After currency

In this exclusive interview TerraNova talks to Second Life member Jacqueline Richelieu about her plans to create an in-world investment bank and stock exchange.

For those not following SL here is a quick bit of background which should put the notion of in-world investment banking into context. Old hands can probably skip this bit:

As many here know Second Life (SL) is a ‘social world’ that is unusual amongst VWs in that its contract (TOS / EULA) recognises player creation and grants certain rights over virtual objects to their creators – they players / members / citizens of SL. SL creator, Linden Lab, also accepts the trading of SLs currency on sites such as GOM.

With many social worlds one might ask ‘what is the game?’ in SL the answer is easy: it’s the economy, stupid.

A large number of players are active in the creation of product and / or services. These range from clothes and furniture through to animations, avatars, photography, live-DJing. Most of this merchant class own land - which they rent from Linden and seems to represents the core of the SL business model. The land is used for houses, clubs and of course shops and malls. An avatar vendor I met recently, for example, has space where he runs events – which is conveniently right next door to his shop, and rents five other outlets within malls and other businesses.

Gradually the SL economy is gaining a recognizable structure: people buy things e.g. custom avatars, avatar business rent space in a malls, mall owners buy land and services to create their malls. At the top of tree are popular merchants and the so called ‘land barons’ who buy large chunks of land from Linden then re-sell small parcels (aka ‘land stripping’). For the top merchants all of this activity generates a respectable real income, in some cases enough to live on.

Given the status and structure of the SL economy - and to be frank, the amount of money to be made in there, the next logical step for the ‘economic game’ is in-world financial services - which is where Jacqueline Richelieu (character name) enters the picture. Jacqueline is currently working on an in-world investment bank. Intrigued, TN caught up with her [Interview took place on 31/07/04 on the tennis courts at Avalon, transcript is edited for flow and typos]:

TN: Can you give us an overview of your venture Jacqueline Richelieu: as the first investment bank, we will be tracking many variables of SL's economy. We seek to provide financial analysis, place money, and determine attractive investment opportunity

TN: what kinds of things will u track?
Jacqueline Richelieu: land sales, USD$ to L$ ratios and the biggest opportunity: taking virtual SL companies public in SL.

TN: have u had much interest so far?
Jacqueline Richelieu: yes, many companies want to go public some of the largest enterprises seek to capitalize themselves… I envision our biggest market in taking SL companies public the SL stock exchange

Jacqueline Richelieu: The "hard" part will be auditors the need for 3rd party independently verified financials… our auditors will report on our undertakings from an independent perspective
TN: can u say who they are / will be
Jacqueline Richelieu: they will be announced, though at this point, we have yet to engage any

TN: will u have a web site to, and compete with GOM and IGE on the currency exchange front
Jacqueline Richelieu: we won't be direct competitors of GOM or IGE, in that we will most likely analyse trends there and not do actual USD$ exchanges but a web site providing investment opinions and analysis, yes

TN: do you have official underwriting from Linden [Labs]
Jacqueline Richelieu: no, nor will we seek it we seek to avoid regulatory oversight

TN: I also wonder about the enforceability of contract in here [Second Life]
Jacqueline Richelieu: IMHO, there is no enforceability. That is why auditors become so important
TN: So why would anyone invest if there is no security
Jacqueline Richelieu: the oldest point in the world: *principle*. Trust. Trust will be EVERYTHING at Richelieu and Associates.

So there we have it. Some people thought the idea of virtual currencies was odd, I’m just beginning to contemplate the kind of issues and complexities virtual investment banking is going to unearth. The firs thing that does spring to mind, as noted in the interview, is how enforceable an contract is going to be, and in what ways does a contract between players for a virtual enterprise relate to the TOS obligations that they have entered into with Linden (for reference here are the Second Life Terms of Service)

Comments

[Matt Mihaly]

1.

Cute, but without the ability to enforce contracts there's nothing stopping fraud at any point along the chain: In the business being taken public, in her virtual company, in the third party auditors, etc. Second Life is a pretty small community, so maybe trust will work, but if there's any real money to be made, forget it.

--matt

[Andres Ferraro]

2.

As long as you can start a third, fourth, fifth, or nth "Second Life" while avoiding tying these together, accountability is a major roadblock.

Never the less, the stock exchange angle should be really interesting in SL. I wonder if it borrows something from EVE Online's book.

It is an interesting twist on an old mechanic: Funding SL projects with multiple players. Now these players might be able to join in or cash out at any time.

[Hellinar]

3.

Matt >but without the ability to enforce contracts there's nothing stopping fraud at any point along the chain<

I'd say certain types of contract are more easily enforced in a VW than in the familiar world. If you take the ATITD approach, and write laws in running code, then they, and the supported contracts are enforced by the server. The trade off is you get less flexibility in contracts, but a higher reliability.

For example, Linden Labs could allow in code, a corporate body to own land, shops and other large capital assets. Allow the corporate body to only buy and sell such assets with majority shareholder approval. Ensure dividends from the shareholders account goes equally to every share. With such a setup, I think the investors would have as much security, though of a rather different type, as real world shareholders.

ATITD did experiment with contracts in Beta 2. The system relied on player judges who were able to award “black marks” to players who failed to fulfill their contracts. The system fell into disuse, as Egyptians proved too trustworthy to need the system. Of course, there were no real world dollars at stake in that game.

[magicback]

4.

Hellinar> If you take the ATITD approach, and write laws in running code, then they, and the supported contracts are enforced by the server.

This is were Code = Unbreakable (but hackable) Law.

It will be interesting to see how SL evolves with more civil structures and conventions.

Frank

[Tobold]

5.

"we seek to avoid regulatory oversight"

Now this, and similar comments on the venture being trust based, started a curious chain of thought in my head: I would gladly play a game with a virtual stock exchange just based on trust, as long as the virtual money I invested was not convertible into real money. But as soon as I get the feeling that I am investing real money, my real world money sense kicks in, and I will insist on things like regulatory oversight, and enforceable contracts.

So in this case, commodification is destroying a game for me. A sad thought.

[ren]

6.

Hellinar >For example, Linden Labs could allow in code, a corporate body to own land, shops and other large capital assets.
>ATITD did experiment with contracts in Beta 2.

Now there is a thought. Objects in SL already do have attributes such as copy / no-copy so that the creator of the attribute can set certain permissions. If Linden don’t want to do this then the ‘bank’ might look to create ‘certificate’ objects. I think that objects can talk to each other across world (I sooo don't script), so one might be able to set up a stock system that talks directly to the certificates e.g. so a sale changes the ownership attribute in the object. In theory one could code dividend distribution into them as well – if the language would stretch that far (if the whole XML-RPC thing gets going this could be very powerful).

Though with potentially several thousand distributed objects talking to each other in an automated stock system, well, brace the servers Cory.

>The system relied on player judges who were able to award “black marks” to players who failed to fulfill their contracts. The system fell into disuse, as Egyptians proved too trustworthy to need the system.

This brings us to the endless trust-system discussions that go on, on MUD-DEV. I’m not sure the peep over there have ever work out one that can’t be hijacked in some way – though the ATITD example might prove why: to have a trust system you need to trust people, but if you trust people, you don’t need a trust system.

[Flatfingers]

7.

Hellinar> "I'd say certain types of contract are more easily enforced in a VW than in the familiar world. If you take the ATITD approach, and write laws in running code, then they, and the supported contracts are enforced by the server. The trade off is you get less flexibility in contracts, but a higher reliability."

That is precisely the point I've been making in my ongoing attempts to persuade SWG's developers to implement a player contracts system.

The first objection everyone makes is that no in-game contract system can work unless its intended audience trust it... but human beings are really, really good at finding the cracks in any system. In other words, any system is potentially griefable. So how can any in-game contract system be sufficiently trustable to be accepted by players?

The critical question is how we decide whether the terms of a contract have been met. The two choices are to let players arbitrate, or let the encoded game rules arbitrate. Both approaches have advantages and disadvantages.

If players arbitrate, your game can tap into much of the flexibility and creativity that a generalized contract system allows, but the price is subjectivity of judgements. If the judges are considered too subjective, or in some way aren't trusted as fair, unbiased, and impartial, the system won't be accepted.

Computer-based judges, by contrast, are the very definition of fair, unbiased, and impartial -- they do exactly what the contract resolution rules tell them to do. So if the rules are known, are considered fair, and are perceived as difficult to hack or grief, then the system will be perceived as trustable.

The price for this trustability, however, is limits on contracts. To guarantee that the computer can always evaluate whether the terms have been met (or can't be met), contracts can only exist in whatever predefined forms the developers encode. This severely limits the value of a contract system to encourage broad and creative economic activity.

So the question boils down to whether you think it's more important to maximize flexibility or accountability. Choosing flexibility also imposes subjectivity that may doom the acceptance of your contract system, but choosing accountability may so limit the types of contracts whose resolution can be guaranteed that the system won't be perceived as general enough to be worth using.

The only way I've seen out of this Gödelian dilemma is to come down on the side of pragmatism. A workable contract system has to let the computer be the judge of whether any contract's terms have been met (or can't be met), but to be worth using it has to offer its potential users a large number of different (and popular!) types of contracts. And we just have to hope that the number of contract types offered is sufficient to capture a reasonable share of the kinds of economic things players want to do.

Contract types appropriate to MMOGs could include:

* Exchange (swap goods for goods or goods for money [Secure Trade Mk. II])

* Transport (move items [or player characters] to a specified location)

* Delivery (give items to a specified player character)

* Recon (go to a particular location)

* Obtain (take possession of a specified item)

* Heal (heal wounds or cure diseases of a specified living target)

* Buff (apply helpful effects to a specified living target)

* Build (create a particular kind of object, possibly with certain stats)

* Guard (defend a specified player character)

* Destroy (eliminate a specific creature or object [not PCs or NPCs])

* Assassinate (kill a specified player character [who must agree to be a target])

* Marriage (marry another player character [note that this allows divorce by deliberately breaking the contract's terms!])

(Other useful contract types will no doubt be obvious; these are just examples.)

I've written a fair amount on this subject over in the Official Star Wars Galaxies forums, so I'll stop here, but I hope this discussion can continue. The Next Big Step in online games (and VWs generally, I think) will be the development of a Secure Contract Window system that abstracts the Secure Trade Window concept everyone has adopted.

Trustable contracts will revolutionize in-game economic systems... IF we can find a way to make one work.

I've written a lot more on this subject over on the Official SWG forum, including a first shot at a Player Contracts design document. It's not the best link, but the three relevant threads are:

Advanced Economic Systems in Online Games:
http://forums.station.sony.com/swg/board/message?board.id=Development&message.id=938113

Player Contracts:
http://forums.station.sony.com/swg/board/message?board.id=csystems&message.id=4421

Player Contracts (The Short Version):
http://forums.station.sony.com/swg/board/message?board.id=csystems&message.id=15183

Reposting of the initial messages in these threads to some more accessible place would be welcomed. (I'd do it myself if I had one.)

--Flatfingers

[magicback]

8.

Flatfingers,

The contracts you listed sounds like quests. Thus, the quest resolutions mechanism is already in place. Therefore, it's is essentially allowing players to use the mechanism to give other players quests.

Frank

[Flatfingers]

9.

Frank> "the quest resolutions mechanism is already in place. Therefore, it's is essentially allowing players to use the mechanism to give other players quests."

And that's the response I've given to the second most common objection: "It's too difficult technically."

MMOGs such as SWG already have code in place that "knows" when a player has successfully completed (or for some reason can no longer complete) an NPC-given quest/mission/contract. A player contract resolution system would reuse and extend that existing code.

--Flatfingers

[Merwan Marker - Awakening Avatars]

10.

Interesting ideas.

I'm confused by Jacqu's statement:

Jacqueline Richelieu: The "hard" part will be auditors the need for 3rd party independently verified financials… our auditors will report on our undertakings from an independent perspective

When referring to "our" auditors - who independent can their perspective be if they are in the business of making profits on the stock exchange?

[Lordfly Digeridoo]

11.

This person that TN interviewed joined SL barely 3 days ago. Unless she's an alternate account of an already established player, she has no idea how the SL economy works.

She also tried selling an "exclusive" guide to SL auction data for $L500 a pop. Nevermind the fact that it was publically available data on SL's website. Caveat Emptor, I suppose.

A trust system simply doesn't work in SL, because the current system makes it insanely easy to gyp someone else (buggy permissions systems, casino code glitches, and so on, simple social engineering, etc.)

Most of the people that would have the capital for this endeavor are too greedy/untrustworthy to do it themselves.

Unless SL codes in some tools to make this a more advanced economy, we're not going to advance much.

[Urizenus Sklar]

12.

not encouraging news about Jacqueline. Doesn't sound like she has the cred to make this happen.

But about this: "Unless SL codes in some tools to make this a more advanced economy, we're not going to advance much."

Well, *wouldn't* they code in the tools?

[Tinkergirl]

13.

I believe that EVE has a player contract system in place currently - much like the quests/contracts that Flatfingers proposed. Called the Escrow system (I'm not familiar with all it's details), it allows players to set up 'jobs' like deliveries, manufacturing requests, bounties and the like. I believe they use a form system to create them, with drop down options.

I have no idea how successful this is in EVE, but it'd be nice to look into what works in the system, and what doesn't.

One thing to remember on the topic of trust and accountability in VW's is that different personality types react differently to threats/laws.

Some will empathise with the victim and thusly not break a trust.

Some will react to laws and will realise that the risk is too great compared to the reward (and risk/reward is all laws can be).

Whereas yet others will always break the rules - threats/laws have no impact on them, all that is important is the here and now. These sociopathic tendancies (in my opinion) surface more in VWs than real life. How you keep those people to laws (be those contracts or financial bindings) is something that will always be a problem.

~Tinkergirl.

[Lordfly Digeridoo]

14.

>Well, *wouldn't* they code in the tools?

They might, but there's not really a good way of doing it in a completely open ended VW. How do you code in a general purpose contract system?

BEsides, they're falling behind on other features, like a better ratings system, havok 2.0, scripting, bugfixes...

LF

[ren]

15.

Lordfly Digeridoo > This person that TN interviewed joined SL barely 3 days ago. Unless she's an alternate account of an already established player, she has no idea how the SL economy works.

Someone asked me off-blog whether this was a hoax.

Well, my part of it isn’t, you have pretty much the transcript of a conversation that I had. As to the history or veracity of Jacqueline Richelieu, I can’t comment - but actually, on an intellectual level, I just don’t care.

What I do care about is what we think of the idea:

• Would this work right now in SL, if not why not?
  
• Would this ever work in a virtual world – what conditions are needed?

The question on whether this could work in SL right now or not I think is one of scale. At an economic level my personal feeling is that SL is ‘just a game’ until you dealing with enough L$ to make a difference to you as an individual. So if we were talking investment schemes that cost a few L$100 or a few L$1000 maybe then fine – I’m happy to play that game and not ask too many questions just as I would play Celebdaq or one of the other market based games.

However if a single player is starting to hold L$100,000 or L$ millions of others’ money, then I start to think that we really do need to look at things like the person-person and person – game world contracts, auditability.

It’s interesting how it changes things.

At root this is the same issue as virtual currency / items trading. But just at root. In our usual scenario we certainly have a short term trust issue with another individual and as many know there are a lot of scammers out there. But, what can go wrong with a light-sabre? OK the code can be bugged but that is going to be the case for any instance of light-sabre and it falls to the game company to fix it (though under the EULA they probably have no contractual duty to fix it – I mean imagine a software company being contractually bound to fix bugs!).

But with investments, at any interesting level, we seem to be vaulted so far out of the magic circle that it’s just a dot on the horizon. Given that the L$ is a traded currency it would seem to me that for something like this to work one would have to establish a real company, that had real out of game contracts with people which were actionable on default.

So, it’s going to be interesting to see if / when Jacqueline or someone else launches this kind of thing. Starting it in-world as a ‘game’ seems problematic, if it is successful then at some point it needs to get incorporated some how; a better option would seem to be to start an actual business along the lines of the currency shops and then instantiate in world.

[Bruce Boston]

16.

Hi Ren,

The basic idea behind this is probably doable, but the scale is still very small. I know in There we have had a number of investment companies start-up and run fairly well.

From my own experience, its not impossible to run a company based on trust. My personal Bank in There (FirstBankofThere.com) has a line of coins which have face values ranging from T$1k, to T$1M (approx US$500+). The coins are fully redeemable for the face values, and at one point I had several million TBs in coins in circulation. Once people are done with the coins, they often return them and cash them back into TBs. It's all kinda fun, trading virtual coins for virtual currency, but I think it shows that financial relationships based on trust are possible in VWs.

-bruce

[Carnildo Greenacre]

17.

>What I do care about is what we think of the idea:

> * Would this work right now in SL, if not why not?
> * Would this ever work in a virtual world – what conditions are needed?

The proposed system wouldn't work as proposed in SL right now.

As proposed, the system relies entirely on trust: there is no enforcement mechanism. But SL is too large for a purely trust-based system, and the people most likely to make use of loans/investments from an institution are relative newcomers -- but they haven't been around long enough to build up trust. Further, it's far too easy to start a new identity, and unless you're careless, there's nothing to link old and new identities.

Because of the clause in the SL TOS that gives content creators copyright over their work, Linden Lab would run into legal difficulties over any automatic contract enforcement system. What LL could do is set up an in-world contract system that is verifiable enough to let a court of law handle enforcement, but that's probably more work than they want to take on right now.

[Flatfingers]

18.

Carnildo Greenacre> "Because of the clause in the SL TOS that gives content creators copyright over their work, Linden Lab would run into legal difficulties over any automatic contract enforcement system."

Why do you believe these things are incompatible?

I'm not able to play SL (can't get broadband where I live), but as I understand it there are already rules in place in SL governing what I am allowed to do with objects created by someone else. Unless I'm missing something, these terms-of-use rules as currently implemented in SL actually constitute a small-scale version of a player contract system with automatic term enforcement.

So why would it be impossible to extend this system to include the kind of fee-for-service contracts that would allow the contract security necessary to develop a large-scale service economy within SL?

[Brask Mumei]

19.

A wise lawyer once told me two important things about contracts:

"I'd rather have an oral agreement with an honest man than a written contract with a dishonest one."

"An oral agreement is worth the paper it is written on."

The second lesson is what most people here are picking up on. However, I think the first lesson is more important.

If the person you are making a contract with is dishonest, a written contract does not help. So what if there are penalty clauses? So what if I can go to court to eventually reclaim my loss? That doesn't give me the cash I need *now* to stay solvent.

Computer code is no better. Even if the code is bug free, you still have the social engineering problem. And, when the wascally wabbit tricks you into signing away your home, you have no recourse at all. The outside world declares: "Code is law!" and leaves you out in the cold. Nevermind that you thought you were signing a form to receive the $15 million your unknown relative in Nigeria left you. (Case in point: An old UO trick was to ask someone who wanted to buy your home to a buy a rune to where it was located. The rune would be priced at 15 gold. However, when they said "Vendor buy" a hidden accomplice would reprice the rune to the amount in the victim's bank account (Found out by demanding the victim publicly request a balance to verify their credit). "Code is Law" and the victim loses their life savings for a blank rune.)

Contracts are always about trust. Enforceability is certainly a good thing, but is not a necessary thing, and most certainly, *not* a sufficient thing.

- Brask Mumei

[Lordfly Digeridoo]

20.

># Would this work right now in SL, if not why not?
># Would this ever work in a virtual world – what >conditions are needed?

It won't work in SL because, as Carnildo said, there's no enforcement in place. It's entirely on trust.

Furthermore, the current economic situation in SL is such that for the "investment bank" to turn a decent profit, would have to charge something like 20% interest every month. Why? Well, the only "hard" currency in SL is land acquisition. It's the virtual equivilent to gold right now. As such, it's about the only collateral you can put up that has any worth.

So, to put your land up for collateral, you would transfer it to this "bank". The "bank" must then pay for the land tier while the player pays the "bank" back for the loan. So the player is paying the $L equivilent of the land tier, AND interest, every month, just as a minimum payment. It's more of a "loan shark" than a "bank", and the thread on the SL forums going right now isn't very encouraging (dodging questions, appeals to authorities, and so on) on the whole "trust" issue.

Wouldn't going to GOM be simpler and less hassle?

AS to whether it's possible in a VW, it's absolutely possible. ATITD has a player-run bank, I understand.

SL will get one when the Lindens code in some sort of automatic enforcement of contracts between players. Even if it's just a bunch of script calls, it's better than what we have now.

I can't wait for virtual stock markets, shares, and whatnot. But, I'm not going to jump in full speed ahead until I have a 100% guarantee that the player I just sent 10,000 linden bucks to won't bounce off the world with my paycheck.

LF

[ren]

21.

Lordfly Digeridoo >ATITD has a player-run bank, I understand.

When I was last active in ATITD printing technology has emerged in-world enabling anyone with the crafting resources to create money. At that time the TN (TeppyNote) was emerging as the defacto currency, but as the community really was not very commoditised none of this seemed as big an issue as it would be in a trade based VW.

[ren]

22.

The Second Life forums picked up on the post and went nuts in the way that only a forum community can. The discussion is fascinating as is gives a view of the way that possibly the most explicitly commercialised VW community (or at least the vocal members of it) react to this type of proposition.

With permission from Jacqueline I have posted extracts of her replies, but I would suggest that people hop over to the SL forum and take a look.

[note: comments are directed to issues brought up in the SL forums not here, though there are some parallels] Hello all,

I think you've all got the wrong idea of what an investment bank does.

Although we will accept deposits, should you feel the need to place your Linden funds into a secure institution, our main focus is on forming/taking SL companies "public".

Taking companies public means creating ownership liquidity through a mechanism, usually a stock market, where ownership can be bought and sold.

Of course, we understand your concerns about getting a "fair deal", hence the need for auditors or other outside, third party oversight. Members of the investment bank and other major investors will be prohibited from being our auditors. In fact, we'd be very open to the idea of Linden Labs being the auditor, however, I doubt they would want the task.

I am still in the early stages of setting up the investment bank - the building is almost completed - so there are still a lot of issues being worked out. I appreciate all of your comments good and bad, and will strive hard to earn your trust.

--8<--

All transactions handled by my investment bank will occur in L$. This being the case, I'm not sure what you mean by transactions occuring in RL$ or having a RL lawyer look over them.

I have no plans to take SL companies public on a RL stock exchange, merely to take SL companies public on a SL stock exchange.

--8<--

Although I share your enthusiasm for an immediate start, I'm afraid that I'm still in the due dilligence stage of setting up Richelieu and Associates.

Currently, I am seeking members to form the board of directors of the company. They will be the officers of the company, which is currently a "group". So far, I have selected (and he has accepted) His Grace. His grace is a gracious number-cruncher who is interested in SL's economic trends. I plan to invite RenZephyr Zircon (a published academic in RL) to the board for his leadership and guidance. I hope to have many of SL's powerful and wealthy members on the board to enhance the bank's credibility.

There have been a number of SL citizens extended "economist" or membership positions with the bank. There will be many more invitations forthcoming in the future.

I am committed to honesty, integrety, and excellence in our underwriting efforts.

I also would like the bank to become a source to obtain SL economic data.

When all the pieces are in place, this bank will truly be a SL institution.

--8<--

I am very pleased to see the robust discussion that is taking place in this thread. Bravo to everyone for contributing their ideas and their concerns!

Please recognize the fact that our investment bank is not yet fully functional and we are working on allaying all of your concerns.

To those with sincere concerns: I promise you that we will devise a system that will be fair and equitable to all involved.

To those who simply oppose our existance: I'm sorry that you are offended by our presence. Unfortunately for you, we are here to stay. I encourage and enjoy this robust dialoge we are having, but understand that nothing you can say will dissuade us from our vision - which is to provide mutually beneficial exchanges for everyone. Hopefully, in time, you will come to trust our intentions and use some of our services.

In time, we will begin rolling out our lineup of economic products and banking services. I look forward to helping each and everyone of you with your unique situation.

Most Sincerely,
Jacquline Richelieu

[ren]

23.

In the interest of full disclosure – following the posting of this TN thread I have been invited to join Richelieu Associates. I am considering proposing the role of an (unpaid) non-executive director along the lines proposed by the Higgs Report (.pdf 3576 Kb) - the result of an investigation into corporate governance established by the UK government post-Enron. This would be an independent position that would be focused on governance and some strategic (read: no I will not be a customer service rep or get involved in any individual dispute that might arise) guidance that would seek to protect the interests of stake holders.

[Carnildo Greenacre]

24.

Brask Mumei> A wise lawyer once told me two important things about contracts:

> "I'd rather have an oral agreement with an honest man than a written contract with a dishonest one."

> "An oral agreement is worth the paper it is written on."

> The second lesson is what most people here are picking up on. However, I think the first lesson is more important.

> If the person you are making a contract with is dishonest, a written contract does not help. So what if there are penalty clauses? So what if I can go to court to eventually reclaim my loss? That doesn't give me the cash I need *now* to stay solvent.

Two things:
1) Enforcement won't help if the person you're contracting with is dishonest, and won't be needed if they're honest. But if someone's borderline, the existance of an enforcement mechanism will tend to keep them honest.

2) If contracts are based entirely on trust and personal reputation, the people who are most likely to need a loan are the least likely to get it: new players.

[Flatfingers]

25.

With respect to "automatic enforcement of contracts," there are two keys to achieving this:

1. Contract terms may not be altered once both parties have agreed to the entire contract.

2. The game system (code) must be able to reliably detect when all required contract terms have been fulfilled, or when any required contract term becomes impossible to fulfill.

Note that the Secure Trade Window concept was devised to prevent just the sort of switcheroo scam that Brask described. And it works because it follows these two rules -- it doesn't let anyone change the deal once both parties have agree on what's to be exchanged, and it reliably detects the instant that all agreed-to terms have been fulfilled (i.e., everything to be exchanged exists in the player's inventory, has been moved into the trade window, and the "accept trade" button has been pressed).

A more general Player Contract system (in which a Secure Trade is just one type of contract) that follows both of those rules should be equally bulletproof... and should therefore engender equal trust.

[Peter Forex]

26.

The second lesson is what most people here are picking up on. However, I think the first lesson is more important.