twice as wide.  As you're (sensibly) allowed to change the formula between iterations you could change it back when difficulty rises reduce a bit.

Eltopo, what about the change Deprived proposed?

EDIT: Eltopo, would you mind disclosing your identity? Either publicly or to some trusted party (burnside, John K.).

[eltopo]

The lock needs to be on transfer of BTC also - otherwise you could transfer the BTC to another account and withdraw from it.
If burnside locks both withdrawals and BTC transfers then I will have no trust issues (Rannasha has a good point).

I asked burnside to answer in this thread, let's wait what he tells us.

The points mentioned by Deprived are very interesting, I didn't think about this:

That means a payment of 0.01 if difficulty doesn't change at all - and more if it rises.  That seems wasteful in an environment where a fall just isn't likely - it means half of all capital invested is paying fees without ever being exposed to any useful risk.  In effect the shares are half the price and an additional extra amount is being tied up, shuffled around and having fees paid on it when everyone knows it'll just go back to LONG at the end.

I think if you remove the "0.01 +" and change the 2 to a 4 you'd have an instrument which sold at the same price but where the range for LONG/SHORT was twice as wide.  As you're (sensibly) allowed to change the formula between iterations you could change it back when difficulty rises reduce a bit.

Eltopo, what about the change Deprived proposed?

I answered Deprived's post above and asked for more opinions about this. I don't have a problem with this change. If investors like it, I like it too 

EDIT: Eltopo, would you mind disclosing your identity? Either publicly or to some trusted party (burnside, John K.).

I would disclose my identity to Burnside if that helps.

[woodrake]

I think you misunderstood some parts of the contract. This is a future, so I'm not selling 1,000,000 "shares" (I could also set up 1,000,000,000 it would change nothing), I sell the amount investors want to buy.

Hmm, yes I see what you mean. It is indeed not fair to compare you to a stock/company IPO. Also, the investors / market can make up their own minds how much to trust you by dipping their toes in.

I do perhaps sometimes overly fret about people doing a running with the funds; it would be so easy for this to happen, especially on this sort of security where there is little to show for the investment such as work to date, a functioning Web site, purchase receipts or a portfolio manifest.

I am conflicted in my position as a moderator since I don't know how much I should be doing to try protect the investors.

After a difficulty change, everything that was collected by the sales from ET.DIFF.FUTURE will be paid back to investors (minus management fee). So if I sell 100 ET.DIFF.FUTURE, I will get 100 x 0.0204 = 2.04 BTC. After the difficulty change, 2 BTC is paid out in dividends and 0.04 is the management fee. The yield for investors is coming from trading between the investors themselves (the construct is the same as the DMS assets from Deprived).

Thank you for the patient explanation, I understand now. I think I rushed reading the original contract! To summarise so that I can be sure I have understood, say I want to bet that difficulty is going to be higher than expected (this is a realistic scenario in my case since I'm heavily in mining and may wish to hedge my risk):

• I purchase 500 ET.DIFF.FUTURE @ 0.02 BTC (10 BTC total)
• I transfer all 500 ET.DIFF.FUTURE back to you
• You issue me with 250 ET.DIFF.SHORT and 250 ET.DIFF.LONG
• I sell all my ET.DIFF.SHORT and perhaps purchase some additional ET.DIFF.LONG
• At the end of the 12 day window difficulty has risen by 25%; ET.DIFF.LONG pays out a dividend of 0.01025 then is bought back at 0.0

First, step 5 appears wrong. I calculated that using your formula, but it is actuall ambiguous due to precedence:

Code:

Dividend = 0.01 + ((current difficulty - last difficulty) / last difficulty) / 100 * 2

I think you meant:

Code:

Dividend = 0.01 + ( ( ( ( current difficulty - last difficulty ) / last difficulty ) / 100 ) * 2 )

Second, I agree with Deprived that it does not make sense to assume difficulty might fall. I think you should re-engineer this so that the SHORT/LONG equilibrium mid-point is set at what the market, on average, thinks is going to happen. In the event of zero difficulty change the LONG divi should be 0.0 and the SHORT 0.02. I'm not sure how best to achieve that though!

Concerning trust and my virtual identy: I asked Burnside to lock my account for withdrawal, so I can only withdraw with the help of Burnside as BTC-TC admin. This suddenly makes me as trustworthy as Burnside 

If I was able to clear up your doubt, I'd be happy if you change your vote!

That's a commendable move, well done! As Progressive said though the lock would have to be on internal transfers also. This would not prevent you from embezzling funds of course (you could sell a personal account shares in something at a non-market price or move options around), but it would be a positive step in terms of engendering trust.

I think that in order for Burnside to agree you would have to make a commitment to him that you'd never make a withdrawal without a motion or something like that, to reduce his workload.

Regardless, I'm much happier about this overall now. I've moved to abstain while you get back to me.

Kate.

[Rannasha]

• I purchase 500 ET.DIFF.FUTURE @ 0.02 BTC (10 BTC total)
• I transfer all 500 ET.DIFF.FUTURE back to you
• You issue me with 250 ET.DIFF.SHORT and 250 ET.DIFF.LONG
• I sell all my ET.DIFF.SHORT and perhaps purchase some additional ET.DIFF.LONG
• At the end of the 12 day window difficulty has risen by 25%; ET.DIFF.LONG pays out a dividend of 0.01025 then is bought back at 0.0

Almost, but there are still some inaccuracies.

• I purchase 500 ET.DIFF.FUTURE @ 0.0204 BTC (10.2 BTC total) (2% mgmt fee)
• I transfer all 500 ET.DIFF.FUTURE back to you
• You issue me with 500 ET.DIFF.SHORT and 500 ET.DIFF.LONG (each FUTURE corresponds to 1 unit of both SHORT and LONG)
• I sell all my ET.DIFF.SHORT and perhaps purchase some additional ET.DIFF.LONG
• At the end of the 12 day window difficulty has risen by 25%; ET.DIFF.LONG pays out a dividend of 0.015 then is bought back at 0.0 (Payout with current formula is 0.01 + twice the fractional increase divided by 100)

First, step 5 appears wrong. I calculated that using your formula, but it is actuall ambiguous due to precedence:

Code:

Dividend = 0.01 + ((current difficulty - last difficulty) / last difficulty) / 100 * 2

I think you meant:

Code:

Dividend = 0.01 + ( ( ( ( current difficulty - last difficulty ) / last difficulty ) / 100 ) * 2 )

This might be just me being a pedantic mathematician, but the two expressions are equivalent. Division and multiplication have equal priority, so these operations are executed in order from left to right. So x / 100 * 2 is computed by first dividing and then multiplying. No brackets needed.

Second, I agree with Deprived that it does not make sense to assume difficulty might fall. I think you should re-engineer this so that the SHORT/LONG equilibrium mid-point is set at what the market, on average, thinks is going to happen. In the event of zero difficulty change the LONG divi should be 0.0 and the SHORT 0.02. I'm not sure how best to achieve that though!

Dividend = (C - L) / L / 100 * 4
This caps out at a 50% increase (all money goes to holders of LONG) and at difficulty stagnation (all money goes to holders of SHORT).

[eltopo]

Hi Kate,

please read what Rannasha wrote, he got it 100% right (Thanks for answering, Rannasha).

It seems most investors prefer a formula with a cap at 0% at the bottom and 50% at the top (like Deprived suggests). The formula would look like this:

Dividend ET.DIFF.LONG = ((current difficulty - last difficulty) / last difficulty) / 100 * 4

The dividend formula for ET.DIFF.SHORT would stay the same (0.02 - dividend for ET.DIFF.LONG).

I will change the contract this way. As soon as difficulty stops rising, I will change it back to a formula that takes descreasing difficulty into account (this contract change will of course be announced on BTC-TC and bitcointalk forums at least 3 days before they take effect).

Concerning account lock, we'll have to wait on burnside and check if it's possible to lock withdrawal and transfer-out of BTC, but not locking transfer of assets as it is needed for operation.

[eltopo]

Contract has been updated in the first post and on BTC-TC (formula changed on dividend payments).

The third post has been updated with a payout scheme of dividends.

[Deprived]

I'm not sure an account lock can be done in such a way as to stop fraud anyway.

People who think blocking withdrawals/transfers of cash prevents it are wrong.  Eltopo could just buy shares then transfer those to a different account.  Funds could even be transferred using his own shares.

I don't think it's worth the bother as all it does is add a few minutes to the time needed to steal (and some cost making it less efficient) - it in no way prevents it.

[ThickAsThieves]

I'm not sure an account lock can be done in such a way as to stop fraud anyway.

People who think blocking withdrawals/transfers of cash prevents it are wrong.  Eltopo could just buy shares then transfer those to a different account.  Funds could even be transferred using his own shares.

I don't think it's worth the bother as all it does is add a few minutes to the time needed to steal (and some cost making it less efficient) - it in no way prevents it.

True, but if Burnside is willing to implement the concept of having accounts with varying degrees of lockdown, it would make securities like this be forced to choose the levels of lockdown appropriate to their cause, and thus prevent certain problems, and remove certain trust requirements.

Of course I'm not sure what amount of lockdown is achievable without fully scripting all aspects, and at that point Burnside might as well just offer sets like these himself and take issuers out of the picture.

[Deprived]

I'm not sure an account lock can be done in such a way as to stop fraud anyway.

People who think blocking withdrawals/transfers of cash prevents it are wrong.  Eltopo could just buy shares then transfer those to a different account.  Funds could even be transferred using his own shares.

I don't think it's worth the bother as all it does is add a few minutes to the time needed to steal (and some cost making it less efficient) - it in no way prevents it.

True, but if Burnside is willing to implement the concept of having accounts with varying degrees of lockdown, it would make securities like this be forced to choose the levels of lockdown appropriate to their cause, and thus prevent certain problems, and remove certain trust requirements.

Of course I'm not sure what amount of lockdown is achievable without fully scripting all aspects, and at that point Burnside might as well just offer sets like these himself and take issuers out of the picture.

Reason I don't like it is that it gives a false sense of security.  Scammers can still scam just they get something to hide behind that the naive might believe prevents them from scamming.

With securities like this one it's pretty much impossible to prevent scamming at an exchange level - though you CAN make it more obvious when they're trying.  One easy way to steal all the funds would be:

1.  Do forced buyback on all shares at 1 satoshi.
2.  Transfer some shares out to alt account
3.  Do dividend payment which gives out all funds to the alt.

Transfer of shares, dividends and forced buybacks are necessary for operation of the securities - so can't be blocked.

I can immediately think of less obvious ways - but fact is that without logic in place to check whether transactions are valid (or manual approval of them) scamming/theft can't be prevented.  And if it can't be prevented then there's no benefit in pretending that it has - as that just makes life easier for scammers by giving them a means to obtain credibility without actually stopping or majorly hindering them.

I'm all for anyhting which stops scamming/theft - but it needs to actually do so not just make it slightly harder.  Or the downside (making it easier for scammer to gain trust) outweighs the benefits (making it slightly easier for honest people with little reputation to gain investment).

[Deprived]

I see this security as a pretty low-risk one (from a scamming perspective) anyway.

It's clear where issuer's profit comes from - 2% management on turnover.

As there's a full reset every difficulty change, the most he could steal would be the cash from one cycle.

If investment increases each cycle (as trust in him grows) then he'd make more from being honest (but over a longer time-frame) than from stealing.  Which is the single biggest factor I look at when assessing CP risk - if someone's making a nice profit by behaving honestly then there's (in general - there ARE exceptions) no rational reason for them to steal even if they were dishonest by nature.

I don't know eltopo particularly well - other than that he's been an active participant in DMS (both in the thread and in trading - I see his name plenty of times on transfers).  But at least I'm confident he understands how to run the security, how mining difficulty works and isn't penniless.  Not all of which are true for some of the mining operations being IPOed recently.

[eltopo]

Thanks for the words, Deprived.

While I understand the caution investors have against a new security and issuer (I do the same with other securities), in the end it comes all down to upfront trust the investors need to have when investing in new securities. If I don't trust a new issuer, I stand at the sideline and wait a few weeks until the issuer proved to be trustworthy and capable of managing the security. Especially as there are no real options to prevent a scammer from running with the funds.

I just could say that I'll try my very best to manage the asset (and I will), but so would a scammer say, too.

[woodrake]

Thanks to Rannasha, Deprived and you Eltopo for clarifications; very helpful.

Rannasha: Fair point about the formula being mathematically correct, but personally I like to ensure absolute clarity.

Deprived's comment really clinched it for me though; the investors have ample opportunity to slowly build trust in the issuer, and in the long run the issuer will make more by operating the security than by scamming.

I shall change my vote to "Yes" as soon as I'm reunited with my phone (left it at home this morning so no 2FA :$).

Kate.

[eltopo]

Thank you Kate! 

Does anyone know under which stone the other BTC-TC mods are sleeping? If we don't get enough YES votes until the next difficulty change (looks like sunday morning UTC at the moment), we'll have to wait another 10-12 days, as I don't want to start in the middle of a difficulty period.

[odolvlobo]

Overall, I am in favor of this security. However, you only briefly mentioned holding the proceeds from the sales of ET.DIFF.FUTURE. Since you are responsible for shareholder's money, I would like to see more details the contract -- something like this, perhaps:

All proceeds from the sales of ET.DIFF.FUTURE are held in the account <BTC-TC account> for the benefit of the holders of the ET.DIFF securities. The assets of the account can be seen at any time by going to <public URL>. The proceeds are held until a difficulty change, at which time they are used to pay the ET.DIFF.LONG, ET.DIFF.SHORT, and ET.DIFF.FUTURE dividends, and the remainder (the management fee) is paid to the fund manager. Any fees associated with maintaining or operating ET.DIFF are paid by the manager, and are not paid from the proceeds of sales

[eltopo]

Overall, I am in favor of this security. However, you only briefly mentioned holding the proceeds from the sales of ET.DIFF.FUTURE. Since you are responsible for shareholder's money, I would like to see more details the contract -- something like this, perhaps:

All proceeds from the sales of ET.DIFF.FUTURE are held in the account <BTC-TC account> for the benefit of the holders of the ET.DIFF securities. The assets of the account can be seen at any time by going to <public URL>. The proceeds are held until a difficulty change, at which time they are used to pay the ET.DIFF.LONG, ET.DIFF.SHORT, and ET.DIFF.FUTURE dividends, and the remainder (the management fee) is paid to the fund manager. Any fees associated with maintaining or operating ET.DIFF are paid by the manager, and are not paid from the proceeds of sales

Thanks for your feedback.

In the Risk section the contract says:

To reduce the risk for investors, the portfolio will be made public. The cash created by sales of ET.DIFF.FUTURE stays in the BTC-TC portfolio until it is paid out in dividends (minus management fee).

This covers most points you described, except the last point (that any further fees are paid from management fees, not proceeds of sales). But to make it most clear and transparent for investors, I replaced my paragraph with yours.

[eltopo]

Only 1 more YES vote needed. If we get approved before tomorrow (Monday) 4 p.m. UTC, we'll start at this time!

[junkonator]

We're live.

[eltopo]

Yes, finally. We'll start tomorrow (Tuesday) at 4 p.m. UTC.

[twentyseventy]

"ETOPS" is the account that will exchange PURCHASE, correct?

Edit: I meant 'FUTURE"

[Deprived]

"ETOPS" is the account that will exchange PURCHASE, correct?

Edit: I meant 'FUTURE"

Lol.

I wonder who will be the first person to send eltopo PURCHASE or send me FUTURE.

[Rannasha]

Yes, finally. We'll start tomorrow (Tuesday) at 4 p.m. UTC.

Perhaps make a news item (for one of the securities) on BTC-TC so more people are aware of the launch-time.

"ETOPS" is the account that will exchange PURCHASE, correct?

Edit: I meant 'FUTURE"

Lol.

I wonder who will be the first person to send eltopo PURCHASE or send me FUTURE.

Code:

aB.AddRule(new TransferRule(b, "ET.DIFF.FUTURE", "ET.DIFF.FUTURE", 1, 0, true, 1, true));

Problem solved.

[eltopo]

"ETOPS" is the account that will exchange PURCHASE, correct?

Edit: I meant 'FUTURE"

Correct.

I wonder who will be the first person to send eltopo PURCHASE or send me FUTURE.

Wouldn't it be great for you to have a FUTURE, too? 

Perhaps make a news item (for one of the securities) on BTC-TC so more people are aware of the launch-time.

Done.

[junkonator]

So price in half an hour or so and in the FUTURE will always be 0.0204 right? If the difficulty levels (< 2 %) too fast you wont sell a single unit anymore. What will you do then? Do you plan to close the asset then? This won't be too soon most probably, just interested.

[dexX7]

Hi there,

gratulations! Really a neat "product". Would the following be accurate?



Edit: Sorry, there was an error. Should be correct now.

[Deprived]

I'd assume starting difficulty is the difficulty at last change - i.e.112628548.7.

That's STILL the current difficulty - what you have on your graph is a guess of next difficulty (and there's various ways to do that - all inaccurate).

[dexX7]

I'd assume starting difficulty is the difficulty at last change - i.e.112628548.7.

That's STILL the current difficulty - what you have on your graph is a guess of next difficulty (and there's various ways to do that - all inaccurate).

Point taken. Chart updated. Can you confirm?

[eltopo]

So, start in a few minutes. As mentioned, a transfer bot manages the swap from ET.DIFF.FUTURE into ET.DIFF.LONG and ET.DIFF.SHORT. If there are any problems with the swap, let me know by pm or email.

[eltopo]

I'd assume starting difficulty is the difficulty at last change - i.e.112628548.7.

That's STILL the current difficulty - what you have on your graph is a guess of next difficulty (and there's various ways to do that - all inaccurate).

Point taken. Chart updated. Can you confirm?

No. It's more like this:

EDIT: Ok, you corrected it, it's ok now.

[eltopo]

So price in half an hour or so and in the FUTURE will always be 0.0204 right? If the difficulty levels (< 2 %) too fast you wont sell a single unit anymore. What will you do then? Do you plan to close the asset then? This won't be too soon most probably, just interested.

The dividend formula in the contract can be adjusted to fit these situation. Read the last pages, it's discussed there.

[dexX7]

Is there a way to transfer one ET.DIFF.SHORT and ET.DIFF.LONG to an account and receive the face value of 0.02 in exchange? Same for .FUTURE.

[FloatesMcgoates]

Is there a way to transfer one ET.DIFF.SHORT and ET.DIFF.LONG to an account and receive the face value of 0.02 in exchange?

well you automatically get .02 at the end of each cycle through dividends if you hold both short and long

[eltopo]

Is there a way to transfer one ET.DIFF.SHORT and ET.DIFF.LONG to an account and receive the face value of 0.02 in exchange? Same for .FUTURE.

You can sell back FUTURE via market for 0.02.

Technically I could take back pairs of LONG and SHORT, but as you're reducing market liquidity and get your dividend / payout before others, I would have to take a small fee on this (e.g. 0.0198 instead of 0.02). But at the moment bid / ask spreads are still too big for this to make sense.

[pheaonix]

just tried this out for the first week

i really like this future. i hope i see gains. according to my estimates, i should in theory. even if i don't, the transactions went smoothly and i hope to continue to use this fund to gain profit

[dexX7]

Technically I could take back pairs of LONG and SHORT, but as you're reducing market liquidity and get your dividend / payout before others, I would have to take a small fee on this (e.g. 0.0198 instead of 0.02). But at the moment bid / ask spreads are still too big for this to make sense.

My idea was to set up a bot to catch all out-of-place orders, i.e. those which are combined - fee > 0.02. This actually would fill orders and correct the price, though it's only a tiny profit fraction most likely each time and it would be unfavorable to wait the complete timeframe till dividend payout. But I agree, this basically reduces the freefloat.

[pheaonix]

Technically I could take back pairs of LONG and SHORT, but as you're reducing market liquidity and get your dividend / payout before others, I would have to take a small fee on this (e.g. 0.0198 instead of 0.02). But at the moment bid / ask spreads are still too big for this to make sense.

My idea was to set up a bot to catch all out-of-place orders, i.e. those which are combined - fee > 0.02. This actually would fill orders and correct the price, though it's only a tiny profit fraction most likely each time and it would be unfavorable to wait the complete timeframe till dividend payout. But I agree, this basically reduces the freefloat.

i'd be interested in a bot like this.

[Deprived]

Technically I could take back pairs of LONG and SHORT, but as you're reducing market liquidity and get your dividend / payout before others, I would have to take a small fee on this (e.g. 0.0198 instead of 0.02). But at the moment bid / ask spreads are still too big for this to make sense.

My idea was to set up a bot to catch all out-of-place orders, i.e. those which are combined - fee > 0.02. This actually would fill orders and correct the price, though it's only a tiny profit fraction most likely each time and it would be unfavorable to wait the complete timeframe till dividend payout. But I agree, this basically reduces the freefloat.

At least 2 people run such bots on DMS - and I have no doubt they'll run them here if/when volume reaches a level justifying it.  On DMS the bots go further than that - with orders up on SELLING such that if they fill the bot can then sell MINING and make a small profit by buying PURCHASE then splitting it.

You're a few months behind what already happens where there's volume basically.

[Rannasha]

Technically I could take back pairs of LONG and SHORT, but as you're reducing market liquidity and get your dividend / payout before others, I would have to take a small fee on this (e.g. 0.0198 instead of 0.02). But at the moment bid / ask spreads are still too big for this to make sense.

My idea was to set up a bot to catch all out-of-place orders, i.e. those which are combined - fee > 0.02. This actually would fill orders and correct the price, though it's only a tiny profit fraction most likely each time and it would be unfavorable to wait the complete timeframe till dividend payout. But I agree, this basically reduces the freefloat.

At least 2 people run such bots on DMS - and I have no doubt they'll run them here if/when volume reaches a level justifying it.  On DMS the bots go further than that - with orders up on SELLING such that if they fill the bot can then sell MINING and make a small profit by buying PURCHASE then splitting it.

You're a few months behind what already happens where there's volume basically.

I wonder who the other guy is ^^

Anyway, there isn't that much more profit left in DMS arbitrage on the path that Deprived mentioned. The last few days my bot has had an order up less than half the time, since the expected profit is below the threshold I specified (and often below zero, which is kind of an important threshold too ). Adjusting the bot to work on ET.DIFF is 2 minutes work at this point.

[eltopo]

I have frozen the trading of ET.DIFF.FUTURE because of the closing announcement of BTC-TC. Trading of ET.DIFF.LONG and ET.DIFF.SHORT will continue until next difficulty change, then all 3 assets will get the dividends like stated in the contract. If there happen to be some problems with trading on BTC-TC, the dividends will be sent to your emergency address. There is no need to panic sell.

After the dividends are paid out and all outstanding shares are bought back, the ET.DIFF assets will be locked.

[eltopo]

Dividends have just been paid, so here is the first, last and only dividend report:

Old difficulty:   112,628,549
New difficulty:   148,819,200
change (%):   32,1328%
   
ET.DIFF.FUTURE sold:   1322
ET.DIFF.FUTURE bought back:   0
   
ET.DIFF.FUTURE turnover (BTC):   26.9688
minus Fee (BTC):   0.5288
Total dividend payout:   26.44
ET.DIFF.FUTURE outstanding:   66
ET.DIFF.LONG outstanding:   1256
ET.DIFF.SHORT outstanding:   1256
Total effective units:   1322
   
Dividend ET.DIFF.LONG:           0.01285310
Dividend ET.DIFF.SHORT:   0.00714690
Dividend ET.DIFF.FUTURE:   0.02

Due to the coming BTC-TC shutdown, ET.DIFF closes now.

Thanks, good luck and see ya!

eltopo