[IPVO] [Multiple Exchanges] Neo & Bee - LMB Holdings

[ex-trader]

http://ge.tt/5UxhJ8t/v/0?c
Opened the .ods in LibreOffice and saved as .xls. Didn't check to see whether the conversion went okay.

Thanks for that, that opened straight away.

Looking through that at a high level it shows exactly what I expected.

Bitcoin falls from $230 to $56 and in turn the equity in the company (it's shareholder value) falls from $2.1m to $800k. That is with only $2.5m of total deposits to start with vs almost identical capital. Obviously this scales up if the deposits are larger and there's no way this business will be a success with only $2.5m of deposits.

It's really simple, if you claim to make money from BTC rising value then you (or your customers) must lose if it goes down. The risk profile is symmetric, unless you add assymetry via external option purchases, which are not mentioned (and no-one could write the volumes anyway).

This business is not a bank, it's a bet.

I suggest Neo can attempt to disprove this by showing what the profitability looks like with a 5% decline every month for a year and with substantial deposits. The reason is must be done like this is usually it's hard to make perhaps 1-3% on gross interest margin, so you need deposits that exceed your capital by a large factor to make profits once costs are accounted for. Most banks have leverage ratios (assets/capital) of 20-30 for that reason.

[zumzero]

ex-trader, I am glad you are challenging this business model and are raising some excellent points.  I am going to follow this conversation before deciding to jump in.

My gut feeling tells me this is going to be a big winner.  Perhaps not very scientific, I'll agree, but everything is a bet when making money is concerned.

[Stelios]

http://ge.tt/5UxhJ8t/v/0?c
Opened the .ods in LibreOffice and saved as .xls. Didn't check to see whether the conversion went okay.

Thanks for that, that opened straight away.

Looking through that at a high level it shows exactly what I expected.

Bitcoin falls from $230 to $56 and in turn the equity in the company (it's shareholder value) falls from $2.1m to $800k. That is with only $2.5m of total deposits to start with vs almost identical capital. Obviously this scales up if the deposits are larger and there's no way this business will be a success with only $2.5m of deposits.

It's really simple, if you claim to make money from BTC rising value then you (or your customers) must lose if it goes down. The risk profile is symmetric, unless you add assymetry via external option purchases, which are not mentioned (and no-one could write the volumes anyway).

This business is not a bank, it's a bet.

I suggest Neo can attempt to disprove this by showing what the profitability looks like with a 5% decline every month for a year and with substantial deposits. The reason is must be done like this is usually it's hard to make perhaps 1-3% on gross interest margin, so you need deposits that exceed your capital by a large factor to make profits once costs are accounted for. Most banks have leverage ratios (assets/capital) of 20-30 for that reason.

Now, this is a really interesting discussion and its a pity I have to go (but I for sure will follow it tomorrow ).

So, If i got it correctly, NEOBEE would survive the worst (up to now) crush but with very big losses. If this gets worse (5% decline every month for a year) it will fail (without depositors loosing their BTCs though). On the other hand if BTC grows NEOBEE will also Grow (with winnings going mainly to the investors, and non EUR depositors). The latter, of course, is non sustainable, BTC will at some point stop growing (which that point will be, nobody has any idea, hence the bet). If though, NEOBEE offers services like secure storage, insurances, etc. and bases their business model on them (charging fees for them) then it would be operating like a proper bank (one that charges you to keep your money safe and does not invest/speculate with them, if you want to invest/speculate then maybe they can offer an additional  service for you ).
This is what i think they are trying to do btw. Did I got it correctly up to here? N_S, Ex-trader I am really interested in your opinion at the subject.  It is also a pity that we don't have Danny here tonight, I am really interested in his opinion as well (I which him luck In Amsterdam though ).

Have a nice night Guys/Girls,
SK
p.s. It is my opinion that if this is done correctly, and not as a bet, it can change a lot of things to the better.      

[Vbs]

http://ge.tt/5UxhJ8t/v/0?c
Opened the .ods in LibreOffice and saved as .xls. Didn't check to see whether the conversion went okay.

Thanks for that, that opened straight away.

Looking through that at a high level it shows exactly what I expected.

Bitcoin falls from $230 to $56 and in turn the equity in the company (it's shareholder value) falls from $2.1m to $800k. That is with only $2.5m of total deposits to start with vs almost identical capital. Obviously this scales up if the deposits are larger and there's no way this business will be a success with only $2.5m of deposits.

It's really simple, if you claim to make money from BTC rising value then you (or your customers) must lose if it goes down. The risk profile is symmetric, unless you add assymetry via external option purchases, which are not mentioned (and no-one could write the volumes anyway).

This business is not a bank, it's a bet.

I suggest Neo can attempt to disprove this by showing what the profitability looks like with a 5% decline every month for a year and with substantial deposits. The reason is must be done like this is usually it's hard to make perhaps 1-3% on gross interest margin, so you need deposits that exceed your capital by a large factor to make profits once costs are accounted for. Most banks have leverage ratios (assets/capital) of 20-30 for that reason.

Options purchases have already been mentioned earlier.

(...)
We shall operate our own reserves for trading both EUR & BTC and not deposits, our strategy will be constantly monitored and adjusted. Not every BTC and Euro will be derived from the public markets and we also have several options on futures. Our strategies will be kept private because we do not want to buy off the back of our own hype, this will be partly unavoidable but we will be doing everything we can to mitigate that risk.

If someone withdraws €5m and other withdrawals that day alone make the total €7m, we will also take deposits that day at the same price point, even if the deposits that day total €5m we will already be in a strong position because we would have the trading benefits of adding that €7m to the market prior to the decrease, increasing the strength of our own reserves.
(...)

(...)
This spreadsheet provides details that will enable you to input different parameters (The Blue Cells) to see the effects they will have on our reserves, we have omitted any parts in relation to options trading, so trades on the spreadsheet are very simple public and dark pool markets, even with a crude strategy with the figures that are a direct replica of the seven days when the price of Bitcoin took its fall following the April bubble we would be damaged, but still very much in business. The key figure to watch is "the next day BTC requirement" as this will indicate the amount of Bitcoin that will either be added to our reserves when balancing the customers wallet for the next day, or how many BTC we need to use from our reserves to top up the customers wallets.

www.lmb-holdings.com/opening_week_crash.ods
(...)

[cryptocyprus]

Oh we have had a debate sorry I missed it,

Just to make some points (some are repeated from a long time ago),

A "run" on withdrawals would serve only to reduce our liabilities unlike a traditional bank.
We will have both options and futures trading available to us prior to launch (with substantial volume)
We will also be basing our business model on the additional services we shall be offering, ie insurance, international remittance (there are more but I will provide more detail when we have more solid progress).

Yes substantial losses in the value over a long period of time would not be of benefit to anyone neither ourselves or anyone that holds Bitcoin as a store of value, however if we fail our customers can still obtain their own Bitcoin. For these recurring losses to happen it would also pretty much mean an end for Bitcoin too (if they were to happen at this point in time), something I don't foresee happening anytime soon. For everyone who likes doomsday scenarios, if you think your going to wake up tomorrow with Bitcoin valued at 0, it just isn't going to happen because of the fact that if two people agree on a value then it will always be worth something.

We are offering pegged wallets to provide stability so commerce can take place, yes Bitcoin can also be used as a medium of exchange (with its cryptographic security remaining intact) and not just a store of value amongst many other potential uses also.

Amsterdam Update

The conference has been great so far, I have made some really good contacts and had some interesting discussions, whilst being on the receiving end of some good proposals.

The regulation panel was great, it brought a few laughs from the crowd too (Asking the Police if Silkroad had helped remove violence from drug dealing on the street, was a great question).

My speech was also recorded, as soon as I can get a link to the hosted video, it will be posted here, I received a good reception and some great questions.

Neo & Bee update will be happening later today it is currently 5:45am here in Amsterdam, once I have tied a few loose ends up today, I will present the updates in one long post, this will also detail our path to regulation.

[wizzardTim]

Yes substantial losses in the value over a long period of time would not be of benefit to anyone neither ourselves or anyone that holds Bitcoin as a store of value, however if we fail our customers can still obtain their own Bitcoin. For these recurring losses to happen it would also pretty much mean an end for Bitcoin too (if they were to happen at this point in time), something I don't foresee happening anytime soon.

THanks!! I agree with you and I believe this is the answer to the non-believers.

[ThickAsThieves]

Just a note that TAT.NEOBEE migrations from BTCT.co will be processed AFTER TAT.ASICMINER migrations are complete. You can track that progress here: https://bitcointalk.org/index.php?topic=192499.msg3245924#msg3245924

Once the data is parsed it will be handed off to Havelock for batch processing.

For the people that chose Bitfunder, I will attempt to get Bitfunder to process the imports as one batch as well, after the data is parsed. However, I do not have confirmation that BF can help automate in this way, so it may take longer.

Thank you for your patience. This is a lot of work and comes at a very inconvenient time due to other events taking my time this week and next, but we'll get it all taken care of ASAP!

[Stelios]

We will also be basing our business model on the additional services we shall be offering, ie insurance, international remittance (there are more but I will provide more detail when we have more solid progress).

+1

[ex-trader]

if we fail our customers can still obtain their own Bitcoin.

Which by definition at that point are worth a tiny fraction of their originally deposited Euro amount.

Thanks, you have not disproved or even argued against a single one of my points, so I'll just leave it to the investors to decide if they want to accept all this risk, good luck to those that do!

Of course persuading customers that they should invest deposits with you may be a harder since they care nothing for Bitcoin and your pegged and guaranteed deposits are only pegged and guaranteed until Bitcoin falls enough for you to fail and at that point they'd be wishing they'd just left them in a Euro account with the benefit of the 100k EU bank guarantee that you cannot offer (not being a regulated or legal bank).

[Herp]

if we fail our customers can still obtain their own Bitcoin.

Of course persuading customers that they should invest deposits with you may be a harder since they care nothing for Bitcoin and your pegged and guaranteed deposits are only pegged and guaranteed until Bitcoin falls enough for you to fail and at that point they'd be wishing they'd just left them in a Euro account with the benefit of the 100k EU bank guarantee that you cannot offer (not being a regulated or legal bank).

This is what I've posted a while back in this thread.

People are more emotional than rational and there's a good chance quite a few will buy into this. I can see, though, bigger appeal coming from big players that want to stash 100k+ euros. They should consider targeting rich players as they won't care about the 100K euro deposit insurance but fear further confiscations.

I hope they will try to get more revenue from people purchasing Bitcoin with euros and keeping those Bitcoin in with associated debit/credit card. They might need higher volume to be profitable but it's better in the long term. There won't be any disgruntled customers that have seen their euros devaluing while bitcoin value went through the roof. Unfortunately, they say this will probably be just 1% of their business and it's something they won't actively advertise most likely.

Why not try to combine these two models? Instead of offering a 100% peg, why not also offer a 25%, 50% or 75% peg? You will still get to make profits if Bitcoin goes up but customers will also get to profit from upward move. It will also limit your risk if Bitcoin experiences a big crash.

[memvola]

I'll just leave it to the investors to decide if they want to accept all this risk, good luck to those that do!

Actually I care more about the risk to Bitcoin's reputation than my investment in this company. That means having to fully inform the customers of the risks. Then again, what value are we providing?

• Even if the bank is removed from the face of the Earth, with all its databases, people can still access their coins.
• Customers will be able to take advantage of the Bitcoin network to make free (as in freedom) transfers.

However, I'm far from being certain that this is enough. More clarification is needed on this subject for sure.

Why not try to combine these two models? Instead of offering a 100% peg, why not also offer a 25%, 50% or 75% peg? You will still get to make profits if Bitcoin goes up but customers will also get to profit from upward move. It will also limit your risk if Bitcoin experiences a big crash.

Or else a milder protection from volatility using different methods. Neo should also sell fully Bitcoin accounts whenever possible.

[N_S]

Of course persuading customers that they should invest deposits with you may be a harder since they care nothing for Bitcoin and your pegged and guaranteed deposits are only pegged and guaranteed until Bitcoin falls enough for you to fail and at that point they'd be wishing they'd just left them in a Euro account with the benefit of the 100k EU bank guarantee that you cannot offer (not being a regulated or legal bank).

...this will also detail our path to regulation.

[N_S]

Which by definition at that point are worth a tiny fraction of their originally deposited Euro amount.

I think you're misunderstanding. Pegged accounts are continually balanced to maintain the original amount deposited. If bitcoin takes a dive, Neo is the one suffering that loss, not the customer. If the customer has a bitcoin denominated account, then yes, they will suffer that value loss just like anyone holding bitcoins.

[Herp]

I'll just leave it to the investors to decide if they want to accept all this risk, good luck to those that do!

Actually I care more about the risk to Bitcoin's reputation than my investment in this company. That means having to fully inform the customers of the risks. Then again, what value are we providing?

• Even if the bank is removed from the face of the Earth, with all its databases, people can still access their coins.
• Customers will be able to take advantage of the Bitcoin network to make free (as in freedom) transfers.

However, I'm far from being certain that this is enough. More clarification is needed on this subject for sure.

Why not try to combine these two models? Instead of offering a 100% peg, why not also offer a 25%, 50% or 75% peg? You will still get to make profits if Bitcoin goes up but customers will also get to profit from upward move. It will also limit your risk if Bitcoin experiences a big crash.

Or else a milder protection from volatility using different methods. Neo should also sell fully Bitcoin accounts whenever possible.

What you mean by "protection from volatility" is actually "protection from profits" as you know all too well that Bitcoin is designed to appreciate in value over time, unlike the euro (and there's lots of pressure on Germany and ECB to hit the print button bigtime).

 Not really sure what you tried to say in the bolded section above (was bit cryptic), but some customers will be pissed they've missed the Bitcoin rally and that you cashed in on all the profits. That's my point. If you were to also offer a 25% or 50% peg such negative customer reaction may be avoided.

You say Neo should sell Bitcoin accounts whenever possible but will you actively advertise the Bitcoin accounts since you've mentioned this will only be 1% of your business?

[N_S]

Not really sure what you tried to say with the bolded section above but some customers will be pissed they've missed the Bitcoin rally and that you cashed in on all the profits. That's my point. If you were to also offer a 25% or 50% peg such negative customer reaction may be avoided.

They'd be asked to keep in mind that they shouldered none of the risk.

[Herp]

Not really sure what you tried to say with the bolded section above but some customers will be pissed they've missed the Bitcoin rally and that you cashed in on all the profits. That's my point. If you were to also offer a 25% or 50% peg such negative customer reaction may be avoided.

They'd be asked to keep in mind that they shouldered none of the risk.

And most people are rational and will accept that statement with a smile on their face, right? Thing is people don't work like that. Any historian, psychologist or anyone who understands human behavior will tell you that. People are perhaps 20% rational and 80% emotional. This is how our brains are wired.

They will take for granted the fact that you shoulder all the risk if you were to lose money but will also react very negatively, in a visceral way, if you were to make tons of profits with their money. I can even see a lawsuit or two in there.

[N_S]

I can even see a lawsuit or two in there.

Which would be laughed out of court before anyone could take a seat.

What you're arguing here is that because people aren't, as you put it, rational enough to grasp the concept that risk and reward are directly correlated, people what...aren't going to open accounts? I don't think this risk/reward concept is lost on people in quite the way you think it is. People by and large don't get all bent out of shape because someone opened a profitable business. The people opening the business stuck their necks out. Who else should reap profits if not them?

I'm very confident this is a widely understood concept.

[Herp]

I can even see a lawsuit or two in there.

Which would be laughed out of court before anyone could take a seat.

What you're arguing here is that because people aren't, as you put it, rational enough to grasp the concept that risk and reward are directly correlated, people what...aren't going to open accounts? I don't think this risk/reward concept is lost on people in quite the way you think it is. People by and large don't get all bent out of shape because someone opened a profitable business. The people opening the business stuck their necks out. Who else should reap profits if not them?

I'm very confident this is a widely understood concept.

Guess you haven't carefully read my post. I've said there's a good chance people will open such 100% pegged accounts exactly for that reason, that most act emotionally. I can see quite a few people being swayed by some persuasive marketing campaign to do just that, especially after the deposit confiscation scare they been through.

Regarding "being laughed out of court"; you really sure a populist court will be pro-banks these days? (especially with recent developments in Greece and Cyprus. For those who don't know Cyprus is basically Greece, ethnically, regionally and culturally). Banks are losing trials left and right in "abusive clauses" trials. So what if they've signed agreement, agreeing to whatever terms?! If court labels that agreement as having "abusive clauses" the agreement is worthless.

[N_S]

Guess you haven't carefully read my post. I've said there's a good chance people will open such 100% pegged accounts exactly for that reason, that most act emotionally. I can see quite a few people being swayed by some persuasive marketing campaign to do just that, especially after the deposit confiscation scare they been through.

Regarding "being laughed out of court"; you really sure a populist court will be pro-banks these days? (especially with recent developments in Greece and Cyprus. For those who don't know Cyprus is basically Greece, ethnically, regionally and culturally). Banks are losing trials left and right in "abusive clauses" trials. So what if they've signed agreement, agreeing to whatever terms?! If court labels that agreement as having "abusive clauses" the agreement is worthless.

I'm not sure how to respond. What you're arguing simply isn't a point of contention. Assuming the customers are properly informed of the logistics of the pegged accounts (which I have no reason to think they wouldn't based on everything I've seen/read about Neo&Bee) then there isn't going to be any successful lawsuit. Feel free to disagree with that if you like. Nothing about the structure of the pegged accounts could be considered "abusive" to any reasonable person (which is the criteria most courts operate under).

The concept is simple: if you open a pegged account, you get to benefit from the bitcoin ecosystem without having to shoulder the risk of price fluctuation. Since you aren't shouldering any risk, you aren't seeing reward from price increases. What's that? You want to reap rewards if the bitcoin price increases? Perfect, there's a bitcoin-denominated account you can open.

[memvola]

Why not try to combine these two models? Instead of offering a 100% peg, why not also offer a 25%, 50% or 75% peg? You will still get to make profits if Bitcoin goes up but customers will also get to profit from upward move. It will also limit your risk if Bitcoin experiences a big crash.

Or else a milder protection from volatility using different methods. Neo should also sell fully Bitcoin accounts whenever possible.

What you mean by "protection from volatility" is actually "protection from profits" as you know all too well that Bitcoin is designed to appreciate in value over time, unlike the euro (and there's lots of pressure on Germany and ECB to hit the print button bigtime).

50% peg is also a way of reducing the risk and reward, so I'm not sure we disagree. I was adding to the quoted portion of your comment.

Not really sure what you tried to say in the bolded section above (was bit cryptic), but some customers will be pissed they've missed the Bitcoin rally and that you cashed in on all the profits. That's my point. If you were to also offer a 25% or 50% peg such negative customer reaction may be avoided.

I wasn't clear, since I don't know what the local situation is. For instance, Danny said they would have their own internal index. I don't know how they will manage it (assuming in connection with Bee), but it could be used to milden the effects of volatility. This way, clients can take full advantage of long term appreciation, but will be affected less by short term swings.

Of course, one concern is, while a 50% peg is pretty clear, a more managed financial product is prone to criticism.

You say Neo should sell Bitcoin accounts whenever possible but will you actively advertise the Bitcoin accounts since you've mentioned this will only be 1% of your business?

Yes, I'm proposing that Neo could encourage users to trade in Bitcoin directly to make the percentage higher, which should reduce the risk for the bank.

The concept is simple: if you open a pegged account, you get to benefit from the bitcoin ecosystem without having to shoulder the risk of price fluctuation. Since you aren't shouldering any risk, you aren't seeing reward from price increases. What's that? You want to reap rewards if the bitcoin price increases? Perfect, there's a bitcoin-denominated account you can open.

Correct. I don't think anyone will have such problems with pegged accounts, as long as they can access their deposits in Euro. My concern is people who think they are shouldering the risk of Bitcoin's exchange rate going downhill.