Iím going to shamelessly make a case that a non-expiring LMSR is not meaningless. One because I think not being curious or not exploring hunches is being disingenuous to creative process. We canít predict where change will come from and what will be like. Think of how many inventions came completely from accidents: penicillin, pacemaker, microwave, fireworks, WD-40, LSD, Ink-Jet Printers, Post-it notes, X-rays, Coca-Cola, Chewing Gun, Teflon, Ice-cream cones, Vulcanized Rubber, plastic, Super glue, Velcro, Stainless Steel. Think of how many of these inventions we wouldnít have if these people hadnít been spontaneously curious and followed their nose, without knowing where it would take them. These inventors were lost somewhere, physically or intellectually at one point or another.
Iím experimenting with the feasibility of using LMSR for a non-expiring contract. Effectively a crypto-asset. Why am I trying to achieve this? You raised that there would be a tool to help users to reinvest into contracts before or after one has expired. There are four undesirable outcomes with Truthcoin:
1) If you sell out of a contract to invest in a longer dated contract, the longer dated contract is going to be more expensive. At least if these were to work just like futures. So if someone is consistently reinvesting into another contract, they are going to be losing money progressively over time. Not to mention, if youíre a large speculator or corporation, you canít reallocate if the liquidity of these markets are fragmented in smaller dated pools. I can at least say that a lot of treasury functions in corporations have problems with low liquidity in futures markets for energy products and metals across the board. And if you perhaps chose to reinvest, from the magnitude of your trades, you will drive the PM price more downward than you want. You might respond saying this is small since they will only have to reallocate once a year and that is a fair. This however can be quite cumbersome if your dealing with an portfolio of contacts that you need to reallocate.
2) Possibility of front-running and gaming the trades with a tool:
If trades are reallocating their investments one a year, there may be some risk of other traders looking for the same entry points to front-run and drive up the market price. Through data-mining and analytics the front-runners may see a pattern forming where the tool may start to show seasonality, where certain times of the year people are more prone to reallocate. (eg. they may look at the period where the most downloads happened for the tool and see that 6-8 months later are when these people tend to reinvest) So these front-runners will drive up the price, making it even more expensive than stated in #1. Not a doom and gloom scenario by any stretch, but its not optimal.
3) Long-length of resolution period hampering effectiveness as hedge:
One of the things Iíd like to explore if this could be a inconvenience is the time it takes to resolution, which only happens once a month. This is an drawback not due to the tool, but to length of the Truthcoin resolution period. A monthly resolution cycle means your hedge can be stuck in settle for 2 weeks or longer depending on when the contract expired. This is not ideal if speculators are exposure to highly volatile assets or currencies, especially those for developing countries. In another issue, prediction markets that use a currency hedge, will be confronted with poorly overlapping markets. Prediction markets and its corresponding hedge will likely expire on different schedules/timetables. A prediction market for the winner of the World Cup, may end before the prediction market for the Truthcoin/USD market. In this scenario, speculators are once again stuck, now in a currency market, an event they are not very interested in trading in.
4) Constraints of Truthcoin as a store of value
By the discussion being thrown around, Truthcoin does not offer a Stablecoin. Therefore Truthcoin canít be used for crowdfunding, P2P lending, and most importantly remittances. Most of the benefits that Truthcoin offers are greatest for emerging economies because of the ability to hedge fx risk. Some of the people in these countries like Venezuela faced a 90% devaluation of their money in the past few years. Most people donít want to use Bitcoin, but want all the benefits of Bitcoin in terms of fast transaction speeds and low fees. Remittances is one area where the most change in the financial space will happen. One large reason, Bitcoin hasnít taken off for the unbanked is because of its extreme volatility. A 8% +/- change, means a world of difference for people who live there. Truthcoin doesnít promise them the same sort of store of value because you will have to use this tool to reinvest from time to time. That is a major inconvenience and an unrealistic expectation. And if there has to be education about how to use this tool on top of how to use Truthcoin, then weíve already lost half the message of the benefits that come from Truthcoin. Truthcoinís usefulness will be much more if a convenience storeowner can accept a USD pegged Truthcoin, without worrying about using a tool to hedge out the risk he just took on. This would increase adoption of Truthcoin, or even Bitcoin when Truthcoin is sidechained.