The LindeX Roller-Coaster

LindeX - Declining Linden Dollar“Holy Smoke! What have they done to the LindeX?”

Over the past few weeks, the value of the Linden Dollar has plummeted. There are lots of reasons suggested for this precipitous change. Today we’ll discuss some of my favorite theories. And I promise, you won’t need your Tin Foil Hat .. much.

Before we start let’s review some LindeX™ basics.

What Is The LindeX™?

Simply speaking, the LindeX is the Linden Lab portal that allows you to buy and sell Linden Dollars (L$) for US Dollars. The number of Linden Dollars bought and sold for one US Dollar is called the “Exchange Rate”. The higher the Exchange Rate, the more Linden Dollars it takes to equal one US Dollar. Conversely the lower the Exchange Rate, the fewer Linden Dollars required per US Dollar. If you are buying Linden Dollars then you want a high Exchange Rate. If you are selling then you want a lower Exchange Rate.

Stability in the LindeX™

One of the real hallmarks of the LindeX has been its absolute stability. For many years the Exchange Rate has been almost cast in concrete, hovering right around L$247 to L$249 per US Dollar. That stability was maintained by Linden Lab through a fiscal policy that placed “Blocks”; basically large chunks of Linden Dollars for sale or purchase at specific Exchange Rates. Just like in real-world financial markets, that stability was a source of great comfort and predictability.

Also just like in the real-world, with a stable financial market buyers and sellers are more willing to trade and invest. But when the market appears unstable, the willingness to put money on the table decreases drastically. Thus the long-term stability in the LindeX has been a blessing for both Linden Lab and the people that buy and sell Linden Dollars.

(Spoiler Alert: The “people that buy and sell Linden Dollars” means virtually everyone that uses Second Life. You simply cannot do anything worthwhile in Second Life unless you spend a few Linden Dollars. It is one of the original “Pay to Play” platforms, and definitely the most successful long-term platform of that ilk.)

When Things Go Sideways…

Sometimes, for reasons we can’t always understand, what was stable as a rock suddenly turns into a drunken kangaroo on a slippery skateboard. The dependability of the LindeX has recently vanished. As a result, a lot of people in Second Life are left scratching their heads. But as unsettling as it can be to not know how much it will really cost you to participate in Second Life, the more important and deleterious effect is to knock the pegs out from under that ephemeral quality called “Customer Confidence.”

Decreasing Value of the Linden Dollar

LindeX Exchange Rate - Open Sell Orders

As you can see from the table to the right, the Exchange Rate for “Open Sell Orders” on the LindeX has crept upwards … a lot! The “Blocks” I mentioned earlier now exist in a range of rates from L$247 to L$254 per US Dollar. Just in case you don’t pay attention to the LindeX on a daily basis, you should know that the range from L$251 to L$254 has sprung into existence in just the last few days. That sort of dramatic change is always a sign of instability, and more often than not also a sign of bad things a-coming.

Tin Foil Hat Time

There are a lot of theories flying around as to the source of the Blocks. Some folks have suggested that general insecurity and the desire to get their money out as fast as possible has resulted in people placing larger than normal Sell Orders. There have even been a few folks to theorize that “Unseen Speculators” who make a living by playing the LindeX have decided it’s time to short the market and build up their personal stash … just so they can unload it later at a big profit when the Exchange Rate returns to “normal”.

As much as I love a good Conspiracy Theory, I just can’t buy into either of these ideas. The people that are routinely selling Linden Dollars for cash (the Merchants and Land Owners primarily) just are not in the habit of holding on to large amounts of L$; they almost always cash out near to the bottom of their accounts. Thus they don’t have the slush funds available to suddenly dump large chunks of Linden Dollars on the LindeX.

I also can’t really get behind the idea that there are “Unseen Speculators” engaged in playing the LindeX. It is a busy market, to be sure. But there just isn’t really the volume to make it worthwhile. More to the point, when the numbers get big enough TO be worthwhile, any trades at those levels start making GIANT waves in the LindeX. If they do exist, they’ve been playing a very conservative and patient game for a very long time.

The REAL Blocker

So it comes down to the one remaining source of enough Linden Dollars to put an effective Block in place: Linden Lab. It’s no secret that they’ve used this technique in the past to stabilize the LindeX, so it shouldn’t come as a surprise that they would use the same technique to “adjust” it either. You just have to understand why they’d take such a measure and it becomes rather plausible that they are the ones monkeying with the market.

My Favorite Hat

I’ve said it many times before. My belief is that the sudden instability in the LindeX is just more proof that I’ve been right all along. Linden Lab is toying with the LindeX and the Holy Exchange Rate in an effort to increase their “cut of the pie.”

Project Sansar is an expensive effort. No matter if you’re “Joe Blow Garages and Virtual Worlds” or Linden Lab, staffing up and equipping for a project the size of Sansar takes a lot of money. The investors that have so liberally forked out funds in the past … well they’re not so happy to shell out more on yet another Blue Sky idea like Sansar. No matter how glorious Ebbe can make it sound, any Investor with half a brain would look at the recent boondoggles and keep their wallet welded shut. Sure they may be willing to sprinkle a few dollars here and there, but they are definitely not going to put up the full amount needed to pay for the whole shebang.

And that means Linden Lab has to foot the bill themselves. (Pssst, that’s code for “get the customers to pay us more money”.)

Duck and Cover (Your Bets)

Increases in LindeX FeesRegardless of who really is messing with the LindeX, no matter which hand is pushing on the scales, the combination of the increasing Exchange Rate and the recent increases in LindeX Fees has put a serious bind on the stable businesses in Second Life. Everyone that keeps their eyes on their own cash flow is watching a bigger portion of that flow being siphoned off. The real problem is that their own expenses and needs aren’t going down. As a result, the smart ones among them are doing what they have to do: Increasing their prices.

If you are one of the “Great Masses” … that’s most of us that basically “do our thing” in Second Life and don’t really stay glued to the financial market … then you best get ready to start paying a tiny bit more for the things you want and need. Land Rental costs are going to go up. Products and general fashions are going to get pricier. In other words, the “Second Cost of Living” is about to take a slight bump up, and it will happen because Linden Lab wants more of the money being pumped through the platform.

That’s money you used to spend to get the things YOU want. But now? You’ll be paying for Project Sansar instead.

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2 Comments on The LindeX Roller-Coaster

  1. Gab on Tue, 24th May 2016 10:57 PM
  2. what bull. They are not going to make a ton more money with this especially considering how the trade in works. Their profits will be left unchanged. Actually if anything they’d want it to go the other way to make money. Lindens have always toyed around this number so not like much has changed.

  3. Darrius Gothly on Tue, 24th May 2016 11:40 PM
  4. Obviously I disagree. I think you are neglecting the transaction volume and the “lag float”. That’s the difference between L$ purchased days/weeks ago at a lower exchange rate then resold at a higher rate. By pushing the Sell Price upward, they derive more income on the difference. It’s pretty basic economics. And of course there’s the sheer volume of L$ “stuck” on the LindeX waiting to be sold at rates way below today’s price.

    You may want to check out my post on the SL Forums about this topic. I point out there that the amount in suspension awaiting sale is over US$800,000.00. Do you know anyone that can afford to leave that kind of money sitting useless? Yeah, me neither.