How are Lindex prices stabilized?

[Jennifer Boyle]

The Lindex is represented as a resident-to-resident trading facility that works like financial exchanges do IRL. The exchange rate stays within a narrow range. It must be actively managed to keep it in that range. Presumably LL buys or sells Lindens when they would otherwise trade at prices outside the range that they have chosen. Is that right?

[Qie Niangao]

Yeah. I think they have to sell—quite a lot, I suspect—to keep enough L$s in circulation to make up for all that evaporate in Marketplace fees and commissions and various other little nuisance charges (for uploads, Search listings, etc.) that keep users from running amok. All these "sinks" are also offset by Premium stipends that mint new L$s every Tuesday morning—but not enough, so "Supply Linden" has huge standing orders on the Lindex with L$ rates the Lab considers too dear against the US$.

Ages ago, this was all transparent, with full, detailed accounts of L$ sources and sinks every month. This was long before the Lab owned Marketplace and when Premium stipends were more common, and even back then with fewer sinks and more plentiful sources, Supply had to sell L$s to keep the "money" supply from drying up.

[Coffee Pancake]

Once upon a time, and with great fanfare,  LL decided to hire an economist to make the market work like a real exchange.

Suddenly we had speculators and it went all kinds or wrong very quickly. Who knew people would like to play games with virtual currencies.

Although if you listen to Philip talk about those "throw all the dumb ideas at the wall" days, most of the mayhem has been quietly forgotten.

[Charlotte Bartlett]

2 hours ago, Jennifer Boyle said:

The Lindex is represented as a resident-to-resident trading facility that works like financial exchanges do IRL. The exchange rate stays within a narrow range. It must be actively managed to keep it in that range. Presumably LL buys or sells Lindens when they would otherwise trade at prices outside the range that they have chosen. Is that right?

It's actively supported by "Supply Linden" so there is intervention not just pure buy/selling from users (as you would see much wilder swings).   Rate changes are gradually eased in (recently from 242 into 244 for stable selling and 245 for quick selling).

We did a project in 2021 to evaluate and monitor the LINDEX for an education series for Content Creators.   
There are patterns, example (sell off occurs mostly Sat-Mon) for "Cash Out" Mondays so you can see where the rate starts to increase a little when demand falls then falls back a little each week.

 

[Perrie Juran]

Phillip Linden Rosedale made an interesting comment recently about the Lindex. He credits one reason for  stability in the Lindex with the fact  Linden Dollars are treated like a currency and not a commodity.

[Prokofy Neva]

On 2/14/2023 at 3:48 PM, Jennifer Boyle said:

The Lindex is represented as a resident-to-resident trading facility that works like financial exchanges do IRL. The exchange rate stays within a narrow range. It must be actively managed to keep it in that range. Presumably LL buys or sells Lindens when they would otherwise trade at prices outside the range that they have chosen. Is that right?

Yes of course they do.

And back when it was first coded by Lawrence Linden, now gone, he and other Lindens were open about how this work.

There is a "Supply Linden" who stuffs it with Lindens as needed to keep it on an even keel. It is an artificial exchange, run like the Russian ruble.

Likely there is a "Demand Linden" although he may be hidden, can't see him in the list (you could once see "Supply Linden").

I wish he'd get to work as the Linden has devalued from typically 243 for a fairly quick exchange of a week or under, to now 244 or more likely 245. The more Lindens to the dollar, the weaker the Linden is. That this is happening even on the week of Valentine's day, when presumably there are a ton of purchases and Shop 'n Hop, it's depressing. It's not a good sign. And I think the Lindens decided to devalue it.

[Prokofy Neva]

34 minutes ago, Perrie Juran said:

Phillip Linden Rosedale made an interesting comment recently about the Lindex. He credits one reason for  stability in the Lindex with the fact  Linden Dollars are treated like a currency and not a commodity.

I've found that Philip sometimes didn't realize how his own game worked, and still doesn't.

I don't see where he commented on the LindEx but it is not a real exchange, the rate does not float, and it is artificially kept "reasonable" to maintain the illusion that 1000L is a lot of money (now worth less than US $4.00).

If you aren't leaving a live musician a 1000L tip, which would be your low cover of $4.00 in a RL Irish pub to hear a garage band, you are ripping them off. And yet you, like I, leave only $250, or US $1.00, if that. And that's SL, in spades.

For example, I commented on his Wired interview here. Land barons are NOT the wealthiest class because of the cost of tier and vacancy rates; scripters and designers are the wealthiest class and always have been.

Philip has the usual California Ideology about these things, business for me and not for thee, etc. The Silicon Valley companies always want to make money, but socialism or even techcommunism remain their ideals so they want their users to live under that sort of system. Here's his "Fair Share" concept.

[Prokofy Neva]

On 2/14/2023 at 5:34 PM, Coffee Pancake said:

Once upon a time, and with great fanfare,  LL decided to hire an economist to make the market work like a real exchange.

Suddenly we had speculators and it went all kinds or wrong very quickly. Who knew people would like to play games with virtual currencies.

Although if you listen to Philip talk about those "throw all the dumb ideas at the wall" days, most of the mayhem has been quietly forgotten.

It wasn't just the speculators and things like a fake Stock Exchange.

It was incidents like Ryan Linden crashing the exchange by suddenly putting to auction very low-priced sims, even if then-telehub sims, which rapidly devalued the Linden dollar, overnight.

 

[Prokofy Neva]

On 2/14/2023 at 6:40 PM, Charlotte Bartlett said:

It's actively supported by "Supply Linden" so there is intervention not just pure buy/selling from users (as you would see much wilder swings).   Rate changes are gradually eased in (recently from 242 into 244 for stable selling and 245 for quick selling).

We did a project in 2021 to evaluate and monitor the LINDEX for an education series for Content Creators.   
There are patterns, example (sell off occurs mostly Sat-Mon) for "Cash Out" Mondays so you can see where the rate starts to increase a little when demand falls then falls back a little each week.

 

In fact, as you know, last year, 242 was for the very patient, sometimes a month; 243 was by the week. Now it is typically 244 and even 245 for quick selling, and not even, currently I am waiting a day for 245.

So the Linden devalued, and that was deliberately done.

The problem with identifying "better" days for sell-offs is that the theory of reflexivity kicks in and then everybody tries to sell.

The Lindex only rewards those with the patience to wait 30 days or more. But we aren't seeing 242 ever again now, even if waiting more than a month or more.

 

@Qie the problem with the lack of transparency is that we don't know where the sinks really are any more. Obviously payments to the Marketplace aren't sinks; the Lindens theory of how to get rid of dependence on land/server space sales is content sales, so they need that to be sources. Are classifieds still sinks? Are group fees? Texture uploads were always described as sinks, but then they put in Premium Plus, and we know at least 700 plus residents got PP so that sink was taken away in lieu of US dollar payments. 

Edited February 17, 2023 by Prokofy Neva

[Coffee Pancake]

16 hours ago, Perrie Juran said:

Phillip Linden Rosedale made an interesting comment recently about the Lindex. He credits one reason for  stability in the Lindex with the fact  Linden Dollars are treated like a currency and not a commodity.

We didn't get here by cleverly finding all the good ideas though thoughtful leadership, we got here by being forced to suffer all the bad ideas. In the heady days of economic disaster and chaos. Philip was in charge and madness was always the next big great idea.

There are parts of Philips leadership style from back then I do miss, one being the freedom developers had to work on pet parts of the platform. SL would be a lot better if that could have been brought forward.

[Qie Niangao]

20 hours ago, Prokofy Neva said:

@Qie the problem with the lack of transparency is that we don't know where the sinks really are any more. Obviously payments to the Marketplace aren't sinks; the Lindens theory of how to get rid of dependence on land/server space sales is content sales, so they need that to be sources. Are classifieds still sinks? Are group fees? Texture uploads were always described as sinks, but then they put in Premium Plus, and we know at least 700 plus residents got PP so that sink was taken away in lieu of US dollar payments. 

Quite right about the Premium Plus effect: they made texture uploads free and increased the stipend for those subscribers, so that removes a L$ sink and increases a source. The subscribers are paying a handsome pile of US$s, though, so that amounts to further monetizing the game currency.

But I think all L$-denominated fees paid to the Lab are, almost by definition, L$ sinks. We have no data on volume, but I think Marketplace L$ fees (commissions, not payments to merchants of course) are necessarily L$ sinks. And, lacking data, I think they drain a very large number of L$s from the economy, that Supply dutifully replenishes with LindeX sales

[Coffee Pancake]

The texture upload fee isn't intended as a sink, it's intended as a brake.

The only reason it exists at all is to stop someone uploading everything they have or misusing texture hosting in 'creative ways' ... 

[Skyler Pancake]

23 hours ago, Qie Niangao said:

Quite right about the Premium Plus effect: they made texture uploads free and increased the stipend for those subscribers, so that removes a L$ sink and increases a source. The subscribers are paying a handsome pile of US$s, though, so that amounts to further monetizing the game currency.

But I think all L$-denominated fees paid to the Lab are, almost by definition, L$ sinks. We have no data on volume, but I think Marketplace L$ fees (commissions, not payments to merchants of course) are necessarily L$ sinks. And, lacking data, I think they drain a very large number of L$s from the economy, that Supply dutifully replenishes with LindeX sales

The amount of premium plus users is embarrassingly small. The incentives simply aren't there for most users to increase their membership.

 

I'm of the mindset that the amount of L in circulation is actually a set number, only occasionally increased by LL. After all, why raise the fees on the marketplace sales to 10% if they aren't taking that L$ and reselling it themself? That 10% has to equate to an actual USD amount or they wouldn't be bothering to collect it.

If that is the case, then it's very likely they sit on a huge reserve of L$ when the exchange difference isn't in their favor. Letting it naturally fluctuate a little makes sense, but LL can influence to a degree simply by restricting how much they sell themselves.

[Qie Niangao]

14 minutes ago, Skyler Pancake said:

I'm of the mindset that the amount of L in circulation is actually a set number, only occasionally increased by LL.

It probably has the same effect, but I don't think the Lab does any explicit accounting of the L$ collected and then selling those "same" L$ on the LindeX. Maybe in some very general way they keep track of the Marketplace L$ commissions to justify the disturbingly large number of web developers needed to maintain that hideous mess, but in general L$-denominated fees simply evaporate on collection (through "sinks"), only to be rematerialized through "sources" such as stipends or by exception on the LindeX when the market demands more L$s than remain in circulation.

The genius of this approach is that the L$ will never unintentionally lose value as long as the "sinks" exceed the "sources". This also keeps the game "currency" another layer of abstraction from "money" (and hence keeps Linden Research Inc. one step removed from a "bank" and all the regulation that would entail).

Also, one might hope that the Lab as a business makes more from the flexibility in how it sources L$s into the economy—as with Plus/Premium/Premium Plus subscriptions stimulated by the stipend source—than by merely cashing out the L$s in LindeX sales. (For example, as you note the Premium Plus offering rarely makes financial sense for a user, and yet it's just attractive enough that some folks subscribe; that bump in stipend is one Marketing trick they couldn't play if they simply sold off the L$s the sinks collect.)

6 hours ago, Coffee Pancake said:

The texture upload fee isn't intended as a sink, it's intended as a brake.

I think that before the Lab owned Marketplace, it was safe to assume that L$ fees—so all the sinks back then—were intended to manage user behavior, so "sinks" were equivalent to "brakes". Or, as I termed them above, "little nuisance charges (for uploads, Search listings, etc.) that keep users from running amok." Now, though, Marketplace commissions are L$-denominated and don't seem to correspond to behaviors the Lab wants to constrain.

[Cam Mode]

I've never understood the Lindex, if I place an order to buy at 350L per USD -- would it ever fill automatically if I waited for months, years .... or would I have to wait until someone [goofed] and placed an order to offer at 350L?

[Qie Niangao]

12 hours ago, Cam Mode said:

I've never understood the Lindex, if I place an order to buy at 350L per USD -- would it ever fill automatically if I waited for months, years .... or would I have to wait until someone [goofed] and placed an order to offer at 350L?

I don't think it's possible for a seller to "goof" in that way.  A sell offer at 350 is a limit order, meaning those L$s can be sold at any price even as bad (for the seller) as 350. So the only way a buy order at 350 would ever fill is if the market value of the L$ collapsed so much that there remained no better (for sellers) buy offers, meaning 350 at that time would be the going exchange rate of the L$. 

Could it ever happen? Sure! If the Lab decided it wanted to dramatically adjust the value of the L$ for some reason and Supply placed a sell order for, like, a billion L$s at 350, it would eventually exhaust any and all buy orders for 250, 275, 300, 325, until the only buy orders remaining were at your 350 level or worse.

Some folks watch every twitch on the LindeX with a microscope, perhaps not surprisingly because they have real money at stake. But I think the Lab tweaks the L$ exchange rate occasionally to keep it a bit steadier against a market basket of world currencies weighted by participation in the Second Life economy. For a while the US$ was just ridiculously strong against most currencies (the € trading below 1 for a while) which meant the L$ was historically higher cost to foreign customers, so devaluing the L$ was a sensible move. (On the other hand, US$-denominated fees such as Premium membership and Land tier weren't dropped—the Lab must feel inflation pushing those prices upward—so any L$ rate adjustment seems kind of academic.)

[Prokofy Neva]

On 2/18/2023 at 11:10 AM, Coffee Pancake said:

The texture upload fee isn't intended as a sink, it's intended as a brake.

The only reason it exists at all is to stop someone uploading everything they have or misusing texture hosting in 'creative ways' ... 

Sinks and brakes are really the same thing in a virtual world.

And after 18 years of staring at this, I've begun to conclude that virtual worlds tend toward stagnation and entropy like countries under communism or fascim.

That the natural state of virtuality with "too many things" and "no work" and "no physical needs" might be in fact an arcade, a Ren Faire, that will always perpetuate classes of carnies or crafts people, who entertain and produce for the masses, who are forced to breed their pets or sell their baubles if on transfer.

I don't know if it's ever going to be a free society or even a society that can be managed properly. Its inherent nature may always trend towards what we have: lots of badly made goods, certain expensive items, fads that make no sense, too many sales, devaluing currency, land speculation, trafficking.

[Randall Ahren]

30 minutes ago, Prokofy Neva said:

I've begun to conclude that virtual worlds tend toward stagnation and entropy like countries under communism or fascim...

Its inherent nature may always trend towards what we have: lots of badly made goods, certain expensive items, fads that make no sense, too many sales, devaluing currency, land speculation, trafficking.

That applies to free societies as well, probably more so than communist and fascist countries. How much land speculation is there in communist Cuba?

 

 

[Coffee Pancake]

17 hours ago, Prokofy Neva said:

Sinks and brakes are really the same thing in a virtual world.

You missed the point .. when I said "misusing texture hosting in 'creative ways'", I meant more from a 'broad abuse of the system' stand point .. I can't elaborate without earning a poke from a moderator.

[Prokofy Neva]

22 hours ago, Randall Ahren said:

That applies to free societies as well, probably more so than communist and fascist countries. How much land speculation is there in communist Cuba?

 

 

Communist countries all have black markets.

[Coffee Pancake]

14 hours ago, Prokofy Neva said:

Communist countries all have black markets.

All countries have black markets. Every single one.

[Randall Ahren]

On 2/22/2023 at 8:37 PM, Prokofy Neva said:

Communist countries all have black markets.

So do free societies, where you can buy cocaine, heroin, and fake passports.