December 15, 2007 by Nobody Fugazi
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Even while my main system was down (it is now back up) over the last week or so, I made forays into the grid to check on a few things on the old underpowered laptop - and now that I'm back on stream (with some added horsepower under the hood), its time to get back in gear.
Over the past week, I'd made it to two Second Life Exchange Commission (SLEC) open meetings, thanks mainly to Aldon Huffhines. The first meeting was, at least partially, about the alleged blackmail attempt on Arbitrage Wise - I say alleged because, at the end of the day, it is hearsay. My personal thought, having been in the loop about Juice Trading at the cost of being unable to discuss it, is that it probably wasn't as alleged as it sounds. Personal thought.
The second meeting I attended was more along the lines of, "What should we do about the Midas Commons/WSE situation?" Granted, so much time has passed that the efficacy of any action would be extremely diluted - but it would be something. For those of you who don't have a clue what this is about, please read this Op/Ed.
This, of course, lead to some discussion of what could be done. Any regulatory agency run by residents requires companies/exchanges to acknowledge its authority, and any punishment could only be in the form of media - things which Aldon discussed in SLEC and IET - a good read which also introduces the Investment Education Team (IET).
I wrote a few words at the last SLEC meeting, encouraging them to some action - and it seems that the SLEC is frustrated by their own bureaucracy at this point. This is not reflection on any individuals, but instead a reflection on how important it is to be able to react quickly to things within a synthetic world. Importing external bureaucracies that worked in times when things moved at a slower pace may not be a grand idea, but one starts somewhere.
So what is the future of financial regulation by residents? Given the tools available in Second Life, there isn't much one can do but create pressure on entities that defy the standards set - but that is quite a lot. There have been concerns expressed about a regulatory agency which has members from exchanges - but then, who else would regulate? And yes, it could be gamed - but isn't the whole financial sector already being gamed, thus instilling the need of some to create resident run regulatory bodies?
Should we all just pack up our things and go home, leaving a litter of prims behind, or should we follow the questionable truism that 'good will prevail'? I do not know, but what I do know is this: When scams and questionable actions are found in the financial sector of Second Life, they need to be dealt with in some way. We all should know by now that Linden Lab doesn't really care too awfully much about resident to resident transactions unless their bottom line is impacted. Who is left?
So it is in the interest of people involved in finance within Second Life to move forward, and ahead - or leave. Those are the two options. Linden Lab's lack of action in many scenarios implicitly rewards negative behavior and erodes any resident regulation - but then, how would we expect Linden Lab to react when the next ponzi is unearthed?
The sad truth about all exchanges in Second Life is that they all are built on trust - and they are all external to Second Life. Do not be fooled into thinking that Linden Lab can demand records from the WSE when it comes to transactions there - none can be had. Investments within Second Life are not always investments within Second Life - especially when the money has an outlet other than Second Life. These are third party sites, doing what they can based on a certain level of trust within the synthetic market created. These are not controllable by Linden Lab - and they cannot be.
It boils down to trust, built on a foundation of reputation. If there is legal regulation of these exchanges, it won't be by Linden Lab - it will be by governments. And when the governments step in, they'll want their piece of the pie...
Meanwhile, someone who calls residents of Second Life losers has enough time to produce a video criticism. If he's right, what does that say of the critic?
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I don’t think regulation is the answer. I have stated in prior blogs and maybe this is getting old, is that what we need is a new and workable model for the corporation in SL. The current model for incorporating in SL is an invitation for fraud. Why do we allow a single entity to offer IPO's for fantastic amounts where the public holds less than 50% (in most cases only 10% - 20%) so that the person offering the IPO gets a significant amount of money that they can disappear with. Even if the "CEO" doesn’t disappear from the company, the "shareholders" really have no say in the running of the company since collectively they own less than 50%!
I would propose a model that would allow only 10% shares to a CEO, the remaining shares go either to the public or to a "treasury" which would be an Avatar controlled jointly by the Exchange and the CEO. The only involvement that LL would have is that they would allow such a relationship to exist!
I agree with LL’s hands off attitude to our community; however they at least have to allow us to run our community in the best way possible. The biggest problem we have right now is fraud! Introducing regulatory bodies will not help, because of trust! As it was pointed out earlier, who regulates the regulators? We can regulate ourselves to death but we will still have the Allens and the Tizzys and the Ginkos, etc…! As long as we hand over our Lindens to “CEO”s only, then we open ourselves to hellacious risks!
LL only needs to allow a special shared account that is regulated by a recognized exchange and a CEO that decides to trade on that exchange. They would have no other responsibility. The rest of the responsibility will still lie within the community. Until we have LL’s support for at least this minimum intrusion, no amount of self regulatory behavior will prevent fraud in the financial community. IMHO.
Arnaud Villota
Bankinig
First the easier thing, is banking need in SL, or investing? I don't know, I used ginko, but now just drop my money in an alt. I will say I got out of ginko a month before the crash, it seemed time to leave, no, I don't know why rumor, wind direction, blind luck, random chance, take your pick.
Second, the problem is controls and transparncy there is none, there is no way to enforce much of anything as you stated (I ran lending for a non-profit for a year, yeah, done most everything). If the only preasure you can put on is media, do you risk through enforcement forcing a colapse? Its an interesting topic for sure, maybe simply an RL bond and a special type of banker account the lindens create or something. Something that alows auditing.
Arthur Fermi
Fermi Sandbox & University
www.fermidesigns.com
One step at a time
I think the issue of trust should be a top down philosophy. I'm not talking about LL. Take my own business, mainly land. I think there should be a code of practice (group limits may thwart this). Sure it may be toothless in the end and people may steer clear because they fear that others will abuse the system, but if we want residents to trust us, then we ourselves need to show that we will put ourselves in situations based on trust too.
Regulatory bodies in SL will cause people to question who watches the wathcers, but I've asked LL to grow up and business in SL needs to grow up too. We shouldn't be scared of scrutiny and we shouldn't be scared of agreed practice.
Trust
I agree to the trust comment. In my business - translations and copywriting - I ask the client to pay a 50% advance. And I also pay my staff a 50% advance. This has worked so far pretty good, and was only ever abused once, by a newly hired staff member. Never by a client so far. /me knocks on wood
Peter Stindberg