The forums are a venue for the issuance of loans but a select few participate given the risks involved (theft). There is no banking system (tried, failed though some trying to start) and there is no easy way to issue shares or bonds.
The main issue is trust - i.e. the likelihood that the borrower just walks off with the ISK and refuses to repay is quite high in Eve (Jita local chat is a case in point). There are trusted third parties that can act as an escrow but they are limited.
However, if players or corporations could issue shares or bonds (i.e. borrow from others) and there was some enforcement mechanics behind it, much like the current contract system or market escrow system, then i suspect this would lead to a major ISK sink , but an enjoyable one. It could also lead to the start of a financial system in Eve Online in which the mass player base could participate in.
More in the Sink below (i suspect it would come from lost ventures) but first the mechanics.
Or - how to enhance the current contract system to make loans work mechanically:
Lets say i was willing to lend someone 1bn ISK at 10% interest for 3 months, secured on 1.3bn ISK of items as collateral. The trick is to ensure i can't just run off with the 1.3bn of items if the borrower is able to pay me the loan + interest within 3 months.
I would need an item exchange contract (we can do that) combined with a time based item exchange contract (we can't do that right now), and issued at the same time as part of a combined contract (i.e. the borrower and lender must enter into both contracts at the same time to make this work - we can't do that either).
Step 1 - The item exchange contract would see me pay the borrower 1bn ISK and the borrower give me 1.3bn of Items (specified by me). We can do that today with the current contract system.
Step 2 - The time based item exchange contact (set up at the same time) would be for the borrower to pay me 1.1bn within 3 months (i.e. the 1bn ISK + 10%) in exchange for those same 1.3bn of items.
Hence, on day 1 the borrower receives 1bn of ISK and 1.3bn of items are effectively put into escrow and only come to me after 3 months if the other player has not repaid me 1.1bn ISK.
Assuming my thinking is correct - the mechanics should hold. It is in the borrowers interest to pay me the 1.1bn ISK and i can't touch the 1.3bn ISK of items until 3 months is up and the borrower has not repaid me.
ISK Sink:
And this is where it would get interesting. There would now be a clear financial incentive for the borrower to repay the ISK + interest and the lender would be well protected (essentially via an over collateralized loan).
Therefore, unless the lender does not mess up with their collateral requirements they will not lose ISK.
The borrower, if unable to pay, would though lose their items and they would be sold by the lender to (hopefully) buy orders in the market. Using the above example essentially 1.3bn ISK of items are now longer available to the borrower to use as new collateral to get new loans + 1.3bn of buy orders have gone and so presumably those prices have fallen + therefore there is not a requirement to manufacture those 1.3bn of items. In all, the Eve economy has shrunk due to this borrower defaulting which leads to an effective ISK sink . . . . . though admittedly in the beginning it will really be items not in use being re-circulated into the Eve market - but this would allow corporations to put those dead assets in play to allow them to borrow funds to wage war!
Worth noting, that the appearance of this mechanic in the game would create much more than just the ability to issue loans. It would also allow the appearance of forward trades (i.e. derivatives).
Lets say that you wanted to buy 1bn of Tritanium at todays prices, paying in 1 months time for your manufacturing schedule but you feared the price was going to go up by 10%. And lets say that I took the view that the price of Tritanium was going to be flat or be lower in 1 months time.
Hence, as we stand today i would be happy to deliver to you the Tritanium in a months time for 1bn ISK at todays prices. . . . . i believe i would make a profit and you would feel you saved from buying at a higher price.
And lets also say that you were willing to pay 20m ISK now to guarantee paying that price for the Tritanium (i.e. you pay 2% of the buy price = 1.02bn ISK in total).
Using the above mechanics:
Step 1 - the first item exchange contact would be for you to pay me 20m ISK and for me to exchange 300m ISK of items.
Step 2 - the second time based contract (but issued at the same time) would be in a months time you paying me 1bn ISK (so 1.02bn ISK in total) and the 300m ISK of items returned for me exchanging with you the 1bn worth of Tritanium at day 1 prices.
(If i break the second time based contract you get 300m ISK of items for 20m ISK which will cover the rise in the price of the Titanium.)
So, if the price has indeed gone up by say 15% you will have saved 13% (15% price rise less the 2% cost of this contract). If the price has fallen by 5% then i will have gained 7% (5% less cost to buy the tritanium + the 2% fee paid to me).
Of course, if the price is more than 30% higher then i will not pay the second part of the contract and so lose the 300m ISK of items and we both lose but you are least are 280m (300 - 20) better off.
I believe Eve used to have a loan system that was taken out. I've read several old blogs and about Eve posts mentioning it.
ReplyDeleteAh, that I did not know - thanks.
DeleteOk, did my comment just disappear on submit?
ReplyDeleteLets try again...
When a loan defaults, and the stuff is sold in the economy, no isk leaves the game. The total worth of the items in game would loose worth though, so you would have inflation of isk. No isk sink around.
Derivatives, or positions on market have been offered for sale in MD before, but it has no takers most of the time, seems their is no market atm.
@ Suger - It has been removed in 2009, if I am not mistaken
Yes - I agree in the initial stage when old assets gathering dust are used as security then effectively no ISK will leave the game. But then as collateral becomes scarce and loans take on more risk (I.e. the borrower contracts to repay the proceeds off a successful military campaign which fails) then the lender could start to lose ISK and ISK could effectively leave the game.
DeleteNo trust means financial instruments won't really work in EVE. It's like making a racecar without roads, it would work great in theory but it's never going to work.
DeleteEVE needs a market expansion, where the game mechanics provide the trust, and then we can use the framework to build around it
I like the idea of developing a broader set of financial instruments in the game. I think your idea for forward contracts would work pretty easily. You specify the "main" exchange for some future date, and each party escrows something that he would lose if he defaults. The escrow could just as easily be ISK, not necessarily items.
ReplyDeleteI'd love to see loans implemented, but I think that has more obstacles. You could set up a fully (or over) collateralized loan, as you outline. However, the collateral requirement limits the usefulness of the loan mechanism. In the real world, there are many loans in which the borrower retains the use of the collateral items (e.g., house, car, appliances, a firm's assets) before repaying the loan. In Eve, if you require the collateral to go into escrow, it won't be available for use by the borrower. This limits borrowing by "beginning" players who have few valuable assets and/or are actively using the ones they do have (e.g., mission ship). Borrowing would mostly be attractive to players who already have substantial assets, but with some portion of them currently unused. Even with these players, borrowing would be attractive mostly if the non-use of assets is temporary, and/or they don't want to sell the items to raise the ISK (e.g., BPOs I might use later, collectors' rare ships). If you don't require escrow, then there seem to be many possible avenues for scamming (transfer collateral item to an alt)
On the picky side, I have to agree with Jasperwillem that a lender selling collateral is not an ISK sink (except for taxes). The total amount of ISK in the game does not change, only whose wallet it is in. Now, the ability to borrow ISK might affect the use of ISK sinks and faucets, but which way that cuts depends on how the borrower uses the money. He might buy a blueprint from an NPC (ISK sink) to pursue manufacturing profits. On the other hand, he might buy a ship for ratting (ISK faucet, the ratting bounties, not the ship purchase). He might even buy an item and then trash it for fun (ISK neutral). In the last case, the ISK/stuff ratio of the game increases (same ISK, less stuff), leading to inflation.
It's going to be more than just ideas soon. Considering a majority of ISK comes from missions and anoms, and they don't grow with inflation, you're going to end up with a two tier society. Those guy, and traders, who do scale with inflation.
ReplyDeleteHuge sinks are eventually going to have to make their way in here. I don't know if just attaching bouties to the current sinks (isk in = isk out) will work, since it punishes the same people, but since my trading sheets show about 20-30% of gross profits are put into sinks, increasing that number would be a start. Killing insurance would be another, or at least making insurance a player run thing (how to make that work, I have no idea)
though if you just want to make it nigerian money, then tie bounties into inflation, having them grow as time goes on, but im not a fan of that
the one thing I have no idea why its not done... increasing research, copy, and manufacture costs for stations in empire. Encourage POS useage, make a new way to interact (public POS slots for payment) and draining a lot of money from the economy for the price of safe industry.
those fees should easily be 10-100x what they are now
ReplyDelete#1 problem -- in EVE most assets are subject high but difficult levels of destruction.
Unlike your typical business asset in RL. Can you imagine RL bank reactions to RL nations trying to get loans against their military assets even support and logistics vehicles (barge and industrial equivalents)?
So the only reasonable collateral arrangement is more like redeemable term pawning of items. That is the collateral must be taken out of circulation and not used. If you miss your pay off terms the pawn dealer/loan maker can sell your item to the open market...though maybe if the item has not sold you could pay for late redemption (penalty fees).
Most people won't be well served by freezing assets. The reason they need the loan is lack of assets to do some job. If they afford to lose use of the asset, why not sell items?
Then too the value of most manufactured items is highly unstable in the face of CCP game changes as well supply and demand. Far more volatile than anything most banks in the RL would take as collateral. Station and Regional prices are especially volatile in the face of imports and temporarily cornering the market. If fact people have manipulated the market by repeatedly trading the same items among their own toons and other corp mates. If supply is low you can even lower the apparent average price fairly quickly. A bit more impractical if its a busy high volume item.
So basically that means collateral is best based on EVE wide prices for true commodity items such as minerals. Ship value reduced to recycled minerals value on an EVE wide basis is seldom attractive -- especially with so many ships having the irreclaimable Extra Materials introduced at re-balancing time. Sure you could have wise loan officers intelligently selecting collateral and evaluating expected ship values over time. But collateral scams would still be successful 5%-15% of the time...if you include items that are simply hard to sell due to location.
*** summary: rather than banking -- how about commissioned EVE wide based sales service? ***
DeleteThat would seem to serve the EVE condition better. Users of service select a price and time to sell. Commission rates vary with price requested and time allowed to sell. Your service arranges and pays for product delivery out of its fees but may charge buyer premium fees for delivery to certain places and even limit delivery location outside hi sec. For null sec the seller must first deliver the product to one of the approved transfer stations.
Your service would have some complex decisions to make for null sec sales based on seller delivery point, sovereignty and PVP action given that even at "acceptable" seller delivery points sales may be restricted to the local coalition at certain stations and not at others. Yet the rate structure offered to users would need to appear simple. Perhaps reduce your complex decisions to a published set of local system, sovereignty and EVE wide risk multiplier factors for each low sec station/system.
Add in a frequently updated list of your projected prices for various items over a series of time increments up to 2 EVE major updates away (with confidence levels) ...and you almost have a DIY loan system with single balloon payment. Not sure the projected prices would be worth much without a lot of time invested by someone.
DeleteFrozen asset type collateral would be EASY for CCP to implement. Just modify an Item Exchange contract.
DeleteFirst add an option for selectable time delay in delivering stuff to buyer (bank) and increase time limits for private contracts. Then require buyers (banks) receiving delayed goods to post long term private contract selling the same delayed items back to sellers at whatever terms. If seller agrees to those terms within say 3 days the original purchase price (loan) transfers immediately; otherwise the whole thing cancels. The contract to the original seller allows purchasing back delayed items anytime before the delayed goods are delivered to avoid bank resale or scam -- items returned and outstanding delayed sale contract cancelled/marked completed.
With a tiny adjustment delayed delivery contacts could allow for reselling or mortgaging loans to third parties. That is the ownership of delivery could be sold (transferring immediately upon agreement) or mortgaged (delayed delivery of ownership but transfer of ownership must be selected as before the original contract comes due).
Once a loan term is selected all subsequent time fields are automatically filled out and can only be shortened to make sure the contracts expiration is before items get delivered. Of course location of delivered items is a top of contract item.
DeleteAllowing multiple locations for assets would be nice for sellers but could quickly become complex to implement and process. Grouping and sorting by system security, region, system and total line item value would be essential to practical use.
Now start the campaign in EVE suggestions & CSM to get this implemented. :)
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