Market Discussions

Congratulations on achieving your short-term goals, Far. I wish you the best of luck!

I have a question about the long-term viability of your payout structure:

As BFAR's personal contributions (NAV) to the overall investment pool increase, your clients' returns will slowly decrease until a flat 10% return rate forms. I am curious, what is your plan once this unwavering return rate occurs? Will you consider accepting more clients into the pool, will you close the bank, or will you change the interest structure, like I did with TAUTX?

Ah, I didn't see that in your policies. It looks like you've been updating the FAQs section, too! Awesome.

Dilution of asset value - yes. Since returnss are variable some percent of profit is distributed among a finite number of "customers". More people joining means a smaller share of profit for existing customers.

Of course, he could be retaining ownership of a finite number of "accounts" and paying himself through the same returns as everyone else, preventing dilution of asset value but capping the potential number of customers - but then that's equity and not debt - and we've all heard how he is "really just a Bank".

You can't loan money to yourself though, which means there is no way for the structure to NOT devalue the returns existing customers receive AND take on new customers at the same time AND be a Bank. Again, this is why a hybrid instrument is dangerous.

Good points guys. Far, despite the wild and drastic changes I have made in TAUTX over the last couple of months, I still maintain deposits in the maximum amount, and already the new shares being created in June have been requested to be reserved by several people.

As much as changing structures and policies can be deadly to your business, sometimes they are necessary to continue on with healthy growth. To clarify what I was asking early: Hypothetically, if you were to ever expand accounts, or BFAR's contributions to the overall pool, how do you think you would go about doing so?

It became evident to me that to avoid circumstances similar to EBANKS insolvency, I would be forced to alter payout structures if ever I wished to expand deposits. While I may not operate a bank in the details, and more of an investment fund, I still label my business as a bank to convey its purpose to the general layman. As you reach the point at which BFAR continues to contribute 500mil to the pool, you will have reached your growth cap under your current system. I hope that you have plans for expanding once this point is reached so that you can continue growing, without increasing the chance of defaults. Because, the only other option I see is closing shop once you have amassed a personal fortune equal to deposits + BFAR's investment cap into the pool (overall total of 1bil?), to combat burnout.

Serious question: why would I invest money in a mutual fund (you are a mutual fund) that is just going to put it in a box and not use it for anything? Assuming I trust you to be competent enough to run a profit, you and your stakeholders would receive larger dividends if you actually used the money for investment.

This, of course, overlooks the very pertinent question that you have politely but consistently avoided answering about why you are essentially paying out interest on money you don't use for anything.

So you're borrowing their money, paying them a changing return on their investment unless you pay them a fixed return, which one depending on your own judgement and presumably perfectly utilizing 100% of capital in doing it AND ensuring profits increase in a perfectly linear fashion relative to the amount of capital available.

Would you mind terribly giving us your definition of the phrase "financial benefit," please?

By 'no financial benefit' I mean that you, the operator of the business, do not make any more isk by borrowing 500mil than you would if you did not borrow 500mil. Since for each 1 isk you borrow you stop making use of 1 isk of your own money and lock it down as a 'reserve' the money available to you to trade with remains the same no matter how much you borrow. Since the pool of isk available to trade with does not increase when you borrow isk you can earn no additional isk by borrowing. Therefore you derive no 'financial benefit' from borrowing. In fact, you incur a financial penalty, since you pay people isk in exchange for borrowing their money, thus ending up with no greater available funds due to your matching reserve policy but with greater costs.

In numbers:

Day 1 (before borrowing any isk) - Let's say you have 1 billion isk available to you to trade with, so:
Trade funds pool = 1bil

Day 2 - You borrow 500 mil to trade with, increasing your pool to 1.5bil but you then immediately move 500mil out of your pool and into the reserve where it cannot be touched.
Trade funds pool = 1bil, reserve fund = 500mil

Note that the only difference between day 1 and 2 is that you now have 500mil in the untouchable reserve when you did not have before. You can conceive of this as taking 500mil of your own money and placing that into the reserve or as simply taking the 500mil you have borrowed and locking it away. It makes no difference how you conceptualise it because isk is fungible.

Since there is no change in your available isk and since the reserve fund cannot generate any financial gain, borrowing 500mil provides you with no financial benefit.