http://www.informationweek.com/news/showArticle.jhtml?articleID=196604327

It’s about Linden Labs taking control of what a subscriber thought was his own intellectual property and the lawsuit that’s wending its way through the courts. Significantly, and very negative for the kind of transparency a global capital market needs, Linden Labs declined to comment for the story. As the sovereign government with the power to control its currency exchange, LL has an obligation to investors to disclose how it intends to manage monetary policy. If it is unwilling to be specific about what you and other SL participants own, be scared, be very very scared, for the money you’ve sunk there.

I challenge anyone who claims to have made large sums of money in SL to actually exchange that money for real US Dollars in a large transaction. See if you can actually pull out $100,000 in a single move, or if they limit you to $30 or $40 a month.

I wonder what any of the big companies who’ve established a presence in SL - and some have invested more than just time and imagination - think of that.

What discussions might they have had with Linden Lab? What would they think of the points you raise as they continue their plans to further develop their long term presence?

More questions than answers at the moment.

I wonder what the real world rating agencies would have to say about the sovereign ceiling of second line?

The financial numbers are getting bigger day by day. A stat on the SL website economy page says the total money supply in Second Life amounts to 1,326,496,881 Linden dollars (L$). At yesterday’s best selling rate of L$277 = US$1.00, that’s equivalent to nearly 4.8 million US dollars.

Nearly a million US dollars changed hands yesterday in actual transactions, according to the little status window in my SL desktop application. A similar figure the day before and in many other preceding days.

That’s a lot of money for what some people just call a game.

There’s still an issue of what in the real world would be called the “sovereign ceiling,” i.e., the highest creditworthiness rating that could be assigned to the sovereign government based on its ability and willingness to make good on its debts. Unless Linden Labs has contracted with a highly rated financial institution to manage its subscribers’ Linden Dollar accounts, and they have complete flexibility in withdrawing the money any time they decide to do so, then they remain at the mercy of the “sovereign government” or Linden Labs in this case, which can impose currency controls on the export of currency from the market.

When Argentina de-linked from the US dollar several years ago, it caused untold damage to its economy and to holders of peso-denominated deposits. If Linden decided to change the exchange rate or simply decided to limit the amount of money people could extract from SL, it would have a dramatic impact on the SL economy — AND Linden might have very good reasons to limit currency exports, if it runs into a cash flow problem of its own and needs to use the money SL residents keep on deposit.

If you deal with an intermediary institution that doesn’t take currency control instructions from Linden Labs, then you may be all right.

But when I hear about that woman who claims to have earned $1 million by creating real estate space for people in SL, my first reaction is “cash out most of it now.” Pardon me for being skeptical, but when something sounds too good to be true…well, you know where I’m going with that thought!

CNN has a good feature about the Second Life currency: How real money works in Second Life.

When the “world” is offline, how do people get their money out to use in the real world?

Real world capital markets are governed by credit ratings. You know the creditworthiness of a market by the ratings assigned to it. You can judge the willingness and ability of the market owners (i.e., the sovereign government) to permit the free exchange of capital. What happens in a world like Second Life, where entrepreneurs are alleging that they are making “millions” of Linden Dollars and at some point decide they want to extract that money into real currency?

What if large numbers of people decide to cash out all at one time? It’s a classic run on the bank situation. Where’s the capital market governance? It has the potential to be a virtual Enron.