Rental Market Breaks, Showing One-Dimensional Pricing is Disconnected

in #spt2 months ago

I first noticed something was wrong when I saw my level one Torhillo's were rented out at 99% below the current low price.

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Then I noticed the bottom price on lvl 1 Oozes was 20 dec instead of .5 which most of mine were rented out for.

The Kelp Initiates were 50 dec instead of their normal 1 dec.

After that I just went down the list and was finding similar issues everywhere. Was there a tournament I didn't know about giving out Teslas and Bitcoin? Did our active player base triple overnight? Did we get a bonus extra season end?

Then I started noticing that I had cards listed for one price, while Peakmonsters was telling me the lowest price was far higher. So I started taking my listings down and putting them back up for the higher price only to have them rent immediately.

What all this amounted to was that renters were paying the prices that they'd paid a few months ago on a few cards. Others were still far cheaper but on a few cards I was seeing those old sweet spot prices I used to talk about.

It took me a bit to figure out what was going on but after investigating the Maverick room and seeing an utter freak out about their accounts losing value, I realized it was a listing issue.

As far as I can tell, expired rentals were not showing back up in the market for some cards. They appeared in the owners view as being for rent but they weren't in the market. It seemed like an extension of PeakMonsters auto-rental that is always looking for new rentals before it finds existing ones to fill orders except in this case it wasn't finding the existing ones at all.

So once a rental ended, unless it was manually re-listed it wasn't going to show up as available to potential renters. This meant huge swaths of inventory were unavailable to the renter and prices went back up to where they used to be when the buyer was part of the supply and demand equation.

This is the interesting thing about the Splinterlands rental markets and one that is going to need to be figured out if they don't want an implosion in the value of splinterlands assets.

In most markets supply and demand co-mingle more. Prices meet somewhere between the costs to the seller + an acceptable profit margin, the need to stay above the competition through some feature/brand/benefit/perception/product awareness/pricing, and what the buying is willing to pay.

In Splinterlands rental markets, most of that is taken out.

Cards are commodities. There is no difference in a card from Owner X or Owner Y. Some people track which owners are likely to cancel their listings but more people just grab the best price.

Another removed variable is seller costs. Cards to the owner have no ongoing cost. There's no cost to list, there's no wear and tear on your inventory, there's no risk of loss, there's no staff, and you don't have to restock inventory.

Once you own the card, the cost of owning or renting out that card out goes away. In fact, the only cost ends up being the time you spend managing your cards and since that can be extensive, many people use that as incentive to lower their prices so they don't spend the time just to have it undercut and sit unrented. Usually costs incentivize higher prices but in Splinterlands it incentivizes lowered prices.

Finally, the connection between what the buyer is willing to pay is taken out. While there is an upper limit to what renters are willing to pay, we are now far below that number in most cards so it no longer factors in.

Let's say there are 1000 people who want to rent a level 1 Mylor each day and on average they are willing to spend 30 dec to do that. Now let's say there is exactly 1000 Mylor up for rent.

If all of those Mylors got put on the market for 50 dec, you'd see demand fall. People would stop renting and the Mylors would just sit there. Owners would eventually lower their prices and until they got to 30 we'd have a fair market with 1000 mylors constantly being rented out.

Now let's say a big ol' whale come in and had his own 1000 Mylors and he said to him/herself, well my Mylors are just sitting there and I should be making S!O!M!E!T!H!I!N!G! for them and look how lucrative this market is for all these people so they take their 1000 Mylors and drops them on the market at 20 dec.

The buyers were paying 30 and felt like it was a fair deal but they aren't going to pay 30 if they can pay 20 for the same exact card so they only rent from the whale now. At this point, the price the renter is willing to pay no longer impacts the market. If they are suddenly 25 again, they'd pay it. If it was 15 they'd pay it. As long as 1000 of the 2000 on the market are 30 or below, 1000 of them will be rented out.

And that's where we are right now. Nothing that connects normal markets to price is in effect here so prices have been in a free fall toward zero.

But who cares right? Everyone get's cheaper prices and that will bring more players and it will all balance out right?

So to show why that's a danger, let's keep going with the example.

The original owners who were quite happy gettin their 30 dec look at their unrented Mylors and say, well, something is better than nothing so they drop to 19. The next day the whale sees their inventory just sitting there so they drop to 16. And it keeps dropping this way until it's at .1 and still the same 1000 Mylors are being rented out. But what used to be a 30k dec economy is now a 100 dec economy.

A portion of those owners will stop finding the listing worth it and they will go sell their cards sending prices down. With prices on cards and rentals down, less DEC is needed to run the economy so the price of DEC goes down.

Since the algorithm adjusts the amount of DEC it awards based on its value, the drop in value of DEC means not only is the dec you win worth less but now you get less of it too. Which means playing becomes less lucrative which quickly brings down card prices and rental demand further and you get a spiral of value loss that can do extreme damage to this exponential economy.

The reason splinterlands grew so fast is because of the exponential way it's set up but it can collapse just as quickly if mismanaged.

We are at a stage in the rental market where it's not 2000 cards for 1000 renters but in some cases 10k cards competing for 1000 renters and we're seeing a collapse in prices. The thing that's holding up splinterlands right now is the unknowns and speculation of the future with Chaos Legion and the land expansion but we saw in September how quickly a bubble can deflate when we started the spiral I mentioned above. It only picked up when people got excited about the voucher system which sent SPS and therefore DEC higher again which restarted the engine.

The good thing is, when the rental market broke yesterday, we saw that price demand was still similar as it once was but if we start that spiral down in price because the rental market gets crushed under the weight of 50 whales that compete the prices to 0. Splinterlands may be irreparably damaged and no one wants to see that happen.


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