Iron Priaire: Genuine Currency Exchange

Faculty and students at the Rose-Hulman Institute of Technology have opened Iron Prairie for your review. It's a virtual worlds trading site, but not like the others. I'm blogging it because this is the first time I've seen a bid-ask structure for pricing. In this, Iron Prairie is the first site to replicate real world currency exchanges. They cut out the middleman. Check it out.

Like most other universities, Rose Hulman likes to spin off the business ideas it incubates. If you'd like to invest in Iron Prairie, contact Mike Shepherd at [email protected]. Disclosure: I'm not an investor. I'm just a guy who wants to help the idea-makers at off-the-coast universities get the exposure they deserve.

Also, this post may make some people wonder about my oft-stated commitment to anti-RMT. My positions, in order:

1. Property is good
2. EULAs (or any contracts) can't turn property into non-property
3. People with property have certain rights, such as the right to trade
4. Trading is generally good
5. Sometimes there are market failures
6. RMT is a market failure
7. RMT should be solved by some kind of covenant among players
8. The EULA is not such a covenant
9. Goverment policy should enable the formation of such covenants when and only when worthwhile for the participants, which is "not always"; i am concerned that there will be ham-handed effort to commercialize all games, or to support EULAs willy nilly, or to stop trading in SL, or some other easy but wrong solution
10. Absent such covenants, I find RMT generally understandable given the design of games, but personally repugnant, especially on role-playing servers.
11. Given that the trade exists, it would be better to have it happen directly between buyers and sellers rather than through middlemen like IGE, who continue to walk off with supra-normal profits because of the absence of market sites like Iron Prairie. This by the way is also the reason i support Station Exchange.

Comments

1.

How is this different from Gaming Open Market as it existed three years ago?

[Markus Breuer (Pham Neutra)]

2.

As the guy before me said: were exactly is the difference between this approach and GOM or the other currency exchanges for the L$ (even LindeX)? All of them are using bid/ask and have the exact same structure for reaching a market price like any other currency exchange.

I am only a layman of course, while you are a real economist. So maybe I have overseen some important detail.

[randolfe_]

3.

GOM was abandoned because at least one of the founders, Hale, decide to pursue a professional career. In my opinion, the concept was never really tested beyond the "can we fight through IGE's interference maneuvers" stage. When I analyzed a prospective venture very close to Iron Prairie's model about 2 years ago the primary risk the investors balked at was counterparty-risk. This surprised me, as I would have thought legal risks related to EULA enforcement would have loomed larger. But, at least these investors, believed serious challenges to EULA/ToS claims vis-a-vis property rights were relatively shallow.

[Kathy]

4.

I checked my server to see who the cheating vermin are. And it was all the usual suspects from the big farming corporations.

So much for "directly between buyers."

I look forward to when one of the RMT sites starts listing balls and strikes from the MLB. I'd like to RMT a few home runs please. After all if you can take a base and steal home, surely you're allowed to sell it.

[randolfe_]

5.

Is the definition of "RMT" (real money trading) dependent upon brokers, or just brokers operating in inefficient (unharmonized) markets?

Brokers and/or broker-agents are not mutually exclusive to 'acceptable' market function. It may be that a virtual property market operates more like the (admittedly inefficient) real real estate market and/or property auctions and less like a Forex market or equity market.

Some would say that real estate agents earn supra-normal profits relative to their contribution to the transaction, that there exist inconsistent and irrational barriers to entry, and that increased demand leads to rampant middle-man flipping.

I don't necessarily disagree that RMT is an example of an economic "market failure". However, by this standard there are quite a few substantial examples of real world market failures as well.

[Matt Mihaly]

6.

Edward wrote:

Goverment policy should enable the formation of such covenants when and only when worthwhile for the participants

Worthwhile for which participants? What's worthwhile for someone interested in gold farming is different than what's worthwhile for you is different from what's worthwhile for me surely.

Given that the trade exists, it would be better to have it happen directly between buyers and sellers rather than through middlemen like IGE, who continue to walk off with supra-normal profits because of the absence of market sites like Iron Prairie.

Actually, AFAIK Affinity Media (of which IGE is a brand) makes most of its virtual-goods revenue (as opposed to advertising revenue or whatnot from its media properties) running exactly what you're talking about in Korea under the name ItemBay, which is, I believe, the most popular P2P virtual goods auction site in the world. The claim that they are cleaning up in the North American RMT market via their old model is a bit out of date.

Also, is Iron Prairie any different from playerauctions.com, which Affinity also owns and behind which they are just starting to put some weight in order to try and emulate the success ItemBay has had in Korea? I haven't had time to dig too deeply into Iron Prairie but it seems like a clone with support for less games (just one actually).

--matt

--matt

[Elle Pollack]

7.

I'll be the third to ask: "Yeah, what about GOM?" Don't forget they did several virtual currencies before they went to Second Life only.

>>"GOM was abandoned because at least one of the founders, Hale, decide to pursue a professional career."

And because they were miffed over their unsucessfull attempts to cooperate with Linden Lab that led to LL creating the Lindex. To this day the threat of LL competing in a resident-created market is known as "being GOMed". That said, if they had rode it out, they would probably still be in business...SL Exchange/AnsheChung.com (Anshe owns stake in SLE) and IGE are still operating anyhow.

[Matt Mihaly]

8.

Incidentally, playerauctions.com was around years before GOM was.

--matt

[randolfe_]

9.

I'll admit to corresponding with Hale re: GOM as it coincided with my earlier mentioned venture consulting. This was literally just as GOM was closing up. He indicated that counterparty risk and fraud were very significant concerns over which they worried about their legal exposure. He mentioned Linden's competition, but didn't seem to consider that a primary reason for abandoning the venture -- at least to me. Hale struck me as very intelligent and quite capable of standing up to competition. GOM had already weathered IGE pressure across multiple titles, and various Second Life resistance (not all of which was from LL).

Counterparty risk and implied fraud potential are the Achilles Heel of non-sanctioned/non-integrated RMT (or post-RMT) market solutions. Without enforceable financial obligations or technologically integrated controls, very little prevents sophisticated gaming and exploitation using good, old fashioned, fraud tactics.

[randolfe_]

10.

And if I remember, he went into Forex proper. IMO that was an incredibly smart and well timed move. I would be surprised if he isn't doing quite well today.

[Wes WInham]

11.

Iron Prairie is different from playerauctions in a couple of different ways (at least last time I checked it out). playerauctions uses an auctions system very similar to ebay where you put up what you want to sell in a description. This leads to a million different ways of saying the same thing (WTS 1000 WoW gold on us sargeras-horde) and doesn't allow a buyer to buy the amount of gold they really want or makes a seller put up a bunch of different auctions for different amounts. Also, from my findings, the site had auction capability, but mostly sellers just used buy it now or nothing else. Combine not being able to pick your gold, with buy it now discrepency with no easy way to do something simple like find the cheapest item on my server and you run in to some tough usability issues. Furthermore, you have to use a 3rd party escrow service (last time I checked) if you want to ensure security.

People just want to find the cheapest, safest price for exactly what they want, go through an easy payment process and get back to enjoying their game.

I never had the opportunity to visit GOM, but if that was what they provided, then it's a shame that they're not still around.

As to real estate agents making supra-normal profits, I'd say the difference there is the difficulty of comparing one piece of real estate to the next. All 4-bedroom, 2-bath 4,000 square feet houses on 1/2 acre of land are not created equal and even if they were, you could really only get a spot-on comparison against other houses of that type, in very very similar locations. There's so many factors to consider, that professionals have an advantage in information. When every piece of platinum is worth the same as every other piece of platinum, there's no need for the middle man.

[randolfe_]

12.

@Wes

I was analyzing the v-gold market more abstractly. Assuming there are frictions, inefficiencies, inconsistencies and even failures, the theoretical purpose of agents and brokers is to facilitate transactions. IGE does not earn "supra-normal" profits when judged by there being a very small or no market at all without their services. This is the same purpose of real estate brokers and agents in the RE industry.

You are right that v-gold should settle at marginal cost pricing and become a commodity eventually, real houses never will. But for some reason I doubt the author of this thread is invoking marginal cost pricing perfect markets or arbitrage price theory.

A platinum is not worth the same to every translation transaction anymore than a dollar is. In a Forex market, the dollar rate is damned close to perfect price. But try to get that rate when you land at Heathrow or when you buy a pint across from LBS with your credit card. In the field, agents and brokers facilitate transactions.

[Edward Castronova]

13.

forgot about GOM and Lindex. sorry jamie hale, you know you have my deep respect.

well, i am probably the last to realize it: i have lost touch. things in this space are moving too fast for me to keep up. /sigh

[Jeff Freeman]

14.

Given that the trade exists, it would be better to have it happen directly between buyers and sellers rather than through middlemen like IGE, who continue to walk off with supra-normal profits because of the absence of market sites like Iron Prairie.

I dunno... I think they walk off with the profits because they are more efficient at creating in-game gold than everyone elseplayers.

[Vili Lehdonvirta]

15.

IGE does actually add significant value to RMT transactions: trust. randolphe_ already highlighted the counterparty risk involved whean dealing "directly between players" -- a significant transaction cost for someone who wishes to do RMT. IGE has built a reputation of delivering as promised, which eliminates this cost. This is no doubt one of the reasons why IGE is able to maintain big margins compared to prices on sites like PlayerAuctions.

Iron Prairie addresses the issue by providing an escrow service. Maintaining such a service obviously incurs expenses. There's a $3 + 8-12% fee on every transaction. Might still end up being cheaper than IGE, though, haven't checked.

[randolfe_]

16.

I read through Iron Prairie's agreements and terms. They seem to have planned on (discretionary?) seller escrow. But the bigger problem might be buyer fraud. Buyer fraud was perpetrated on GOM and others. A buyer can very easily, given current Paypal and Credit Card policy, complete a transaction then reverse the payment after settlement claiming they never received their goods. It is effectively impossible for the seller to prove the transaction unless they have some kind of defensible agreement (that the payment processor will accept) or there is technical integration with the game itself.

Since payment processors are scale businesses, they do not have the practical resources to investigate every instance of this type of fraud thoroughly. They generally bias on the side of the buyer, except for large, well established sellers.

That is the value IGE brings in payment processing. It is much harder to reverse a charge on IGE because they have a relationship with Paypal and can command their attention when dealing with fraudulent buyers. I'm not sure if it's still the case, but some brokers (I think IGE included) actually pay their sellers up front and effectively take ownership of both the virtual goods/currency and the risk. It is hard to argue that this type of market making is not adding value, from an economic analysis of the market (qualification in an attempt to avoid religious anti-rmt arguments).

17.

If they wanted to replicate real world currency exchanges, they would need to establish market makers and update prices in real-time. 'Currency' would have to be held in trust by a third party (brokerage) to assure fair transactions. Nothing new here. Great plug for Iron Prarie, though.

[Wes Winham]

18.

I'm by no means an expert in real world currency exchange so bare with me.

they would need to establish market makers

From my limited knowledge, a market maker is someone who buys and sells and trys to make a profit on the spread. From what I can see, Iron Prairie allows a person or organization to fulfill that role, buying where asks are lower than bids and making a profit.

update prices in real-time

This is done automatically with any real bid/ask system. As soon as someone posts a new lowest ask price, that's the new price for askers and the new lowest bid price is the same for sellers. That's done in real time.

'Currency' would have to be held in trust by a third party (brokerage) to assure fair transactions

I suppose escrow is a bit different than this, because the brokerage (Iron Prairie) doesn't hold the currency until a transaction is agreed upon. In concept though, it seems like the only difference would be for a potential seller or buyer to back out of a transaction, which could waste the time of the other party.

This last point seems to be the fundamental difference in operation from GOM, from what I understand. I never had the chance to use GOM (I've only seen in through the internet archive), so I could be mistaken.

[mana]

19.

@Wes Winham

Market Maker and real-time go hand in hand. Really, you have no argument. I wish I could see the purpose behind your post.......

[randolfe_]

20.

@mana

Oh, I don't know. "International Financial Markets and The Firm", Sercu & Uppal, 1995, which professors at Ivy b-schools will collect out of print copies of to teach by:

Many players in the wholesale market act as market makers. [...] Another way of dealing in foreign exchange markets is through currency brokers. By and large, most transactions aside from those between major institutions, central banks and speculators are completed through brokers acting as market makers. Effectively all retail transactions are completed through brokers acting in that role.

Unless Iron Prairie is targeting IGE and PlayerAuctions as customers, they will be servicing retail transactions.

[dmx]

21.

I'd like to see blizzard sue these guys actually.

Goldfarmers are scum who ruin games.

[Allen Sligar]

22.

"Unless Iron Prairie is targeting IGE and PlayerAuctions as customers, they will be servicing retail transactions."

Bingo...

I find it funny that people are dancing around the obvious copyright and IP violation issues, seemingly dismissed out of hand for convieniance?

I have no problem with legitimate markets sanctioned by the game companies, grey markets and black markets?

No those do not lend themselves to a good game enviornment for gamers.

As to SL and VW, whatever, thats a different beast entirely.

[Dr. Cat]

23.

As usual, I don't see the anti-RMT comments containing appended qualifiers like "...in WoW/Everquest style games" or "...in treadmill based fantasy/sci-fi MMORPGs".

Is this a presumption that RMT causes & will cause the same kinds of problems in every type of game that ever was or ever will be? Or does it reflect more of a bias that the current fantasy MMORPGs simply are & should be the whole universe of discussion? I saw this kind of bias a lot on the MUD-DEV mailing list, where every question of technology and design was answered in a way that applied to DikuMUD and LPMUD type games, with the MOO, MUCK, MUSH and other members of the family not even considered.

I heard Magic Online has something like 150,000 player accounts now, and the secondary market on Ebay and various websites doesn't keep it from being "a good game environment for gamers". I'd argue they make it a much better one, in a lot of ways.

[John Beety]

24.

I was at the Institute while this project was in development, and though I was offered a position in this project (as an economics major who was doing a synthetic-world-based senior project, I seemed like a natural fit), but I declined, as I did not want to be associated with an RMT-trading site. On the other hand, I am fairly confident that at least a few of the materials I created for that project made their way to Mr. Shepard. Who knows, I might have had a hand in this and not even known it...

[Wes Winham]

25.

@John Beety

You were never offered a position on this project. As Mr. Shepard does not know you, it is very doubtful that whatever work you may or may not have done found it's way in to this project. It is very unbecoming to falsify one's self on blog comments.

[John Beety]

26.

E-mail sent to me yesterday, and my response.

John,

I noticed today your comment on the blog about Iron Prairie on Terre Nova. What you said on that comment was not true. I do not know you, and you were not offered a position at Iron Prairie. Wes and I have worked very hard developing this site and business and for you to try to take credit is very unprofessional. Why would you do something like this?

Cordially,

Mike Shepard

---

Dear Mr. Shepard:

Apparently, I don't have my facts straight. Dr. Bremmer (my advisor for my senior project) told me that he'd forwarded my paper to you, and suggested that I would be "a welcome addition" to the team. I declined. I was not "offered a position" in a formal sense, so what I said was inaccurate.

I did attempt to communicate with you, as Dr. Bremmer stated that you were working on a project involving synthetic-world economics and I wanted to lend assistance, and if Dr. Bremmer never forwarded that paper and you don't know me, then I was wrong. I apologize. I did not willingly attempt to "falsify myself on blog comments," to paraphrase the post above, or "take credit," as stated in the e-mail.

I'll be checking my inbox and the TerraNova discussion, in case anything further needs to be said.

Sincerely,

John Beety

[John Beety]

27.

After further communication with Mr. Shepard, I learned that Dr. Bremmer did not forward the paper, and so my participation in anything to do with the building of Iron Prairie turned out to be...nothing. I apologize for and recant any statements I made to opposite effect. Again, I apologize.

Mike, Wes...since you know of the board (obviously), would you like to post an update on Iron Prairie here? I think the readers would be interested.