Deep Dive: The PLEX WallDanikov
There’s been a lot of fuss made about about the so-called “wall of PLEX” recently. I certainly scratched my head about it for a while and read up on some other people’s attempts to make head or tails of it. Here’s my take on the whole thing: what probag Bear did was slot together two doors CCP should have never left open and make himself a bunch of ISK. And yet, for a person with such a large wallet, he should be a little ashamed for his poor maths when it came to exploiting it further.
To understand the legitimate but misleading claim of tripling his ISK, you need to understand scalping. Scalping is the practice of noticing a difference between the buy and sell prices that is large enough to make a profit from. Due to transaction costs (in EVE: broker fees and sales tax), scalping can only occur when the buy-sell spread is greater than those costs. A scalper is taking advantage of the premium charged to urgent sellers and buyers to scrape off a few percent of an item’s worth by acting as a middleman.
For a career scalper, scalping requires a quantity of ISK that acts as a buffer. This ISK is used to buy the item traded, with the intent to sell it as soon as possible and recover that ISK. The size of that buffer only has to be enough to absorb the volume of trading. The actual ISK consumed in this practice is the fees, the net profit being what remains from the spread minus those fees.
PLEX is ideal for this as it ticks all the boxes of well-traded, value, and volume
For a scalper, there are some ideal traits to items on which you want to trade on. As you’re only profiting a fraction of the price of the item you’re trading on, you want the right combination of high individual value and high volume to make the effort worthwhile. Secondly, you want a well-traded good with an established value. With more esoteric items you run the risk of holding a large volume of what ends up being worthless items due to any number of shenanigans. PLEX is ideal for this as it ticks all the boxes of well-traded, value, and volume.
What makes scalping a difficult game is that most competition with other scalpers means reducing your own profits. This causes a ‘race to the bottom’ in which scalping ceases to be profitable at all, so the market potential for scalping often dies out quickly. The only other area with potential is costs, but within a game like EVE, under normal conditions they are fixed and unavoidable. Being able to reduce your costs when no others can is powerful: it means you can compete at price levels for which other scalpers would make zero profit. This allows scalping of all orders on a market where scalping can’t otherwise occur; it places you beyond competition.
In this case, the change in fees were percentage based broker fees. The difference between 0.5% and 3% on items trading at a billion ISK each like PLEX is pretty huge. Then, consider that PLEX is trading at a volume of 4000 items a day. Napkin math makes this out to be 100B ISK worth of potential scalping a day, which is along the right lines of what probag claimed.
Therein lies CCP’s first big mistake. By allowing buy orders to carry over and compete against a market with adjusted costs, they made this situation possible. It’s not surprising that an enterprising player was savvy enough to identify the ideal market for it. Yet the truth of the matter is that this exploitation harms nobody: all the scalping that is occurring is merely scalping off ISK that, in any other transaction, would sink out of the economy via the transaction costs. The only person probag really is scalping is the money that would otherwise have vanished into the ISK sink of transaction fees.
The Problem of Scale
Here is where I think probag potentially shot himself in the foot thrice
Naturally, things didn’t stop there. Why triple a little ISK when you can triple a lot? Here is where I think probag potentially shot himself in the foot thrice.
First, in order to inflate his buy orders to extend the ability to scalp as long as possible, he used the broken implementation of the Margin Trading skill and escrow mechanics to create a huge number of empty uncovered buy orders. The risk on these orders is actually pretty low due to the normal buffer collateral held for normal scalping. His wallet likely holds more than enough to absorb the volume of a full day’s worth of PLEX orders, so the ability to ‘pop’ his empty orders would need an unprecedented volume of PLEX dumped on the market. Furthermore, doing so would have no benefit to the person dumping said PLEX; if successful it would only serve to sabotage probag’s buy orders and turn them into losses.
Margin Trading and escrow have been broken for a long time; forum threads with developers have discussed the problem, but it remains unfixed to this day. I don’t think probag’s intention was to highlight this and I’m sure there are market traders and scammers alike who don’t want it to change. Unfortunately, CCP will likely renew their investigations into Margin Trading as a result of this incident (hint: in real life margin trading, you drain the escrow last, not first). The ability to ‘bump’ a buy order perpetually should also be looked at.
Another way probag did and didn’t shoot himself in the foot is the fact that cashing out is the real bottleneck. Consider: if a friend offers to triple your ISK, do you accept? The answer comes up often: it depends. When will the ISK be tripled? The rate of this scalping is not unlimited and the more people invested in such a scheme, the longer it would take to pay them all off. Furthermore, this type of scalping does take effort to engage with and scalp the market.
Given probag’s estimate of cashing out at a rate of 10B/day – a tripling of 3.3B of the money tied up in the buy orders – cashing out 1 trillion ISK worth of buy orders would take a little over 300 days. The average rate of return on 1 trillion ISK spent amounts to 6.6B a day, a mere 0.66% daily return on the total investment. On top of that, to absorb 1/3rd of the daily PLEX market volume for both the purposes of buffer and insuring your buy orders don’t fail, you would also need to have another 1.3 trillion ISK on hand. Factoring that into the initial setup costs, you’re down to 0.29% daily return on total investment. All this considered, you would be better off putting your 2.3 trillion ISK into other schemes that have better rates of return and/or need less effort.
To his credit, he resisted getting too many people to invest and didn’t overdo it any further. If he had, huge amounts of cash would have been sunk into buy orders that would not realized their tripling for many years to come.
Finally, probag went public with his scheme. This is also a debatable move; it’s possible people may have worked out what he did from the market alone, and CCP certainly should have noticed something amiss given their special interest in the stability of the PLEX market. Yet by going public, he invited not only scrutiny but the opportunity for players to call CCP to action and hold them to account for their errors.
Closing the Doors
Due to the fact CCP opted to make a two-step change to broker fees, they now have to reconsider what they’re going to do both now and when they make the second change. The simplest thing to do would be to cancel all buy orders and refund the broker fees, an annoying imposition on the market, but not a game-breaking one. The alternative would be to lock up pre-patch buy orders and require additional ISK be paid to reactivate them, or to otherwise somehow add in an excess charge to bring them back into parity with newer buy orders.
Fixing Margin Trading isn’t a new solution and would only serve to mitigate the exaggeration of this position. I can only hope the fuss surrounding this situation galvanises CCP to finally do so, even if it isn’t required to solve this particular issue.
As for the money made by probag Bear and any fellow, less-forward entrepreneurs, let them keep it! Well done to them for capitalising on the situation so far. It just wouldn’t make sense to let them continue to do so for the better part of a year as a result of borderline exploitation of EVE’s market mechanics.