Market Discussions

May I just submit an idea for stock pricing in eve? A somewhat intuitive framework would be to simply directly tie a base stock price to the value of a special wallet division in a corporation. Let's call it the "investment fund" of a corporation. Now before I go into this more you should note this system is still entirely trust based but it at least has the potential to produce situations that have balanced incentives

At the point of a corporation going public they issue some number of public shares which is entirely up to them. It could be millions but whatever it is the base price of the stock is dependent on this formula: (1/total number of stocks issued) x (value of investment fund). So if the investment fund were 10 billion and 1 million stocks were issued the base price would be 10000 isk. As more stocks are purchased more isk is transfered to the fund and the value of the investment fund goes up of course and the base price rises. Now as for what the base price actually means I'm thinking of it as the price at which anyone can buy without needing another party to offer to sell. You would also be able to place orders to buy and sell already owned stock at whatever price you wish. This facilitates larger trades between players that don't effect the base price directly

So in essence at the point where the publicly available stock becomes scarce or not at all available, the private speculative market would take over

Now as for the question of dividends I think that should be left completely up to the players who run the corp itself. Ideally you would have tools in place to securely give some percentage to stockholders if you wish. Say a 2% of the value of the investment fund dividend for all stock holders each month or simply no dividends if you're confident people will continue to value your stock

In the end the idea is that it would at least be possible, although most likely uncommon, to produce a situation where the people running a corp would have every incentive to increase the value of the investment fund steadily in order to continue to grow

While this is comparable to a ponzi scheme I think it is entirely possible for corps to use this model to create real value for investors.

@DoraTheExplora and the whole stock market.

If anything :

1)the corp sets it's own price on the stock
2)stock prices are determined on the free market, much like bonds etc.

- which means, if you try to sell a stock at 1M per unit, and no one buys, you'll have to reduce the price.
What makes people buy any asset? pretty much the NPV of the asset. Any new "start-up" corp with unknown chars, they won't be able to sell their stocks for any significant price.

Any asset is worth it's foreseeable net inflow of cash. In a stock - it's worth the foreseeable dividend payments.
as in real life, the company/corporation isn't obligated by any means of actually paying the divident. Yet a corp that will never pays dividends is likely to get a very bad price for his stocks.

either way - this is filled with ways to scam and rip people off of their money. more holes than i wish to count.


now back to on-topic.

let's just assume we solved(you solved?) all the problems associated with banks.
1)trust - completely trust-worthy
2)Loans withdrawls and deposists are easily done through a new super interface.

- this will create a huge influx of deposits, people LOVE free isk(intrests) - Intrest must be driven by supply and demand for deposits and loans - meaning that at first a VERY low intrest will be set(if you ask me, it would be around 0.01% to 0.1% monthly) - why? because some people have rediculous amounts of isk they can drop into this new game mechanic(which is completely safe, remember?).

So what do we have? A very low intrest rate for deposits, That's fine, Now for lending, you'd expect a 5-7% margin between lending and saving, so your loan market will be dominated by demand aswell, the more people loan, the higher the intrest will be. ofcourse if ALOT of people will take loans, the intrest for lending can rise dramaticly(only so-much isk to lend, and demand is high).

Now, a regular bank functions in a very intresting manner - All your money is automaticly or manually deposited to the bank - you'd expect the same to happen in eve, as the system is completly safe, and people will let their dorment isk sit there and gain intrest.

So the bank will have ALOT of isk to lend, acutally it will have more than the actual amount of ISK in the game to lend.

An intresting situation - you take a loan to buy a T2 BPO, as soon as the ISK changes hands, the guy you bought the BPO from puts the ISK directly into the bank - even though isk changed hands, the bank didn't see a difference. So in theory(and in real life) the bank can loan around 5 times more isk than it has in its reserves.

you'd expect very low lending intrests for the first 100% of the deposists, once the bank lends more than that the intrests will rise.

Result : Huge influx of ISK to the market - Lending will be pretty much the thing to do to advance with your character.

the actual ramifications are actually way grander - because you'll get a huge influx of new starting business that are unable to finance themselves currently.

This is the monetary theory at it's very core, and you do not really know what a huge influx of ISK might do to the game. for example - plex prices will be insane :)

just my input

Do we need banks?

I think we need CCP to keep the playground fair, thats what the 24% is about, Me thinks.

That is a lot of words for something that is never going to happen.

If people want to have fun discussing hypotheticals, then by all means go nuts. However, if you think this is actually going to happen, you are sadly wasting your time.

And yet it's happened before....crazy.

It is definitely something that I would have to look in to closer (in terms of potential alluding to RMT), but the stipulation on it would definitely be conversion of £ to PLEX. I could always buy outright PLEX from the start and remove £ from the equation, so any defaulted debt would be dealt with solely in ISK and £ would never touch the equation. I'd be happier just having £ in escrow, but I'd never expect £ back (apart from if eventually, when my own personal indemnity was no longer needed a very long time down the line, and the bank found it easier to rely on their own profits - then of course I'd expect whatever was left of my unconverted insurance, along with any debts in ISK owed directly to me or my corporation as a result).

I do not want to receive £ in return for any investment I make, I have things outside of Eve for that. I want ISK, enough ISK to start my own casino with hookers and blackjack (bonus points for the most of you who will recognize that reference). I look at it this way, I have lost a ridiculous amount of money in RL investments and I've gained a ridiculous amount in return - I truly love the economy aspect of this game and now I have a lot of free time, want to become far more heavily involved in it than I was the first time around. I'm thinking long term, I do believe my corporation name is quite fitting in that regard. I have to take over the bitter sea and all that.

Edit: Beyond this, we could always consider the inclusion of external contracts for large quantities of ISK. They might be hard to enforce, but by just phrasing the wording of the contract to be liable for "{n - determined by in-game value of PLEX at time of default} PLEX at £{n - determined by cost of PLEX at time of default}". We would have to make it clear that any default down the line (that would be chased up after coming out of the insurance fund), would not involve the retrieval of actual money, but only PLEX or ISK... we'd have some form of external accountability. I'm half asleep (damn Australian F1), so I'll make what I'm trying to say clearer later in the day!

I don't think that the money multiplier effect is really what the issue is but, rather, the velocity of money. The money multiplier, and fractional reserve banking in general, can't really apply in eve because it requires that people be able to spend something other than physical currency, which is not the case with the eve markets (although parallel markets using bank created money could, presumably, be set up).

As I understand it, fractional reserve banking works something like this: person A deposits 1mil dollars into his account. The bank lends 90% of that amount to someone else. But here is the important part. The bank does not take any money away from the initial depositor. The initial depositor still has 1mil dollars in his account according to the bank's books and Person B now has 900k dollars credited to his account. So, at this point, the bank is in physical possession of 1mil dollars but has deposits amounting to 1.9mil dollars. The books are balanced because the bank also now owns a piece of paper saying that person B owes them 900k dollars.

So, this transaction has increased the money supply in that a further 900k dollars are now available over and above the amount of actual currency the bank holds. BUT it is clear that it is not possible for both of the bank's customers to draw out the full amount of their deposits in cash and spend it, because while the deposits total 1.9mil the bank only possesses 1mil (plus a note indicating customer B's debt of 900k). In order for both to be able to spend the money they have on deposit, at least the amount over and above the currency reserve must be spent in a non-cash form. This could be done by, for example, person B transferring their 900k to a second bank via a digital transfer which would not require that the first bank actually transfer 900k in cash but would be based on trust that the first bank will pay what it owes when required. So, anyone accepting 'bank paper' of some form or another, rather than hard currency, will be able to take payment in a form appropriate to the increased money supply generated in this way.

But in EVE the only thing you can spend on the ingame market is actual isk. In our scenario, where the bank has 1mil isk in cash and a 900k note of debt from customer B and two depositors with 1 mil and 900k in their accounts, if those customers both want to spend their money they can't because the eve markets will not accept a piece of paper from the bank in lieu of actual isk.

That is my understanding of the fractional reserve system, in any case. Hopefully Mme Pinkerton/Florestan Bronstein will be along soon to clarify (if she is still around?).

1 minute between our posts so lets call it a draw.



Although, as Claire Voyant pointed out to me in the second argument I ever had on MD, 'out of thin air' is an unfortunate phrase. The money doesn't just appear from nowhere but is, rather, projected into the present from future earning potential (i.e. the debt incurred by the customer is worth something as an asset because it is backed by his future earnings ... or something like that; my brain generally starts to bleed at this point when thinking about banking).

Yes, that's true. It is based on the future potential/earnings/work/labor of the borrower. My main point was the amount of 'consideration' the bank must have in the transaction. In the real world the bank's level of commitment is whatever the reserve requirement is. The rest of the money, they 'print' them selves. So long as they get back that reserve requirement, the rest is gravy.

In Eve on the other hand, there's no way to do that.

A poster above described a 20% reserve situation, a multiplier of 5. In that scenario 50B in Debt, owed by the banks to their depositors, is created, "check book money". Even if those banks can find a way to trust one another and commoditize their debts, regardless of the commoditization of borrower debt, there's no way to increase the ISK supply.

It would be interesting to see if someone could pull that off in Eve, have a secondary currency market based on check book debt evolve, but this would be a competing currency to ISK, it would not impact prices in terms of ISK one bit.

Off on a rambling tangent, back to your normally scheduled "what ifs ..."

I saw this one part, I'll read the rest of your post now ...

You're forgeting a big part ... that bank owes 50M to its depositors.

I'm a bank, you're a player. Everyone in this thread is a potential depositor.

Hexxx deposits 1M.
I owe Hexx 1M
I lend it to you, I still owe Hexxx 1M
You buy something from Kara for 1M
Kara deposits 1M in the bank
I have 1M
I owe 2M
You owe Me 1M
JoeNewDude Borrows 1M.
I have zero M but I owe 2M
round and round and round
Sooner or later ...
50M in desposits
50M in loans
50M in Bank Debt

Still only 1 Mil in ISK ... see it?

No ISK is being printed here, debt owed by the bank to its depositors is being printed.