Why Minters Yield can un-dilute in the future

Minters Yield is by far the most complex yield in Kinesis Monetary System.

Currently, almost all currency that was ever minted got redeemed (because of mint cycling), so the total minted is now about 100x bigger than the circulation (i.e. massive dilution). Suppose Kinesis grows 100x bigger, circulation will then also increase 100x. Without mint-cycling, much lower amounts will get redeemed. So let's say for this example that nothing gets redeemed. That means all currency ever minted will only double while circulation multiplies by 100x. Suppose velocity stays the same, then the yield pool would grow 100x while your share of the total minted dilutes by 2x in this case. So your share dilutes, but it dilutes slower than the yield pool grows, which means your yields will rise. So you could say that your share dilutes, but your yield un-dilutes.

Of course all this assumes that velocity doesn't change while circulation grows and we don't know yet how that will develop. Mint-cycling ending will make velocity fall, but partnerships and debit cards will make it rise. We don't know yet how this works out on balance.

Eventually when the system has grown to the point that circulation has caught up with the historic mint-cycling, then Minters Yield will slowly dilute again, because there will always be redemptions that take currency out of circulation (so it cannot generate yield anymore), while the total amount ever minted (the denominator in your eligible amount for your yield calculation) can only grow.

 

[Rhyno]

That un-dilution will have a fantastic impact on minters yield. I remember when we first met you last year that this was a big discussion; we are now closer to realizing that un-dilution than every. Just thinking in terms of Indonesia and the level of circulation growth that could mean blows my mind

 

[Uchiki]

Interesting thoughts.
Looking forward to seeing how this (minting just to feed new demand) plays out.

 

[rightone72]

I am trying to flesh out my understanding of the points you have raised here Troglodytes please assist me if I am misconstruing things
Minters Yield is by far the most complex yield in Kinesis Monetary System. Agreed but would be beneficial to understand if it is a sleeping giant or pleasant pixie that visits regularly

Currently, almost all currency (KAU and KAG) that was ever minted got redeemed (resold on the Exchange) (because of mint cycling), so the total minted (KAU and KAG in the Kinesis system) is now about 100x bigger than the circulation (i.e. massive dilution). (Does this equate to the number of those sitting on KAU and KAG in their accounts compared to the amount being spent or sent, I am not sure what circulation actually means here, is 100x being held compared to those transacting, isn't Exchange activity also included in circulation then)

Suppose Kinesis grows 100x bigger, circulation will then also increase 100x. Without mint-cycling, much lower amounts will get redeemed (changing the yield from Holders to Minters yield). So let's say for this example that nothing gets redeemed. That means all currency ever minted will only double while circulation multiplies by 100x. Suppose velocity stays the same, then the yield pool would grow 100x while your share of the total minted dilutes by 2x in this case. So your share dilutes, but it dilutes slower than the yield pool grows, which means your yields will rise. So you could say that your share dilutes, but your yield un-dilutes. (Am I understanding the meaning of Dilutes and un-dilutes correctly here, in that the pool size increases 100x but your proportional claim on the Minters Yield has halved compared to previous distributions, but your total quantity of KAU or KAG received from the yield pool has now increased because you now have a smaller claim on a lot larger amount, so it is still in effect being diluted more but you are receiving a smaller slice of a much bigger pie so you get to eat more yum, must be coffee time)

Of course all this assumes that velocity doesn't change while circulation grows and we don't know yet how that will develop. Mint-cycling ending will make velocity fall (Interesting point, I wonder how large a percent of the fee pool is currently generated by Mint cycling, if that falls of a cliff does the pool loose a big percentage of revenue), but partnerships and debit cards will make it rise. We don't know yet how this works out on balance. (Hence the push to get Velocity to grow)

Need coffee before I re-read and try to comprehend this point again
Eventually when the system has grown to the point that circulation has caught up with the historic mint-cycling, then Minters Yield will slowly dilute again, because there will always be redemptions that take currency out of circulation (so it cannot generate yield anymore), while the total amount ever minted (the denominator in your eligible amount for your yield calculation) can only grow.

So KVT issuance has created a honey moon period not only for the initial kick start of getting KAU and KAG into the system but it has boosted the pool and hence yields initially being distributed substatially too. I hadn't factored that in to my understanding enough prior to reading this. So if mass adoption doesn't take off before the KVT issuance finishes there could come a period of stagnation. hmm points to ponder

 

[Troglodytes]

Currently, almost all currency (KAU and KAG) that was ever minted got redeemed (resold on the Exchange) (because of mint cycling), so the total minted (KAU and KAG in the Kinesis system) is now about 100x bigger than the circulation (i.e. massive dilution). (Does this equate to the number of those sitting on KAU and KAG in their accounts compared to the amount being spent or sent, I am not sure what circulation actually means here, is 100x being held compared to those transacting, isn't Exchange activity also included in circulation then)

The Circulation chart shows all currency that is in circulation, i.e. not redeemed. So this is the sum of all holders accounts.

But the denominator in the Minters Yield calculation is all currency that was ever minted, including what got redeemed. So this number never goes down. It can be found in the Minters Yield payment when you expand it (minted across all users).

Suppose Kinesis grows 100x bigger, circulation will then also increase 100x. Without mint-cycling, much lower amounts will get redeemed (changing the yield from Holders to Minters yield). So let's say for this example that nothing gets redeemed. That means all currency ever minted will only double while circulation multiplies by 100x. Suppose velocity stays the same, then the yield pool would grow 100x while your share of the total minted dilutes by 2x in this case. So your share dilutes, but it dilutes slower than the yield pool grows, which means your yields will rise. So you could say that your share dilutes, but your yield un-dilutes. (Am I understanding the meaning of Dilutes and un-dilutes correctly here, in that the pool size increases 100x but your proportional claim on the Minters Yield has halved compared to previous distributions, but your total quantity of KAU or KAG received from the yield pool has now increased because you now have a smaller claim on a lot larger amount, so it is still in effect being diluted more but you are receiving a smaller slice of a much bigger pie so you get to eat more yum, must be coffee time)

I think you understand it correctly.

Suppose Circulation is 1 million KAU and all currency ever minted is 100 million KAU (i.e. 99 million has been redeemed). And you minted 1k of that. Then you have a claim of 1k/100m = 0.001%

Now suppose the system grows by a factor 100x after mint cycling ends (i.e. not much gets redeemed), as I described earlier. The Circulation grows to 100 million KAU and assuming velocity remains constant, then the yield pool also increases 100x. But total minted grows to only 100m+100m=200m. So your claim is now 1k/200m = 0.0005%, but on a yield pool that is 100x larger. So effectively you would earn 50x as much.

Of course there are many assumptions here. We don't really know how these things work out. How will velocity develop? How much will still be redeemed? How much will the system grow?, etc. But the mechanics you can see in the graph below.



Note that Holders Yield only depends on velocity, because when the system grows say 100x, the pool grows 100x but your percentage decreases by exactly the same factor. But KVT and Minters yield grow with the circulation (assuming constant velocity).

Minters Yield growth will eventually flatten out, because after high growth it will start to depend only on velocity, like Holders Yield.

However, the graph above is valid at only one point in time. The Minters Yield curve continuously shifts down relative to the other two curves, because always some currency gets redeemed. At first that won't seem obvious because un-dilution because of system growth should outpace it. But when the system stops growing it becomes more visible. Of course we hope that we are only at the beginning of massive growth so it is not something to worry about now.

I told you Minters Yield is complicated

Of course all this assumes that velocity doesn't change while circulation grows and we don't know yet how that will develop. Mint-cycling ending will make velocity fall (Interesting point, I wonder how large a percent of the fee pool is currently generated by Mint cycling, if that falls of a cliff does the pool loose a big percentage of revenue), but partnerships and debit cards will make it rise. We don't know yet how this works out on balance. (Hence the push to get Velocity to grow)

Mint-cycling is a very large factor now. But the organic part of the system operation has hardly started yet, so we need to see how things are going to work out. The future will show us.

 

[rightone72]

Thank you Troglodytes for taking the time to break that down for me I think I am defining these new terms better in my mind now, I couldn't work out what redeemed meant (not sure I understand it fully just yet) I was only thinking in terms of Physical redemption (That would destroy the digital KAUs associated with the bar) but of course there is out flow from peoples accounts in the form of conversion to currency during purchases or withdrawals is that what you are meaning (These KAU are sold to the open market as metal by weight not as digital KAU so that would also destroy the digital KAU).

That last point aside, in the Yields section when I expanded the details of the latest Minters Yield payment I was able to see the 'all currency eligible across all users' figure that you were referring to:
116m KAU and 12.3m KAG,
Interesting that 10x the amount of KAU has been minted compared to KAG, I hear that has tighter spreads due to it being a much larger market.

Also what I thought was hard to believe but is true is that the total of Minted KAUs is almost 100x the current circulation total of 1.22m KAU.

How does that work doesn't the majority of Minted KAU remain in the system, when it is sold on the Exchange after being Minted to begin cycling again, someone has to buy it and use/store it as KAU.

 

[Troglodytes]

Thank you Troglodytes for taking the time to break that down for me I think I am defining these new terms better in my mind now, I couldn't work out what redeemed meant (not sure I understand it fully just yet) I was only thinking in terms of Physical redemption (That would destroy the digital KAUs associated with the bar) but of course there is out flow from peoples accounts in the form of conversion to currency during purchases or withdrawals is that what you are meaning (These KAU are sold to the open market as metal by weight not as digital KAU so that would also destroy the digital KAU).

Redemption is removing it from the blockchain. When you sell on the Exchange, it is not redeemed but sold to another user (which could be the market maker). This doesn't reduce circulation. However in case of mint-cycling the market maker will at some point hold too much KAU/KAG, so he will periodically redeem. You can see this on the blockchain as a payment from KMS to Mint.

That last point aside, in the Yields section when I expanded the details of the latest Minters Yield payment I was able to see the 'all currency eligible across all users' figure that you were referring to:
116m KAU and 12.3m KAG,
Interesting that 10x the amount of KAU has been minted compared to KAG, I hear that has tighter spreads due to it being a much larger market.

Yes, KAU is the most popular for mint cycling because of the tighter spreads between Mint purchase and Exchange sell.

Also what I thought was hard to believe but is true is that the total of Minted KAUs is almost 100x the current circulation total of 1.22m KAU.

How does that work doesn't the majority of Minted KAU remain in the system, when it is sold on the Exchange after being Minted to begin cycling again, someone has to buy it and use/store it as KAU.

When selling on the Exchange, another user or the market maker buys it. The market maker will usually redeem, because he doesn't want to have a net position.

In the future, after mint cycling has ended and the system grows because of more users and partnerships, demand for KAU/ KAG should be increasing and circulation growing. Market makers will then have to turn into minters (instead of redeemers) to grow the monetary base (circulation) if there are not enough users minting.

 

[rightone72]

Hmm, what or who is the Market Makers, what function do they serve, I thought that the KVT issuance was incentive for the creation of digitised KAU to be brought into the system for others to use, hence the yield to take on that role but it sounds like that is not its sole purpose, is the KVT issuance a kick starter to get the ball rolling and start the cogs of the system turning,mixing metphors but you probably get the picture.
Without that initial minting stimulus would there even be much of a master fee pool to distribute. There should be a way to work out what percentage of the fee pool comes from Minting, If it was known how many KVTs have been issued because of Minting, I might have to contact my account manager and see if he can tell me how many are left

 

[Derek]

Hmm, what or who is the Market Makers, what function do they serve

So, think about it for a minute.

What happens when the price of KAU gets above the "street price" for physical gold? It suddenly becomes possible to buy gold outside of the KMS, mint it, and sell it and earn free money. What happens when the price of KAU gets below the market? You can buy KAU, get it delivered, and sell it and again - get a free return.

Market makers are businesses that are in the business of providing liquidity on the KMS. They will have buy/sell prices on the market so there's always someone there to be the other end of your trade. They're there to make sure the KMS prices stay close to the "real world" price. They are the folks you're buying from when you mint 100 grams of gold at a time - someone needs to take your money and move that bar from outside the vault to inside, while crediting your KMS account with the resulting KAU.

As I understand it market makers don't get minter's yield, and redemption (taking physical in exchange for KAU or KAG) is streamlined with some costs removed, but this makes them more efficient. If the price on the KMS is ever off by more than the 22 basis points exchange fee + whatever other (low) costs the market maker has, then the MM makes a risk-free return by correcting that problem. And they're there to buy and sell from you at a fair rate, because there are multiple market makers with their own sources of metal competing for those free returns.

I like to think of it as the KMS being a vault with a walk-up window, and outside that walk-up window is an open-air Bazaar with lots of gold and silver sellers. The market maker can walk up to the window and sell you bars when you mint (buying from a seller and adding a markup), and he can watch the posted prices on the KMS while listening to the barkers advertise their prices, and when they are out of whack he can make a few bucks buying low and selling high, or vice-versa.

I'm not officially Kinesis though - just a community member, but this is how I understand it. Maybe someone else can explain better or correct anything I'm a bit off on.

 

[sixgun]

When looking at the figures for coins eligible for Minter's yield and then comparing this with the current number in circulation, the figures are skewed.

The figure of 100 x more KAU ever minted than are currently in circulation will be incorrect.

What there is, is 100x more KAU eligible for Minters' yield than are currently in circulation.
The number of KAU ever minted does not equal the number eligible for yield.
This is because of the triple yield factor.

i will say that there are roughly 40x more KAU ever minted than there are in circulation. This is b/c the majority of historically minted KAU count triple when considered in the Minter's yield category. I also assume that the Market Makers have not minted coins.

Having said that for simplicity, as far as the discussion on Minters' yield goes we can say there are 100x more KAU ever minted than there are in circulation.

So we have 1 : 100 as Circulating KAU : Total Minted KAU
There is 1 coin circulating and the transaction fees it generates are shared between 100 coins in the Minters' pool.
In another thread i pointed out that on paper i have minted $9 million in KAU and yet i was 'only' awarded $26 Minter's yield in November. (i was actually quite pleased with the $26.)

If the KMS expanded considerably so that the coins circulating were 100x more and from this point onwards no more coins were redeemed, the ratio becomes:

100 : 200 - we need another 100 KAU to get the new circulating coins.

So we have 1 : 2

So now 1 circulating coin is generating fees for only 2 coins in the Minter's fee pool.
This is a 50 x increase in yield assuming coin velocity stays the same as it is now.

My $26 in a month jumps to $1300

I examined the $26 Minter's yield as a function of what it cost me to mint the '$9 million KAU' and came out with a 0.5% yield.
In the expanded KMS scenario i am getting a 25% yield.

We must remember that most of my minted coins were triple yielders - so really i actually minted $3 million KAU. If my minted KAU were only single yielders the 25% would fall to 8 or 9% of the cost of minting to me. Still not bad as a running yield.

I looked at the cost of minting to me as being my investment. This is the actual money it cost me to mint. The guesstimate for the cost of minting the $3 million actual coins minted was 2% or $60k. Now i am sure that is too high. If you said it cost me $25k - $31.2k to do the minting, i think that might be nearer the truth.

So if we imagined it were $31.2k, i could make $1300 a month on a $31.2k investment.

This is an annualised figure of 12 x $1300 = $15,600 for a $31.2k investment. This is a 50% return.

Then of course there are the KAG i minted. My KAG Minter's yield is about half my KAU Minter's yield.
The way i have calculated the Minter's yield all depends on how much it costs for you to mint your coins. This varies from user to user. Some will have been luckier and more skilful.

All these calculations depends on the way the KMS develops.
If you believed in Kinesis and you minted all night until your hands were bleeding and the Kinesis Express hits full speed, it's happy days. But it all depends - you might stay at $26 / month and die a pauper.

So yes the Minter's yield as i have shown it here is a potential sleeping giant. The KVT's that minting earnt, potentially makes the process the mother and father of all Godzillas.

Now with respect to the reversal of Minter's yield dilution.
If the KMS goes great guns and the number of coins in circulation increases 100 x whilst none are redeemed in the meantime we see that the ratio of circulation coins to ever minted is 1 : 2.

To remain at that ratio, for every 2 coins minted, 1 of them could be redeemed. Yes half of newly minted coins could be redeemed and we would stay at the 1 : 2 ratio of circulating coins : ever minted coins.

If is easily possible that the 1 : 2 could fall further. The ratio could fall such that it is 2 : 1.

The reason you can on paper have more circulating coins than were ever minted is because you aren't counting 'ever minted' coins, you are counting ever minted eligible for Minter's yield coins.

As i have understood it, the Market Makers aren't eligible for Minter's yield, so they can mint coins into existence, these coins then enter circulation but don't appear in the 'ever minted eligible' coins column.
This reverse ratio isn't likely to happen b/c Joe Sixpack will re-enter the minting arena and start adding to the ever minted eligible coin column again. But i thought i would add this idea to the mix.

 

[rightone72]

If you were acquiring KVTs when they were issued after $50000 USD worth of Minting then my figure of 2% will not apply in that scenario, and if you were receiving three times the Yield return for the quantity minted all the better for you unfortunately for me I joined Kinesis at the end of the $50000 USD Mint requirement and only received a handful of KVTs during that offering, but since then I am now just watching and weighing the value of the Minting for KVTs process in respect to ROI, if long term the Minters Yields don't return a lot but the KVT return is where the highest returns are most likely going to be then in some cases it may just be better to buy a KVT at current market valuation allowing the bulk of your holdings to remain in KAU or KAG and not have to sell into USD to do the whole Minting process and potentially get caught out in a rising metals market which will quickly make the cost of the Minting process drastically more expensive than the $1800 that KVTs currently sell.

Now that I better understand what is meant by redemption, and now that I understand who the Market Makers are and what they do it is quite easy to understand how the circulation quantity can fluctuate unrelated to the 'eligible for minting yield' quantity, I thought the Minting users were the only creators of KAU and KAG, and now that I think about even if that were still the case I can still see how the circulation pool could be 100x the 'eligible for yield' minted quantity.

Anyway thanks for clarifying the points that you have so far

 

[Uchiki]

...the KVT return is where the highest returns are most likely going to be then in some cases it may just be better to buy a KVT at current market valuation allowing the bulk of your holdings to remain in KAU or KAG and not have to sell into USD to do the whole Minting process and potentially get caught out in a rising metals market which will quickly make the cost of the Minting process drastically more expensive than the $1800 that KVTs currently sell.

Yes, the KVT bonus for minting is the key current incentive.

If you want KVT's and you have the funds to mint, then it's possible to cycle mint without taking much price risk.

The process to mint, sell at Exchange, transfer USD back to mint and mint again can all be done quite quickly if you're prepared just to sell at the best bid price and just accept the cost as the price of acquiring a KVT.
Looking at it this way, you get a cheaper KVT, with any future Minter yield benefit being a bonus.
As others have said, KAU is the cheaper route.

 

[Troglodytes]

And for those who haven't seen it, I have made a nice Excel sheet to calculate the KVT minting cost:

Excel sheet: The cost of "minting" KVT during PMO

At this moment, it is still possible to earn KVT by minting KAU / KAG. A popular way to obtain KVT is by so called "mint cycling", where the same capital is used repeatedly for minting KAU/ KAG, selling it on the Exchange, and then bringing it back into the Mint for the next cycle. This way it...

forum.kinesis.money

 

[rightone72]

Does anyone one know how many of the 300,000 KVTs were issued at 50000USD, I would like to try to roughly work out how much the KVT Minting process added to the Yield Pool over time.