Quote from: twentyseventy on July 21, 2014, 05:23:54 PM

Math Time!

I've been putting this off for a while, but the two of you bring up an interesting point regarding holding B.EXCH.

Ideally, it should not be profitable for people to hold B.EXCH (1 MINE and 1 SELL) long-term. The reason for this is that people could simply buy EXCH and sit on it, contributing nothing to the Derivative - it's modeled after a zero-sum game, after all.

However, if you bought B.EXCH on the first day and held it until today, you would actually show a 4.69% profit on paper.

B.EXCH Starting Price: 0.24310363

MINE Dividends Paid 1/31 - 7/21: 0.07526082
SELL Dividends Paid 1/31 - 7/21: 0.15300023
Current Buyback Value: 0.02625510

Total Divs Paid + Buyback Value = 0.25451615

There have been few, if any people, that have bought and held both MINE and SELL from the beginning, so this applies to a very select few. However, the theoretical issue remains.

The reason for this is that there are two ways to add to the NAV/U - by new shares of EXCH being sold (remember that .6% goes to the Fund) and buybacks (which are issued at 98% of the NAV/U, resulting in a 2% premium going to the fund as well).

The addition to the NAV/U, in absolute terms, was also bolstered by the large (~180 BTC) sale that was made a few months ago and then mostly bought-back, resulting in somewhere around 3.5BTC added to the fund from the new sales premium and buyback premium.

I can't change anything about the formula now, but it's something I'll consider for the next Round (whenever that is) - possibly eliminating the premium on new sales of EXCH and/or figuring out how to disincentivize buy-backs without adding to the NAV/U.

Cheers-

TS,

I've noticed the aforementioned situation too regarding the additive effect on the NAV/U caused by the volatility in outstanding shares. With all due respect, the model works quite well as-is because the potential to earn simply by holding both B.Mine and B.SELL is a third type of bet in the system. You should keep this mechanism within the game because it gives incentive to earlier entrants, adding an additional factor of time back into the game.

To illustrate the example - in effect, the fund pays interest to early entrants who hold B.EXCH in the same way as an unfunded social security system pays returns to successive generations of entrants in the workforce. To continue to drive the buyback/exchange mechanism, its essential to have successive "generations" of entrants which mimic new entrants into the mining space (analogous to an expanding labor force or analogous market i.e. corporation issuing additional equity post-IPO or buying equity back).

The number of participants in the market isn't static - in order to continue to expand the number of participants (or simply the number by proxy of outstanding shares), you should continue to provide this type of incentive (its not a certain return, either...in essence its a bet in and of itself that people will over- or under-value B.MINE or B.SELL).