Insider Attributes Massive Linden Dollar Fluctuations to Some Large Second Life Businesses Rapidly Liquidating L$ Holdings (Land Barons, Say?)

Since my Friday post, the Linden Dollar sell rate continues creeping up, with people selling large blocks of L$ at historically high rates. At right are the very top sell orders last night, with the largest listed quantity, L$11,186,781, worth around $4,200 now in real dollars at an exchange rate of L$265 to $1 dollar. Thing is, just last month, when the exchange rate was closer to L$250/$1, that same block would be worth hundreds of real dollars more.

What's going on? I asked Linden Lab for a response on Thursday but still haven't received a reply. I also talked with an anonymous Linden insider with knowledge of this subject, and this person discounts the popular conspiracy theories raging among SL content creators, suggesting that Linden Lab itself is somehow manipulating the exchange rate. 

"We were super-transparent about this years ago," my source told me, "and I doubt it's changed significantly in the time since I left. Linden Lab doesn't control the rates, the market does. If a number of larger businesses that have been holding significant L$ decide to liquidate and are willing to push the rate temporarily less financially favorably for sellers in exchange for more rapid exchange, then short-term small fluctuations like this happen. It's not a bug, it's a feature."

But why would those larger businesses want to sell so much Linden Dollars all of a sudden? I believe the most plausible theory -- and I stress theory -- is also the most benign: Private sim owners are cashing in L$ to take advantage of Linden Lab's recently announced offer of grandfathered maintenance rates (after paying a "buy-down" fee of $600):

I first read this theory from T-Kesserex, a well-known SLer on Plurk whose family was involved in the SL "land baron" biz: "I think it's people cashing out to get capital for the $600 dollar sim price reduction," as she put it. "If you own 10 sims you need $6000 bucks, so that's not easy without some cashing out."

This theory strikes me as most possible, because the large SL landowners have the most incentive and assets to do something like this, while any other explanation I've read doesn't seem as plausible. And if that's right, it's also good news for the SL userbase as a whole, suggesting land barons are making moves to be with Second Life for the long haul.

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Comments

[Ezra]

Thank you for providing as good a Linden insight as you could and following up on this.

[zz bottom]

tks indeed, as the "Official" LL bloggers seems to be ignoring any that is happening lately on SL (Yes, IP, this is for you)

[Tesla Miles]

To be honest, it still doesn't make much sense, the 'Buy Down Fee' offer goes on until October 4th, 2016 - so doesn't explain the hurry to liquidate considering the offer expiry date is more than 5 months away! More than enough time to get all your sell orders executed at a good rate without suffering any losses. At most I've never had to wait more than 3 weeks to get my target sell rate.

[Ezra]

@Tesla

The sooner you buy down, the sooner you start saving $100 per sim per month. If you wait the 6 months to pay the $600 dollars, you've lost $600 dollars.

[Tesla Miles]

@ Ezra

Okay I see, I didn't fully understand the offer detail - thanks for explaining it.

But still doesn't make sense, even if you auto-fill your sell order, it doesn't take more than a day to complete it. They're losing most of their gains by being impatient, and unless they raise the rent, they're losing out on income revenue too through devaluation of L$.

[sirhc deSantis]

OK, seems a reasonable explanation. As to making sense, well money markets in any form baffle me to this day.

[Dainie Fraina]

I would venture to guess it has a lot to do with Project Sansar as well. Linden Labs just opened up the applications for creator previews at the end of April. The days of the grid as we know it are numbered. It's very possible the larger business owners simply have the business sense and foresight to liquidate while they still can and start preparing to invest in the new grid—land barons and content creators alike. It could be the higher rollers are packing up and getting ready to move. :)

[Clara Seller]

If Hamlet's explanation is correct, then it is positive news for SL. It would mean that landowners see a future after Sansar.

To me, it would be unwise to divest in the proven SL when nobody really knows WTF Sansar is or how the economy is going to be structured. If what you know is "land", then words like "Content Creators are King" should make you pause.

[Catherine A. Fitzpatrick]

I'm going to temporarily disrupt my decade-long boycott of this blog (because Hamlet requires that I use my real-life name (!) unlike any other reader (!) because people's livelihoods are at stake here.

Hamlet is barking arrant nonsense here that even a cursory knowledge of the LindEx, history, and realities of SL would dispel.

First, this insider Linden is either lying or ignorant. His claim that "only the market" runs the LindEx is patently false, as Supply Linden sells Lindens to stabilize the exchange. Everyone knows that and it is visible to the naked eye, or was, when the LindEx was kept at a limited buy level of 248-250 for years. Whether these "sold Lindens" are "printed" or taken from sinks isn't clear, but THAT the Lindens sell Lindens is a known fact explained by the original coder and manager of the LindEx, Lawrence Linden, just look on the Wiki or Google. Do the Lindens also buy Lindens? We don't know.

Secondly, this claim that the grandfather buydown is responsible is also entirely unsupported. No one advancing this theory has *themselves* cashed out and bought the offer in this fashion and can't even cite a single actual example of someone who actually bought this buydown in this fashion with inworld Linden dollars. And indeed, it would be folly to do so, especially now, as it would be a very costly way of getting US dollars, given the crash of the LindEx now, and the fees, which have gone up. People actually in business prepared to spend, say $600 x 45 wouldn't have that much cash in Lindens inworld anyway because they'd *have to pay tier as well*. None of this is in touch with the reality of business at all. Any sane person would use real-life money on a debit card or credit card to buy this offer and put the reduction to work quickly without a loss.

The problem is we simply don't know because the Lindens won't tell us. Let's say 1,000 people or X number bought the offer and generated 1,000 sims, as Tyche is apparently saying. That wouldn't account for the millions of other Linden dollars queued up there. Island purchases, even with this offer, just don't expand so rapidly.

No, what is far more likely is that big businesses, mindful of the upcoming expansion of the beta for Project Sansar, are heading for the exits while they can. They may not care if they park their millions for long waits, or they may be forced to spread them over 15 points and crash the LindEx for real-life emergencies or who knows. I know of at least one big land baron who disappeared suddenly, taking tier and islands with him and leaving close-mouthed colleagues inworld. He alone couldn't account for this -- content businesses (let's not put all the hate on land barons as per usual) could also be very much included to pack it in as what they are making now *cannot be taken into Sansar*.

Do try to be more responsible with your journalism, Hamlet, in a closed society the burden is greater. You should have known to call out that Linden instantly re: the Supply Linden issue.

[anonymous]

The buy-down offer is clearly a sign that LL doesn't think people will stay long-term, and they are making a offer to get more cash now ahead of a crash in 6 months.

The same thing is the reason why they suddenly raised cash-out fees now. They know SL is about to die, so they are getting a piece of the action as people leave.

The big cash out now is people reading these two signs correctly and getting out now.

[Hottie Something]

I have similar thoughts, but I have to wonder if the "Land Barons" are really the root of it. The larger land barons are the ones most likely to have had mostly Grandfathered sims this whole time. So they would be cashing out large amounts of stockpiled Lindens to buy down sims, because their sims are already GF.

Any land owner who has clung on over the last few years without a largely grandfathered estate has probably not been able to stockpile a lot of Lindens. Take it from me, I am mostly still in this business to take care of customers who have been loyal for years. And I pay for my cell phone and Netflix out of the profits, woohoo! But you better believe that anytime I have more than 10,000 Lindens I am selling them and stressing my next $900 tier day.

But it could be a creator who owns a sim or two for an in world store could have reserves of Lindens. I don't know how the "Shopping Barons" operate. But without the overhead of looming tier payments on sims, maybe they keep excess Lindens in world...after all, until you cash out there is no money trail, no reportable income. So if you have 10 creators each with 1 sim who want to buy down and they all decide to cash out some of their stockpiled Lindens at once. Then you have a lot of Lindens hitting the market at once. And if each of those people is thinking "I can take a little less for my Lindens to get this done quickly...after all I will be saving $100 this month!" Then you have a recipe for a perfect storm.

I got on a Live Chat this week with LL support, not because I thought they could do anything, but because I wanted to vent LOL. The poor woman who had to deal with my wrath spent a whole 10 mintues typing a response, which ended up being a short (paraphrased here): "Every market has its ups and downs. We don't get involved, we have to let it happen naturally."

But it's a tough pill to swallow when your profits on a fully rented non bought down or GF sim have suddenly been cut in half. Am I supposed to provide my services for a stick of chewing gum?

I had bought down half of my sims with a plan to buy down the rest over the coming month. But this development made me rethink the plan. Now I am working with people in my non-bought down sims to move them to bough down sims with vacancies. I am going to empty out as many 295 priced sims as possible and either sell them or abandon them if they are too close to the tier date. And then pray that the Lindex doesn't crash so bad that I won't be able to recoup my buy down fees for my other sims.

One final thought on the Lindex is a comment on the way there are so many Lindens stretched out across a large range of numbers. It's odd for there to be no "large piles" up at the top. The only large pile is down at 250. A normal healthy Lindex has at least one, if not two large piles of Lindens neck and neck at the top. By large pile I mean 150-200 million Lindens. To have everything spread out like this in little tiny chunks with no large pile at the top is odd to say the least. It probably means the real rate should be around 251-525, if the panic could be reigned in. It also strikes me that the amount that is spread out from 251-263 should normally take only a few days to clear. But more L keep getting added and nobody is able to back off to let the market reset.

I have a feeling that most of the creators in SL do an end of the month cash out. So around the 5th or so of June this should start to calm down. Regardless, my confidence has been shaken. I no longer wish to invest in a long term future in Second Life.

Would the last person in SL please turn out the lights!

[Catherine A. Fitzpatrick]

Hottie, since you've indicated that you participated in this buydown offer, could you please provide some data points here that are sorely needed.

Did you pay for your sims with *inworld saved Linden dollars*? Or did you use a regular credit/debit card to buy the offer with cheaper real money that didn't cost you fees or that you obtained at a loss! THAT is the question.

Your profile says you have 90 sims. Perhaps you already had some GF sims. So how many did you buy down so that we can try to figure out whether this claim (which I believe to be overstated if not false) that the buydown is to blame

Also, nice way to shift the blame to the "land barons". It could just as well be a, you know, big island holder with a big inworld stache doing a big buydown, which we're told, you know?

or a big content creator with millions from a breedables business or such.

Your notion that this will "calm down" because of some putative (not based in reality) notion of cashing out on a schedule just doesn't apply. People have all different tier dates and even if they don't have tier, all different schedules.

Please, let's stop with the feelings and hunches and notions. YOU are in a position to tell the truth about this buydown theory yet frustratingly, you aren't doing that.

[Dartagan Shepherd]

I can't escape my horse sense that tells me when a company does a few rapid fire things to generate cash flow, and that works in their benefit, then it's manufactured.

I do seem to remember though, that they admitted to taking a big part in manipulating the currency. There wasn't anything "transparent" before or since then. Probably something around 2006, but I couldn't locate it after with a quick half-hearted search.

[namegoeshere]

IRS bills? The tax season ended not to long ago, business guys who owe money file in April. This month may be the month they got all the auditing or bills in the mail? Maybe the IRS is specifically targeting some SLers? So a couple of actions and some stress, fear and calls to lawyers lead to cashing out at similar times?

Funny theory: They are all political types who are chatting in world, can't believe Trump supporters are serious and are moving to Canada to start a business up there.

Hackers holding their money in Linden$ to fund their side in the war against ISIS in Syria?

I imagine they may be people who know each other, they have a theory or one of them is making a killing somewhere else so they all are moving into that area. Obviously they are not telling about their new super awesome cash cows.

[Catherine A. Fitzpatrick]

It's not that the Lindens "admitted to manipulating"; it's that the reported that a built-in feature is selling Lindens to weaken the currency to create cheap cash for consumers and keeping it stable at least so that it is predictable for merchants. That *is* the

And they've openly explained this as I've said, google the SL wiki and Lawrence Linden.

It's important to understand that if the Lindens want to make real cash, triggering a run on their bank is not the way to do that. They have said in the past that they don't make money off the LindEx because the cost of constantly monitoring it and tinkering with it to prevent fraud and money laundering is higher than the fees can cover.

Again, so many here are spouting ignorant nonsense because they don't understand the realities of what being in business involves in SL.

If you have to pay tax, you don't cash out expensive Linden dollars you might need for tier or other expenses, you pay with real dollars. Sure, you might cash out something but if someone generates the cash, they will have tier to pay. And if they DO NOT have tier to pay, they would routinely cash out to get the dollars in hand, and not horde needlessly inworld.

[Desmond Shang]

Ways that $L can devalue:
a) people simply spending less $L.
b) prices are lower, so less need to buy $L
c) total $L M0 (money supply) grew too large
d) $L sink mechanisms not 'strong enough' now

Some possible causes of the above, who knows in what proportion:
a) summer; people spend time offline, spend less
b) $L prices went down, such as land rent in $L
c) $L oversold, possibly over a very long time
d) sinks not as active; lower marketplace sales

No one benefits from $L uncertainty. Decreasing private region tier wouldn't *directly* lower $L valuation, however lowering $L denominated land rental as a result, could.

The bigger story might be the one most people aren't looking at right now: essentially, that private regions can cost almost as little as mainland regions now, for the first time in several years. Many implications there, and few of them good for anybody over the long haul.

[Tesla Miles]

@ Catherine

Yes, you raise some good points. I agree that if you really wanted to pay the buydown offer quickly with minimum loss, then it would make more sense from a money management perspective to use a credit card instead (if you can afford to own sims, I'm sure that credit limit won't be a problem) - that would give you a month to fill the sell order at the best rate before you have to pay interest to on the credit card loan - if you really needed the cash that desperately.

Also doesn't LL accept payment in Lindens for the Buy Down fee?

[zz bottom]

To be truly honest, i don't give a damn as long as i can sail as well in mainland as now, and to have so many water connected regions to it as now.
Never i remembered such a joy when sailing in Sl, stable cross sims, new roads (Nautilus now is fully navigable)
So i dismiss any promises about the doom of SL, i still think before the end of the year , Ebbe will be out as Sansar will prove a utter failure and LL will still make money as usual from SL.

[Kesseret]

@Catherine (And yes I know who you are, everyone does.)

My comment about the tier buy down theory was just that - a theory. I never claimed it was anything more than that. Like I can tell why people are cashing out a lot right now. I'm good, just not that good.

Since we are tossing theories here is another (complements of Lourdes Denimore): The truth is there are more people cashing out than buying lindens. Either liquidating or there's not enough new players incoming. Is it related to Sansar? Or just the season? Who knows. But in order to entertain the theories you must wear a tinfoil hat and buffet pants.

As for the Lindex it's surprising how many people DON'T realize how it works and how Linden Lab has artificially kept it stable. That you are correct about. I wish more people knew about it.

[Kesseret]

Also, Prok, thanks for dusting off the mold to grace us, again, with your presence.

[Wagner J Au]

"No, what is far more likely is that big businesses, mindful of the upcoming expansion of the beta for Project Sansar, are heading for the exits while they can."

And the evidence for this is...?

[Hottie Something]

@catherine

My profile is massively out of date. I don't have that many sims anymore. I don't log on as that avatar very much.

Some of the money I used for buy downs was Frome Linden sales. That is the extent of the information I am willing to share with you after the rude manner in which you approached me first on the subject in your private attacks sent to my avatar. Please don't speak to me. I already indicated in private message that I do not wish to speak to you.

[Catherine A. Fitzpatrick]

Desmond,

I think you mean to say that this doesn't bother you and you don't care because the loss of a few dollars per 10,000 Lindens doesn't matter to you because you have a comfortable RL business. Okay!

But you're wrong about so many things.

a) You have no evidence that people are spending less at all. They are in fact spending more in my observations because of the introduction of the gatcha and the merchant events into the economy. Do you ever get out of Caledonia and see the rest of SL?

b) Prices aren't lower at all. Do you get out much and shop? Anshe Chung has RAISED her rent $400 in a number of places even with LOWER costs because Number One Business Girl gets it that you have to cover your cost from the $600 per buydown. Hello!

c) There is no evidence of any "growing too large".

d) Sinks in fact abound -- the land auction is VERY active -- you never play it so you don't notice it. LOTS more buying of abandoned land -- you don't care about the Mainland so you don't notice. Likely activity on the MP, with the gatcha resales, is greater than ever -- my sales and other peoples' are up, and we're just the little people. The big people have HUGE sales especially in breedables. These are VAST sinks unless the Lindens now convert MP Linden dollars to real dollars, or at least the fees? We don't know that they don't do that.

a) Um, it's not summer yet. School and even some colleges are not yet over. It's still rainy and cold in many areas.

b) See above -- Chung raised praises. So did I. So did lots of people.

c) Oversold? By what standards for what? You don't know.

d) You have no evidence of lower MP sales and if anything, my observation , with the advent of the gatcha resale phenomena, again is that it is WAY MORE. I probably personally have 10 times the activity I did 2 years ago and so do some of my tenants and as I said, we're the little people.

Er, private reasons cost "as little" if you have the insiders' discount. Do you? But putting together an entire Mainland sim and paying $195 for it is still less in some cases than the private island $600 set-up even with the same $195 tier. Again, go inworld? It's educational.

Er, prices are lower? Do you shop? Have you seen the latest gatchas?

[Catherine A. Fitzpatrick]

Hottie, change your profile then? Because no one can "just know" that it is out of date.

Your notion that you are being "attacked" is insane as the record shows. Thanks for letting me know that I can put your avatar name now.

A simple fact-checking exercise -- did you or did you not use Lindens for the buydown --- shouldn't scare you so much and make you so crazy.

EVERYONE is making this false claim that the buydown "caused this". NO ONE has proven that anyone used their Linden dollars to do this buydown because EVERYONE making this claim has not done this themselves! You as a PUBLIC FIGURE making a PUBLIC REMARK were asked to verify if in fact this claim is true and you yourself did it that way.

Nobody needs to know your business, dear, we need to check facts on false claims made about the destruction of people's livelihood. That isn't my livelihood or yours, obviously, but it still matters because it is for some people.

So now you are confirming that you used SOME Lindens on SOME sims -- but that it's not 45, as "90" was out of date. Let's say it was 10 sims, Hottie? That's $6000. Let's say even 1000 sims were bought -- and even in this way! That's only $600,000. That amount of money ALREADY went out the door because Tyche Shepherd ALREADY reports that many sims, and that *may* have affected the drop from 248 to 250, let's say. But there aren't ANOTHER 1000 sims. There aren't ANOTHER set of people "using Lindens for the buydown".

So I hope we can put to bed now this idea that "the buydown causes it". You didn't cause it by using Lindens on SOME of your sim buydowns. 100 other people didn't. 1000 other people didn't. IT'S SOMETHING ELSE.

It's not about you, it's about getting the facts.

[Catherine A. Fitzpatrick]

Re: "heading for the exits".
Um, the evidence is a run on the LindEx? Derp.

- It's not about buydown
- It's not seasonal or "normal"
- The Lindens are not likely doing it deliberately
- It's not for ANY of the reasons Desmond says

So that leaves big businesses leaving because they think the world will drain out when Sansar comes. That you can't accept that as an obvious likelihood given the unlikelihood of the other factors just lets us know your level. It's the sort of thing you'd have said yourself if I haven't but you're just clinging to the buy-down theory.

I've actually witnessed a big land dealer leave, putting a lot of land to sale. Some of it sold, made Lindens and um, silly me, I'm guessing he cashed out. He is no longer in the people list. This I witnessed first hand. There are others who have closed stores and just dropped out. I know because of them are my tenants.

Do you ever log in, Hamlet?

[Desmond Shang]

>>I think you mean to say that this doesn't bother you and you don't care because the loss of a few dollars per 10,000 Lindens doesn't matter to you because you have a comfortable RL business. Okay!

Well, I didn't 'mean to say that', but if you choose to go there... then yes, true, it's not affecting me much. Is that relevant?

>>Do you ever get out of Caledonia and see the rest of SL?

Not really, no.

>>Prices aren't lower at all. Do you get out much and shop? Anshe Chung has RAISED her rent $400 in a number of places even with LOWER costs because Number One Business Girl gets it that you have to cover your cost from the $600 per buydown. Hello!

I'd be surprised if she had many high tier regions in the first place. I haven't had any in years.

>>There is no evidence of any "growing too large".

There's no evidence either way, other than the stats from 2010 and prior when something similar happened the last time. And the money supply being 'too large' vis a vis the lindex is the same as 'more want to sell than to buy'... it's the very definition of what we are seeing. We can argue about causes all day, but right now, there's too much money out there.

>> Sinks in fact abound --

Clearly, they aren't abounding enough.

>> Um, it's not summer yet. School and even some colleges are not yet over. It's still rainy and cold in many areas.

Yeah, I would have expected this in June, not May.

>>Er, private reasons cost "as little" if you have the insiders' discount. Do you?

No, I don't have any discount. But even when I was buying regions, I'd buy from other people, not the Lindens. That's how I got more 195 regions (back when that was possible the first time).

>> Do you shop? Have you seen the latest gatchas?

I don't shop, nor would I know a gatcha if I saw one.

* * * * *

So... if it's 'big businesses' leaving, what constitutes 'big'? RL businesses never messed with $L much, in my experience. Are we talking Warner Brothers Inc, or just some guy with say half a dozen mainland regions? Can we list ten 'big' businesses? Please note that even a fairly sizeable estate with a few dozen regions, can in reality be making less money annually than a well placed vending machine near a gym.

In short... who, precisely, is leaving? These 'big businesses' should be 'big names'... can we name even a few that just left? Honest question.

[peewee]

gatcha this gatcha that screw no copy crap. get your land get your land the mainland is filling up

[AmyNevilly]

Everyone here is entirely missing the point.

It's L$ vs USD

Notice the other side of the trade is.......USD.

The USD has been strengthening for over a year. When the USD strengthens it puts pressure on the L$ exchange rate peg.

Do the math.

[Tesla Miles]

Looks like the 'Buy Down' Theory was wrong afterall, the exchange rate didn't change at all after the grandfather option expired.