failure family

valuation and pricing failure

62 claims across 19 works.

• unreliable-broker-quotes: Broker quotes are an unreliable fallback for valuation: they can be hard to obtain and can vary by 20 to 30 percent for instruments such as mortgage-b
• manager-self-valuation: Because net asset value drives subscriptions, redemptions, performance calculations, advertising, and fees, managers who both manage and value the por
• nominal-independence: Outsourcing valuation to an independent administrator can be nominal rather than real: the administrator may lack the understanding of complex securit
• expertise-adverse-selection: There is an adverse selection problem in independent valuation: an administrator who actually had the knowledge and understanding of complex instrumen
• stale-quote-valuation: Valuing thinly traded assets with exchange quotes is unsound because the price for less frequently traded assets may not indicate fair market value at
• post-crisis-blind-spot: The regulatory proposals that appeared soon after LTCM did not adequately take valuation problems into account.
• retail-valuation-gap: Although regulators and legislatures in many jurisdictions recognize that hedge fund issues affect retail investors, they have so far not addressed va
• Valuation disputes over bridge bank consideration: Requiring only that consideration be commensurate with the value of transferred assets invites frequent and significant disputes over valuation, a pro
• Open source token cloning: Because token offerings are built on open source code, the utility of an issued token can at any time be recreated in another token with essentially i
• escrow-release-price-crash: To avoid a token price crash, escrow accounts holding unissued tokens should carry usage and access controls assuring investors that escrowed tokens w
• indeterminate-combined-policy-effect: Combining quasi-fiscal policy, increasing benefits attached to tokens, with monetary policy, increasing supply in circulation, may or may not have an
• unresolved-volatility: It is unclear whether the cryptocurrency market on its own can over time produce the level of stability and absence of volatility that cryptocurrencie
• Intermediation overpricing: The cost structure of centralized micro task systems, which require intermediation, produces significant overpricing that does not benefit the workers
• volatility-blocks-long-term-contracting: People will not enter into long term smart contracts without a stable currency to refer to, since no renter and landlord will gamble future wealth on
• stablecoin-design-deficit: Tether, like every other stable cryptocurrency project, remains afflicted with significant design challenges, even though its market capitalization an
• volatility-blocks-long-term-contracting: People will not enter into long term smart contracts without a stable currency to refer to, because the current level of cryptocurrency volatility doe
• actuarial-incompatibility: Even if legacy insurers do enter the DApp market, their products may not fit the need, because actuarial methods for risk assessment under traditional
• DAO insolvency with negative token value: The DAO is insolvent when the present value of expected cash flows from new policies falls below the expected cash outflow on currently outstanding po
• Insolvency from sharp decline in policy issuance: A sufficiently large negative shock to the number of policies issued per period drives the value of the DAO negative and renders the DAO insolvent, so
• Margin increase remedy constrained by demand response: Raising the margin is the available remedy for an insolvency shock, but it is not a clean fix because the effect of a higher margin on future demand m
• arbitrary-discretionary-policy: The unfettered discretion of fiat monetary policy makers can lead to arbitrary outcomes, because the overall value and stability of any fiat currency
• unsolved-stability-design: Every stable cryptocurrency project, Tether included, remains afflicted with significant design challenges; no existing design has solved the stabilit
• collateralization-tradeoff: Both collateralization strategies carry significant downsides: fiat collateralized pegs bear the brunt of expensive capital requirements, while crypto
• under-collateralization-arbitrage-attack: A fiat backed stable cryptocurrency that is not fully collateralized is exposed to arbitrage trade attacks of the kind George Soros used against the p
• collateral-value-collapse: Cryptocurrency backed tokens are more expensive than fiat backed tokens because stability is sourced from far more volatile assets, so such tokens mus
• unproven-algorithmic-stability: No uncollateralized algorithmic stable cryptocurrency, such as Basis or NuBits, had produced a provably stable mechanism for its tokens as of the time
• capped-supply-removes-policy-tool: Capping token supply, the dominant design choice in early cryptocurrency projects, is self defeating: fixing supply removes the core policy tool, mint
• central-bank-supply-determination-failure: Central bank price stability is elusive for two structural reasons: central banks are constantly lobbied to move money supply away from equilibrium, a
• soros-style-peg-arbitrage: Fiat currency collateralization is expensive and inefficient because the entire backing value must be held liquid; anything less opens arbitrage attac
• unproven-algorithmic-peg: As of the time of writing, no uncollateralized algorithmic stable cryptocurrency project had produced a provably stable mechanism for its tokens.
• stagnant-demand-bond-failure: A Basis-style bond scheme succeeds only while demand for the currency grows at a sufficient rate; the authors' simulations show it fails when demand i
• bond-queue-death-spiral: Because bonds sell below their redemption value, an open-ended bond queue grows without bound, depressing bond prices and creating a positive feedback
• unstable-or-costly-reserve: The reserve argument depends on two requirements, and failing either one grounds a criticism of an existing protocol: the stable-value requirement cri
• black-swan-peg-break: For any long-lived currency, a major shift in perceived value is eventually inevitable, and such a shift is not covered by reserves defending against
• hidden discount cost exceeds underwriting fees: Once the staggered private sale discounts of up to fifty percent are counted as a cost of capital, the cost structure of an ICO is arguably significan
• bitcoin fails the store of value and unit of account tests: Bitcoin functions as a medium of exchange for a number of businesses but arguably fails as a store of value and as a unit of account, because of its v
• Soros attack on the peg: The lesson of the Soros attack is that when a cryptocurrency is pegged above its true market value, the difference must be fully backed by a foreign r
• crypto collateral volatility: Cryptocurrency backed stablecoins are even more expensive than fiat backed ones, because stability is being sought with far more unstable collateral.
• peg death spiral: Trying to hold a peg at an artificial level deters new adopters and punishes existing members, and is the most likely way to induce a death spiral tha
• transparency without incentives: Recording every action on a blockchain does not by itself defeat corruption, because more information does not ensure more productive collaboration; m
• Hype Driven Market Discounts Technical Merit: Because the cryptocurrency market has been hype driven, technical experience has not added significantly to overall market development and maturity.
• legacy metric transplant: Valuation metrics developed for legacy assets apply only in a limited way to digital assets, so importing them wholesale produces unreliable digital a
• valuation infrastructure gap: Digital asset valuation uncertainty is produced by the combination of an immature digital asset market and a valuation infrastructure, legal, accounti
• missing pricing standards: Although many traditional assets also resist full assessment, the absence of established pricing standards for digital assets makes the loss of valuat
• fair value definitional mismatch: The accounting definition of fair value may not apply to digital assets, with the consequence that correct valuation of digital assets for financial r
• no closing price: Digital asset exchanges have no closing prices, so digital asset managers cannot rely on the closing price convention that underpins traditional valua
• price source shopping: Even for the most liquid level one digital assets, managers may choose between the price on a favored exchange and an aggregate across exchanges, so t
• non credible redemption contract: Redemption contracts, the traditional price commitment device for privately issued money, lack credibility, whereas pre programmed smart contracts del
• no accepted valuation method: As of 2022 there is no agreed upon reliable valuation method for cryptocurrencies.
• fair market value in practice: Fair market value is the legal standard for valuation, but it carries real world problems that limit its usefulness in practice.
• intangibles omitted from asset approach: The adjusted net asset approach revalues balance sheet items toward current fair value but still fails to capture intangible assets, because intangibl
• missing digital asset discount rate: DCF currency translation breaks down for digital assets: no set discount rate or currency exchange forward curve exists for them, because they are not
• unobservable market inputs: Principal to principal markets are generally not considered observable because little information about their transactions is publicly available, whic
• perfect timing assumption: Put option based discount models for lack of marketability have been widely used, but they can be inaccurate because real investors do not possess per
• no judicial acceptance: A major shortcoming of the QMDM is that no court in any case has accepted it, although it has been mentioned explicitly in three tax cases decided in
• scarcity only explanation: Bitcoin's issuance schedule and relative scarcity are not necessarily the only reasons for its rise in value, since thousands of copycats share the sa
• Intermediation Overpricing: Existing centralized micro task marketplaces cannot adequately fulfill the growing demand for high quality labeled AI training data, because their cos
• Audit Stamp Premium: Centralization of the code review industry produces overpricing because clients will pay nearly any price to obtain the stamp of approval from one of
• Priced but flawed review: The 2024 code review market is dominated by a few centralized firms that can charge exorbitant, monopoly-like prices, and those high prices do not buy
• Stamp of approval premium: Centralization of the code review industry causes systematic overpricing, because clients will pay nearly any price to obtain the approval stamp of on
• classical-models-fail-on-crypto-volatility: Traditional economic models fail to predict cryptocurrency price movements accurately, because token values swing rapidly on market sentiment, regulat
• price signal irrelevance: Price signals, which neoclassical theory celebrates as the elegant solution to allocation under scarcity, become increasingly irrelevant for the domin