[Havelock] Bitcoin Difficulty Derivative (BDD)

[twentyseventy]

Period 25, Day 0 Report - November 19, 2014

Balance Post Divs: BTC 199.67374824

Total Units: 18550

NAV/U: BTC 0.01076408

[twentyseventy]

B.EXCH seems to be down right now; Havelock is on the case. I'll be manually exchanging in the meantime. Have paid divs to EXCH shares that were stuck.

Period 25, Day 1 Report - November 20, 2014

Balance Post Divs: BTC 199.08841861

Total Units: 18603

NAV/U: BTC 0.01070195

[twentyseventy]

Heya 2070, been a while-ish.

Suggestion: If you do decide to reincarnate BDD with a 5TH/s initial offering, I'd suggest making the B.EXCH market price percentage over the NAV/U increase with the number of excess days of funds in reserve (if there is an excess - otherwise keep it at the fat 2%).  

The reasoning behind this is similar to a point I made a while ago in response to thread members' observations that buyers of B.EXCH who held both the B.MINE and B.SELL shares saw a net yield due to the time series (essentially, in isolation of the capital inflows themselves, "Ponzi"-like) effect of more investors moving capital into the fund after them.  I argued that this was a beneficial effect of the fund's mechanics in that overall it encouraged aggregate net inflows into the fund over time by giving investors an incentive to move capital into the fund sooner rather than later - filling fund reserve deficits more quickly than if this "implied" yield was somehow removed from the fund.

However, when the fund holds an excess of reserves, this means that potential new investors can explicitly buy into a higher-valued pair of units for the same cost.  Granted, this situation would only arise in situations where difficulty periods saw heavy volatility in the forecasted difficulty increase (especially evident with this fund, where some traders use BitcoinWisdom's moving-average-Taylor-Series-like forecasting mdoel), or similarly, when heavy sales of B.EXCH/pair buybacks occurred late in the period (typically past the 10th day).  The circumstances would be rather rare, but still, such a B.EXCH pricing policy should have the effect of further padding the fund NAV/U over fund lifetimes (as well as padding your commission on sales margins, I might add).

Cheers!

I think I see what you're saying here, but I want to make sure - I'm going to break everything down by-point and comment or ask for clarification that way-

Suggestion: If you do decide to reincarnate BDD with a 5TH/s initial offering, I'd suggest making the B.EXCH market price percentage over the NAV/U increase with the number of excess days of funds in reserve (if there is an excess - otherwise keep it at the fat 2%).  


So, currently, the EXCH sales price is 3% over the NAV/U at the start of the Period - 2% as the management fee, .6% to the balance of the assets, and .4% to Havelock for the trading fee. DMS actually changed the EXCH price each day based on the NAV/U for each day - the reason that I don't do this is that the MINE divs are paid at the same time each day and I don't want to log in each day at noon to do this. It would be a pain for me to do so and also it would be unfair to some purchasers of EXCH - if divs were paid at Noon and I didn't log in to change the EXCH price until 3PM, all EXCH purchasers would be overcharged.

The reasoning behind this is similar to a point I made a while ago in response to thread members' observations that buyers of B.EXCH who held both the B.MINE and B.SELL shares saw a net yield due to the time series (essentially, in isolation of the capital inflows themselves, "Ponzi"-like) effect of more investors moving capital into the fund after them.  I argued that this was a beneficial effect of the fund's mechanics in that overall it encouraged aggregate net inflows into the fund over time by giving investors an incentive to move capital into the fund sooner rather than later - filling fund reserve deficits more quickly than if this "implied" yield was somehow removed from the fund.

This is an issue I foresaw - you can gain a (slight) profit simply by holding MINE and SELL - you just need to do it over a pretty long period of time in which shares of EXCH are purchased. While it's beneficial to holders of MINE and SELL (moreso for one side depending on which way the difficulty is going at the time) for there to be more excess funds available as a whole, purchasing now vs. later doesn't make much of a difference in my opinion, as it's not as if BDD is investing the funds somewhere - BDD isn't missing out on any 'profit' or gains by not holding those coins sooner.

However, when the fund holds an excess of reserves, this means that potential new investors can explicitly buy into a higher-valued pair of units for the same cost.

This is not necessarily true - unless there was a massive inflow of new shares, purchasers are EXCH are always going to be overpaying for EXCH relative to the NAV/U. At the beginning of the period, as soon as I put up the new EXCH sales price, the new purchasers are already paying (Period NAV/U * 1.03) and only receiving Period NAV/U less one day of dividends. As the period lengthens, purchasers of EXCH are still paying Period NAV/U * 1.03 and getting Period NAV/U - X days of dividends. The later on that people purchase EXCH, the less that they get for it in terms of NAV/U (this ignores the market price of course).

I would actually like a solution to this problem ('overcharging' for EXCH to the benefit of the fund) that doesn't involve a manual update of the EXCH price every day, but I haven't come up with one yet.

I'm not sure that I addressed all of the points adequately, or if I misunderstood some of them, how far did I get to where you were going?

And I'm sure that few people here read the thread this often, but I'd appreciate it if people would let me know if there's any interest in starting up a 5TH/s offering - Sometimes bigger players need more liquidity and/or higher prices to make it worth their trading time. If I did start one, separate from the current 5GH/s offering of course, I would probably institute a higher/sooner End-Game for it.

[junkonator]

And I'm sure that few people here read the thread this often, but I'd appreciate it if people would let me know if there's any interest in starting up a 5TH/s offering - Sometimes bigger players need more liquidity and/or higher prices to make it worth their trading time. If I did start one, separate from the current 5GH/s offering of course, I would probably institute a higher/sooner End-Game for it.

I don't understand why bigger players would need a bigger hashing-power option as they can always just buy more 5 GH/s-es . What's the reasoning behind this?

[twentyseventy]

Period 25, Day 2 Report - November 21, 2014

Balance Post Divs: BTC 198.40264940

Total Units: 18647

NAV/U: BTC 0.01063992

[twentyseventy]

And I'm sure that few people here read the thread this often, but I'd appreciate it if people would let me know if there's any interest in starting up a 5TH/s offering - Sometimes bigger players need more liquidity and/or higher prices to make it worth their trading time. If I did start one, separate from the current 5GH/s offering of course, I would probably institute a higher/sooner End-Game for it.

I don't understand why bigger players would need a bigger hashing-power option as they can always just buy more 5 GH/s-es . What's the reasoning behind this?

In theory that makes sense, but the issue that I've seen so far is the lack of liquidity. If you want to but 10BTC of MINE, for example, you can buy it on-market or you can buy EXCH and sell off the SELL. However, you're going to see a lot of slippage either way.

I'm not sure if the decrease in total activity by volume is a result of the decrease in NAV/U, decrease in the BTC/USD rate, decrease of total Havelock volume, or a combination of the three.

[twentyseventy]

Period 25, Day 3 Report - November 22, 2014

Balance Post Divs: BTC 197.67096485

Total Units: 18687

NAV/U: BTC 0.01057799

[junkonator]

I don't understand why bigger players would need a bigger hashing-power option as they can always just buy more 5 GH/s-es . What's the reasoning behind this?

In theory that makes sense, but the issue that I've seen so far is the lack of liquidity. If you want to but 10BTC of MINE, for example, you can buy it on-market or you can buy EXCH and sell off the SELL. However, you're going to see a lot of slippage either way.

I'm not sure if the decrease in total activity by volume is a result of the decrease in NAV/U, decrease in the BTC/USD rate, decrease of total Havelock volume, or a combination of the three.

For ppl buying B.MINE as a replacement for another mining asset this fund has become unattractive. For one it's the obvious reason that without liquidity in B.SELL it's tedious to get MINE only. Buying MINE @ market price costs 0.0091 for 5GH/s where cex costs around .00825 (I'm not too sure whether this comparison is entirely fair though tbh). Adding to that there's the end-game that requires brain power to grasp and adds another obstacle if in a buy-and-forget mind-set.
Buying SELL has become a big gamble since it's unclear if and when there will be dividends in this round at all. Then there are the timing problems you mentioned where you will always overpay when buying B.EXCH even if you buy right after diff-change. The point deprived wanted to make when DMS was first offered was that people were overpaying for mining assets (and creating a way for non-believers to capitalize on this assumption). Because people aren't overpaying any more the raison d'être for BDD in it's current form is no longer valid. I don't think an offer with 5TH/s will solve that. For the next round the changes necessary are not just changing numbers around in the current model but rather a complete overhaul of the fund that represents the "new truth" that mining has levelled out and won't rise at 20% per diff-change any more.
We should start discussing how the fund can be changed for the next round.

[jjdub7]

I don't understand why bigger players would need a bigger hashing-power option as they can always just buy more 5 GH/s-es . What's the reasoning behind this?

In theory that makes sense, but the issue that I've seen so far is the lack of liquidity. If you want to but 10BTC of MINE, for example, you can buy it on-market or you can buy EXCH and sell off the SELL. However, you're going to see a lot of slippage either way.

I'm not sure if the decrease in total activity by volume is a result of the decrease in NAV/U, decrease in the BTC/USD rate, decrease of total Havelock volume, or a combination of the three.

For ppl buying B.MINE as a replacement for another mining asset this fund has become unattractive. For one it's the obvious reason that without liquidity in B.SELL it's tedious to get MINE only. Buying MINE @ market price costs 0.0091 for 5GH/s where cex costs around .00825 (I'm not too sure whether this comparison is entirely fair though tbh). Adding to that there's the end-game that requires brain power to grasp and adds another obstacle if in a buy-and-forget mind-set.
Buying SELL has become a big gamble since it's unclear if and when there will be dividends in this round at all. Then there are the timing problems you mentioned where you will always overpay when buying B.EXCH even if you buy right after diff-change. The point deprived wanted to make when DMS was first offered was that people were overpaying for mining assets (and creating a way for non-believers to capitalize on this assumption). Because people aren't overpaying any more the raison d'être for BDD in it's current form is no longer valid. I don't think an offer with 5TH/s will solve that. For the next round the changes necessary are not just changing numbers around in the current model but rather a complete overhaul of the fund that represents the "new truth" that mining has levelled out and won't rise at 20% per diff-change any more.
We should start discussing how the fund can be changed for the next round.

Zero "maintenance" "fees" and zero variance on payments for BDD are what makes this asset gold.  (Don't know what Maintenance other fund managers are doing, really - hello, Scrpytx?)

[twentyseventy]

Period 25, Day 4 Report - November 23, 2014

Balance Post Divs: BTC 201.59894543

Total Units: 19157

NAV/U: BTC 0.01052351

After reviewing last period's numbers, I realized that I had not lowered my (absolute) management fees last period. This resulted in an overpayment of management fees to me of 0.01629936 BTC (~16.2 mBTC). I will refund this to BDD's balance which will be reflected in the report for today that I'm about to issue.

[twentyseventy]

For ppl buying B.MINE as a replacement for another mining asset this fund has become unattractive. For one it's the obvious reason that without liquidity in B.SELL it's tedious to get MINE only. Buying MINE @ market price costs 0.0091 for 5GH/s where cex costs around .00825 (I'm not too sure whether this comparison is entirely fair though tbh). Adding to that there's the end-game that requires brain power to grasp and adds another obstacle if in a buy-and-forget mind-set.
Buying SELL has become a big gamble since it's unclear if and when there will be dividends in this round at all. Then there are the timing problems you mentioned where you will always overpay when buying B.EXCH even if you buy right after diff-change. The point deprived wanted to make when DMS was first offered was that people were overpaying for mining assets (and creating a way for non-believers to capitalize on this assumption). Because people aren't overpaying any more the raison d'être for BDD in it's current form is no longer valid. I don't think an offer with 5TH/s will solve that. For the next round the changes necessary are not just changing numbers around in the current model but rather a complete overhaul of the fund that represents the "new truth" that mining has levelled out and won't rise at 20% per diff-change any more.
We should start discussing how the fund can be changed for the next round.

Zero "maintenance" "fees" and zero variance on payments for BDD are what makes this asset gold.  (Don't know what Maintenance other fund managers are doing, really - hello, Scrpytx?)

Thanks to both of you for the comments. Junkonator, it is important to realize that the real purpose here is to let the market decide what hashing power is worth. People may want a set it and forget it model, which as been offered in the past and continues to be offered today.

It used to be PMBs - the operator would essentially sell 'bonds' at a fixed price and hope that the buyers would be on the losing side of that bet. Now it is mining pass-throughs like PETA and CEX where maintenance fees are a big issue. However, the purpose of BDD is to let the market decide; I'll agree that there are liquidity issues and I will take to heart the idea of offering some changes for the next round.


Period 25, Day 5 Report - November 24, 2014

Balance Post Divs: BTC 202.14165099

Total Units: 19316

NAV/U: BTC 0.01046498

[junkonator]

Having re-read my post I realized I forgot to mention that I liked the ride so far and you did a great job

[twentyseventy]

Having re-read my post I realized I forgot to mention that I liked the ride so far and you did a great job

Haha now worries; thanks for saying so! I don't mind constructive criticism. I think there are some issues to address to take into account the changing ecosystem here.

[RoninMD]

Silly question:  What happens to the value of exch if the difficulty decreases at the next period?  Shouldn't the value go up?

[twentyseventy]

Silly question:  What happens to the value of exch if the difficulty decreases at the next period?  Shouldn't the value go up?

EXCH is always going to be sold at the NAV/U + 3%. If difficulty decreases, this just means that the Reserve becomes more deficient (there are fewer and fewer funds on hand to pay MINE dividends - the chance of SELL dividends decreases).

If Difficulty increases, MINE will receive a bigger payout per day but it will never received more than the NAV/U (total assets of BDD divided by total number of units). Does that help?

[twentyseventy]

Period 25, Day 6 Report - November 25, 2014

Balance Post Divs: BTC 201.13142515

Total Units: 19334

NAV/U: BTC 0.01040299

[jjdub7]

2070 - let's say for a moment that difficulty is about to just start dropping out of the sky for whatever reason (idk, maybe Terracoin makes the comeback of the millennium).  If the reserve were to fall below 0.2 mBTC solely by payouts alone (not by virtue of difficulty increase as the simple end-game by increase describes), does the fund close with remaining reserves paid out to MINE holders?

[twentyseventy]

2070 - let's say for a moment that difficulty is about to just start dropping out of the sky for whatever reason (idk, maybe Terracoin makes the comeback of the millennium).  If the reserve were to fall below 0.2 mBTC solely by payouts alone (not by virtue of difficulty increase as the simple end-game by increase describes), does the fund close with remaining reserves paid out to MINE holders?

The End Game via Decrease actually just pays out daily dividends to MINE holders as long as it can. There is no .2mBTC limit to close the fund, it would just keep paying daily divs until there is not enough for one more daily payout. After that time, the remaining assets would be split among MINE holders as a final dividend.

[twentyseventy]

Period 25, Day 7 Report - November 26, 2014

Balance Post Divs: BTC 203.42253851

Total Units: 19657

NAV/U: BTC 0.01034860

[twentyseventy]

Period 25, Day 8 Report - November 27, 2014

Balance Post Divs: BTC 202.19613828

Total Units: 19657

NAV/U: BTC 0.01028621