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Metaversed video archive at SLCN
Our latest Metanomics session featured financial entrepreneurs, some of whom work in a real world financial institution and some who focus their efforts on financial business inside the virtual world. It was recorded and re-broadcast across the Second Life grid by SLCN.tv, and can be screened by clicking on one of the links above.
We had a total of five guests this week. Each was given some time to tell us a bit about what they're working on and how it might shape the financial future of virtual economies, and we were able to fit in some open Q&A. Below is a summary of what was said, but SLNN's coverage is now online if you're looking for a different perspective. A text log of the backchat is also available at the bottom of this post.
Jillian Sayuri Falconi - Innovation Consultant, Saxo Bank
Falconi was able to give us an idea of exactly what a real-world bank hopes to accomplish with an island in Second Life. In part, it's largely an experiment in communication. They've found that customers of theirs from the real world enjoy it when given the opportunity to meet with bank representatives in Second Life. Making it fun helps get them relaxed, and people feel more comfortable giving their opinions not only about what's happening in virtual markets but in real markets as well.
Of course, what people really wanted to know was if Saxo bank would be providing securities to be traded in the virtual world. "Second Life is also a way for us to uncover a little bit the future of virtual currencies and as a way of understanding it's potential as a financial product," said Falconi, but as far as trading Linden Dollars against Euros: "I would say that legally the world is not there yet."
Arbitrage Wise - Chairman, SL Capital Exchange
Wise took AVIX over from Investor Allen and changed the name to SL Capital Exchange, giving it his expertise and applying his own philosophy of how it should be run. Bloomfield read the disclaimer on the front page of the SL Capital Exchange website which simply states that everything that happens there is for play only, Linden Dollars are not legal tender, and they make no guarantees.
When asked about this, Wise explained that the rationale was to point out that his market doesn't behave like a RL market and it's unregulated. He wanted people to know that they can't treat it like a RL market and get ahead using the same methods. Besides, people are better off looking at it as an educational tool. That, and these things were stated on the recommendation of his lawyer.
When asked why companies are "issuing stock" (without collateral or legal bindings) and promising people a return on their investment, he said: "We think their intention is to raise capital and do business in Second Life." Wise then explained that listing with them involves investigations into business plans and going over budgets.
Wise was keen to point out that the exchange itself isn't his primary focus, but rather the bank itself. While a normal bank would make money on loans, the financial service he's providing with his virtual bank involves being an intermediary for payment processes, or "a wallet". There was some reaction in the backchat to this, but time did not allow for further exploration here.
IntLibber Brautigan - CEO, Ancapistan Capital Exchange (ACE)
In addition to running his own exchange, he is part owner of Brautigan & Tuck Holdings. Run separately from the exchange, it was originally IPO'd on the World Stock Exchange. They now own 40 sims, but it was their dissatisfaction with the way other exchanges were being run that provoked them into building their own.
On their exchange, if a business includes a sim as part of the needed monies, that sim is owned by the bank's group and can be repossessed if they go out of business. This, at least, offers some security in stock purchases through ACE, although it still depends on trust in the exchange.
In addition to this, Brautigan is on the Second Life Exchange Commission (SLEC) which is working to create standards that are SL-centric. One thing they are proposing is for the scenario of a company disappearing from Second Life with the money they've gathered from investors. At that point they would appeal to Linden Lab to resolve financial disputes first, and then move on to legal action if necessary.
Gigs Taggart - adviser and Hippo Award Winner
A long-time blogger, Taggart has been an adviser to Linden Lab on early financial policies, and winner of a recent Hippo award for his open-source contributions. He had some serious questions about what was happening on these exchanges:
Putting a disclaimer up saying that it's just a game and it's not for real, I don't think anyone is going to buy that. Judges aren't stupid. If you were to say create a stock exchange that operated based on gold no court would say that gold isn't money and therefore you're not subject to regulation.
Most importantly, he hilighted the fact that no actual transfer of ownership is occurring when people purchase stock through these exchanges.
David Karsbøl - Market Strategist, Saxo Bank
"As an economist I'm quite thrilled to see this. I find it very interesting," Karsbøl began, "I pretty much subscribe to the Austrian school of thought [...] 'if there's a stock exchange, it's not socialism'."
From his perspective, it's real money regardless of the fact that it's happening in a virtual world. This is something people have to be clear about, and any attempt to shy away from this perspective is bad for business.
It's about trust: you can only build trust if you have something to lose, and you can only lose something if someone is able to protect your property rights. "That framework is slightly lacking," he said, but going to Linden Lab to ask for mediation of disputes might create a precedence for them to intervene in these kinds of things arbitrarily. Ideally we might use competing institutions that are providing adjustment services along these lines.
He was also quick to point out that there are banks in Somalia that work with no regulation at all and work very well. The solution may not be regulation at all, but simply installing new components that exist in real-world finance.
The Linden Dollar is 100% fake as the US dollar is
Last week's event with Gene Yoon (aka Ginsu Linden), VP of Business Affairs for Linden Lab, caused many on the panel some concern.
Gigs Taggart: "It's concerning when I hear Ginsu say that he considers it a product." Taggart's preference is to see Second Life as a platform that people invest real time, money, emotion in. It's not consumed like a retail product, as from a practical perspective it's closer to a tool that's being used.
David Karsbøl: "His comments were kind of destroying the trust in Second Life. If you guys are trying to build a society with a medium of exchange there must be trust in that medium of exchange and Yoon's comments were not really trustworthy... makes me not want to put a lot of money in Linden Dollars." He went on to point out that this raises questions about the pace that Linden Lab issues money. They have a budget deficit, and they are monetizing that - that's how Western governments were destroying their economies in the 1970s, and all Second Life is missing from that exact scenario are taxes. "I think this is very wrong. I think they should have a very trustworthy currency to take this to the limit. If they really want to make it they cannot have that kind of attitude."
IntLibber Brautigan: "I don't see the Linden Dollar as a fiction or as a license. The Linden Dollar is 100% fake as the US dollar is," he stated, which caused quite a bit of feedback in the backchat. "This is my real-life job, this is my real-life living, and these are real dollars I'm pulling out of here." He continued from there talking about growing the economy, increasing pay rates, and how stating that this is just a game or a consumer service makes one look like a fool.
We ended the session with closing remarks from Robert Bloomfield. If you would like to see the event in its entirety you can click the links above, and see the attached text file for the Metanomics backchat.
*Disclosure: Saxo Bank is a sponsor of Metaversed.com.
Next Week
Our next Metanomics session will feature Professor Edward (Ted) Castranova, author of the paper that really began serious academic studies in virtual economies: "Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier. He's releasing a new book and will be giving us the best insights in academic circles today. More details on the way!
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Another great Metanomics event.
Interesting to hear one of the presenter's rationale pertaining to the activity they undertake in Second Life falling below U.S. SEC regulatory hurdles and registration requirements.
Moderator Bloomfield's 'toy' analogy was also interesting.
I have posted a few event photos at http://www.flickr.com/photos/seesaw8/sets/72157603171541642/
Moving Back or Forward?
I was truly surprised at the claim that the SL Exchange Commission’s biggest accomplishment has been its creation of SL-specific standards for regulation rather than importing tried and true real life rules into the virtual economy. I expected an entirely different response since the SEC, for example, has a broad regulatory structure developed over almost 75 years such that not adopting at least part of this regulatory framework seems foolhardy.
Just because the SL market is new and has its own specific attributes does not mean it cannot learn from established regulatory frameworks. Other countries borrow from the SEC and other established regulatory bodies. For example, I did a project last year which compared regulation of the Shanghai, Hong Kong, and US exchanges. While also young and undeveloped and with individual particularities due to the governmental structure, the Chinese markets have taken ideas from both the Hong Kong and US regulatory frameworks. Why should SL markets be any different? In fact, it would seem even more likely to benefit from tried and true ideas: not only would any challenges or disputes presumably fall within the US jurisdiction due to Linden’s being based in the US, but the comparatively small size of the SL marketplace suggests independent development would not only be slower but would also come at a higher cost relative to the market’s size.
This represents a common theme I have found underlying this speaker series—the tension between searching for a new paradigm for virtual worlds, including abandoning established practice, while nevertheless expecting similarity between real and virtual worlds. For example, there is a desire for property rights that resemble what society has come to expect in the real world, yet disbelief that they can work in a virtual landscape; a push for financial exchanges that behave similarly to real life exchanges and offer comparable profit potential, yet a disbelief that existing regulatory structures can apply; and, a desire for the same sort of community development that was experienced in the real world, yet disbelief that the same homesteading structures that gave rise to real life communities have value in virtual worlds. Rather than continuing with this schizophrenic approach, perhaps a better way to encourage development of virtual worlds would be to embrace their similarities to real world structures, rather than their differences.