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Wednesday, 5 August 2015

Banking Industry in Eve - just small changes to the Contracting System needed

OK, just glance at the Courier Contract written below and then read on - all will hopefully be explained!

I write the following Courier Contract:

Item i want hauled: <-900m ISK> (yes, negative 900m ISK)
Ship to: <Same station> (yes, not moving it anywhere)
Reward: <50m ISK>
Collateral: <-1 Plex> (yes, negative 1 Plex)
Expiration: <3 days>
Days to Complete: <1 month exactly> (yes, not less than but equal to)


If you accept this then you would receive negative 900m to haul (i.e. give me 900m ISK) whilst the you put negative 1 Plex up as Collateral (i.e. i put 1 Plex up as Collateral) and i put 50m ISK aside as collateral for the fees.

After 1 month exactly you complete the "haul" and return the -900m to me (i.e. i give you 900m) and i award you with 50m fees, and so i get back my 1 Plex Collateral.

If the contact fails then you get the Plex.


The problem with a Bank today in Eve

At its simplest, banks bring together people with surplus money (savers) with people who want to borrow money (borrowers).

The bank acts as a middle man – it borrows from the savers for an annual fee (called the saving rate) and lends to the borrowers for an annual fee (called the lending rate).  That spread (lending rate less saving rate) covers the cost of loans going bad (defaults) and the costs of the bank and so gives the profits.

As security, the bank takes first charge over assets of the borrower (not collateral per se but the right to take over an asset if the loan goes bad).

The security for the savers is a national Central Bank which guarantees a certain level of deposits and requires the Bank to deposit cash with it plus hold liquid cash.

What Eve does not have is that Central Bank.

Actually, that is not quite true.  Eve does have certain trusted third parties that act as the middle man when loans are taken out, for example.


But you get my drift - currently there is nothing to stop a bank just walking off with the deposits savers have placed in it.


One small addition to the Contracting System could change that

However, with a small change to the contracting system we could have a banking industry up and running.

The small change needed would be for Courier Contracts to be allowed to courier to and from the same station, be able to Courier negative ISK, for negative Collateral and the "days to complete" be set as exact times.

So, lets assume i am a Bank and you are a Saver, and i am offering 50m interest over one month for 900m deposits (=5.6% interest).

So, as a Bank i would put in the Contact system:

Item i want hauled: <-900m>
Ship to: <Same station>
Reward: <50m>
Collateral: <-1 Plex>
Expiration: <3 days>
Days to Complete: <1 month exactly>


A saver would accept that and so receive negative 900m to haul (i.e. give me 900m ISK) whilst the saver puts negative 1 Plex up as Collateral (i.e. i put 1 Plex up as Collateral) and i put 50m ISK aside as collateral for the fees.

In effect, i have received 850m (900 - 50) whilst one of my Plexes is tied up for one month.  I need to turn the 850m into 950m to breakeven.

After 1 month the Saver completes the "haul" and returns the -900m to me (i.e. i give the saver 900m) and i award them 50m fees, and so i get back my 1 Plex Collateral.

If the contact fails then the Saver gets the Plex.

In effect, i have paid the saver 50m interest for 900m 1 month deposit.


That is a Bond, how does it become a Bank?

The above is actually more like a bond (fixed loan with collateral) - turning this into a bank merely requires a series of the above to happen.

The Bank could write new courier contracts every 7 days (i.e. 5 courier contacts on day 1, another 5 on day 8, another 5 on day 15, another 5 on day 22, another 5 on day 29 etc etc giving deposits of 21bn) and so about 20% of the deposits are withdrawn each week (5 contracts complete) hopefully replaced by an inflow from the 5 new courier contacts accepted.

And so we have a bank.

If anyone can see a flaw in my thinking then i am all ears.


Who would want to be act as such a Bank?

Business players (traders / manufacturers) in a corp who had surplus Plex and could give a steady interest income to corp mates who had other things to do (liek blow up ships).  In effect, good traders / manufacturers / business players would be of value to corps looking to provide additional benefits to members.

Anyone who had surplus Plex (like me) and just wanted the fun of being a Bank.


What is the downside for the saver?

If the price of Plex falls below the deposit value - then the Bank would be tempted to take all the ISK to another character and so the contract would fail leaving the Saver with a lower valued Plex.

But the point here is that perhaps we have could have a system in place where Savers are much better protected and so able to participate in a banking system with much more confidence.


How does this add content to the game?

ISK lying around unused would be put to use by the Bank to try and earn the interest to pay the Saver.

Failed banks would see Plex be transferred to someone who is more likely to use it (as game time or to sell to generate ISK).


What will this do for the price of Plex?

If we assumed some banks fail then Plex would be transferred and some likely sold - so, if anything, puts downward pressure on Plex.  Or you could have a load of players wanting to become Banks and so buying Plex for the collateral.

10 comments:

  1. So you need three characters. A and B do the normal transaction as described above. B transfers everything he owns to C and then shoots himself in the head.

    In the real world it's difficult to recruit B's to play this role. Wait 30 days for the contract to roll back. Profit.

    ReplyDelete
    Replies
    1. . . . . . . except that the Collateral B put up is then transferred to A.

      Delete
  2. To elaborate slightly, any financial transaction where the are two parts to it (in this case the borrowing and the repaying) and the two parts are separate transactions, there is no way in eve to enforce that the second half of the transaction takes place.

    It is too easy to kill yourself. There is no way to preserve the liability that you accrue from the first part of the transaction past the very easy bio-massing.

    ReplyDelete
    Replies
    1. the Courier Contracting system got around that by requiring Collateral to be put up. In the case of a traditional Courier Contract, if the contract fails (ganked or the courier steals the items) then the Collateral is paid to the other party - whether or not the Courier is biomassed or whatever.

      The Collateral system preserves a liability (and it is up to the other party to decide before the contract is put in place as to whether the Collateral meets the actual liability).

      Delete
  3. If that plex can't be sold or used while the contract is in effect, it amounts to the same thing as having sold it. This whole transaction could be replaced by the borrower selling the plex they'd have used for collateral and then buying it back after 30 days.

    ReplyDelete
    Replies
    1. yes - very true. So this works for people who collect Plex as an investment and don't intend to do anything with it. For example, I have 94 Plex sitting in a hanger doing nothing. I could of course sell some, trade the ISK and then buy the Plex back. Or I could use it as Collateral to start a bank. As you say, it amounts to the same thing. The risk though is if the Plex price rises over the 30 days.

      Delete
  4. OK, thought about it some more. If I understand correctly you have a plex. I have 900m. Two equal assets. You want to use a courier contract to have us switch assets for 30days. You are offering to pay me 50m as a reward if I swap my liquid 900m for your not-liquid 900m(plex) for 30 days

    Why would you do this instead of simply liquidating you plex for 900m and then in 30days time spend 900m to buy a plex again.

    ReplyDelete
    Replies
    1. The price of Plex may rise.

      Also, plenty of people (like me) buy Plex as an investment and it just sits in a hanger doing nothing. I don't want to sell it (i think it will rise) but i could use it as Collateral to allow me to bring in more ISK to trade on the market. Of course, if my trades don't work and i can't repay the saver then the saver will get the Plex which was put up as Collateral.

      In the real world banking system the "Collateral" put up is actually a fraction of the deposits taken in - but in the real world there are enforceable laws in place to protect savers (unlike Eve).

      Delete
  5. Because plex cost more then 900m at the moment.

    ReplyDelete
    Replies
    1. well, of course the ISK amount can be varied as the price of Plex varies. So if the price of Plex was only 500m ISK then the Bank would need to put 2 Plex up as collateral for every 0.9 - 1.0bn taken in as deposits.

      Delete

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