Second Life Currency Trading?!
Here's a currency you're not likely to see offered by your forex broker any time soon: the Linden Dollar, the official currency of Second Life, an online virtual world with hundreds of thousands of members and an economy that's growing by over 10% a month.
Named after Linden Lab, the company that developed Second Life, the Linden Dollar is completely exchangeable with the US Dollar at a rate of around 280 LDs to one USD. Currently over $500,000 in transactions (in USD) occur on Second Life every day as members buy virtual cars, real estate, gadgets, and just about anything else you can find in the real world, as well as a lot of things you can't: your very own ninja avatar, for instance.
Second Life is in many ways like its own country, albeit one without borders as they're typically understood, and its currency is as tradeable as that of any other small market economy's - say, New Zealand's. But since it's not a foreign country, but rather a virtual one, "forex" probably isn't the best term for such trading. Instead, the name that's been coined for it is "LindeX". You can currently trade Linden Dollars at the Second Life Currency Exchange (you'll need a Second Life login) and at SL Exchange, where you can check out a LindeX price chart, place buy and sell orders, and view daily high, low, and volume data. Here's their latest LindeX market data for the US Dollar/Linden Dollar pair:
Bid/Ask: 280.3/261.9
Daily High: 289.1
Daily Low: 260.7
Daily Volume: 573,256
What you can't get at SL Exchange is the type of leveraged trading account typically offered by forex brokers. So that's strike one against a career in LindeX trading. Off the top of my head, the other strikes (and there are many) include: a high spread, low liquidity, no interest rates and therefore no carry trade opportunities, no regulatory oversight (actually that's not so different from forex, is it?), no Fed, complete dependence on the solvency of Linden Lab, and probably about a dozen other things I'd be aware of if I actually spent time playing in Second Life.
But all that aside, LindeX still offers a fascinating look into a thriving virtual economy and the currency it relies on. So just to speculate a little bit, what might move this currency dramatically? Are there events comparable to Non-Farm Payroll reports and inflation comments from the Fed Open Market Committee? If I had to guess, I'd say:
- Reports on the financial condition of Linden Lab
- Rumors of acquisition of Linden Lab
- Incidents of hacking or other security breaches
- Technical issues like server crashes (though these might shut the market down entirely)
- A real estate boom or bust: much of the Second Life economy involves the buying and selling of virtual real estate and so it heavily skews the economy as a whole. (Sound familiar?)
- An abrupt spike or drop in population following positive or negative publicity
Related links:
Second Life
SL Exchange Currency Market
Linden Dollar Price Chart
Linden Lab
Reuters Second Life News Bureau
Labels: Second Life
posted by The Riverman @ 9:34 AM
2 comments
2 Comments:
If you read my piece "The Dog That Didn't Bark" (http://www.secondlifeherald.com/slh/2006/10/the_dog_that_di.html)
you'd see that the worst event in SL history -- the 9/06/06 hack of the dbase reported 9/09/06 -- barely shook the LinDeX and didn't at all cause it to fall, contrary to RL experience. It dipped but didn't suffer because even more people had to log on with new alts and then rush to buy them outfits and homes because they couldn't log on to their old accounts with the huge queue to the telephone lines.
That evidently kept the rate steady -- a synthetic event in a synthetic world.
Other events that affect the LindEx:
1) closures of the Land Store or slacking of the auctions -- sometimes the Lindens simply run out of hardware and can't lay out the land fast enough for new customers.
2) bluffing by traders with big packages of sells numbering in the milions that scare people into reducing their sell orders which are then handily bought by the bluffers.
3) The tier due dates of the largest land barons who must cash out their Lindens amassed from micropayments and then pay tier, or server maintenance fees to Linden Lab, i.e. Anshe Chung's tier due dates in the tens of thousands of USD (ouch).
4) Yes, abrupt spike in population or abrupt decline due to poor service
5) Holidays -- some work to sink the LindEx because people go outdoors and don't log on to the virtual world.
6) It's not really boom or bust, but more like controlled situations: "the Lindens decide to finish off the east coast and throw out lots of sims and glut the market" or "Anshe decides to corner the prime waterfront market in order to drive up prices so high people will move to her new batch of islands".
There aren't really real estate booms/busts per se from the internal market itself -- there was a notorious shortage of snowland when first created, and also atoll sand continent that caused a panic and drove prices up so high that the anti-land-baron lobby caused the Lindens to push out bunches more of sims to compensate -- then the prices crashed.
The Lindens artificially keep land at $4-5/meter by constantly putting out land, though they do have an ostensibly on-demand auction. It's hard to conceive of an authentic land market under these circumstances. That means the $ Linden value is also artificially controlled.
People played the LindEx quite handily in recent months and fortunes were made, but then the Lindens intervened by putting in something they call "circuit breakers" to slow overheated sales, where they don't allow trades at certain rates for certain periods of time.
And of course they sell money which they themselve print now, something they said they'd never do but began doing to keep the Linden value at a rate to enable new people to buy content. That means they can keep it at any rate they like.
The value of the Linden never recovered (yet) from its height of $4.25 US per $1000 at the independent Gaming Open Market (GOM) when the Lindens announced that they were taking over the control of foreign currency exchange and put the GOM out of business -- an act that went down into SL history as a verb, "to GOM," meaning to co-opt anything made by residents.
In sum, announcements and actions of the game gods are the greatest movers of the market.
User accounts has spiked to 2,204,868 now.
http://secondlife.com/developers/features.php
Land is not being released quick enough due to the glut of island orders prompted by island tier rate increases. Prices below L$15/meter are very rare at the moment. There is some information about average price paid per meter
http://secondlife.com/whatis/economy_stats.php
Yet this data is skewed by prices paid on islands where private tier is paid directly to island owners instead of Linden tier.
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