Blockchain technology has the promise of being able to disrupt the banking and payments industries, as well as other industries that rely heavily on intermediaries such as insurance and real estate. However, could traditional asset management be disrupted by blockchain technology as well? Traditional asset management typically features one asset manager per fund that makes allocation decisions. New Fund models are emerging all the time, we discuss this idea further here.
This asset manager will typically be very well connected and have a deep social and professional network. Their connectedness and their level of “financial expertise” are the main reasons that traditional asset managers use to justify their high fees, most of which tend to underperform the returns of the S&P 500.
A New Fund Model
A decentralized asset management model that can have an infinite amount of asset managers is a fund model that can be supported by blockchain technology as it can ensure that all asset managers have their allocated asset management rights. While each of these asset managers will likely not be as well connected as their traditional asset manager counterparts, their total network including their fellow community asset managers will provide a greater level of overall network depth and connectedness.
In such a decentralized fund model, it is vital that community members are engaged with one another and contributing on a regular basis for the collective betterment of the fund’s community. In order to achieve this, a secondary token can be introduced to such a fund model that will incentivize their community contributions.
Incentivized Network Asset Management is an incentivized and decentralized fund model that aims to deliver superior returns through more diverse perspectives, less bias, and a greater degree of intellectual humility compared to traditional asset management. Bitdollar Fund will be the first fund to utilize Incentivized Network Asset Management, and will reward its investors based on their contributions to the community.
As a collectively managed fund, it is vital that investors share their ideas with the Bitdollar Fund community so that the best ideas to rise to the top, sound allocation decisions can be made during elections, and superior returns can be achieved. In order to facilitate this dialogue, investors that contribute to the community are rewarded with Crypto Pro (CPRO), the Fund’s secondary token, which also permits its holders to stake part of the Fund’s management and performance fees.
CPRO can only be earned and will not be directly sold and issued by the Fund. It is important to note that content contributors can be well compensated for providing quality content, regardless of how much of the primary token, Bitdollar (BTD), that the contributor possesses. An overview of the Bitdollar Fund process can be seen below:
Advantages Of This Approach & Why It Will Yield Superior Returns
Incentivized Network Asset Management is superior to traditional asset management primarily due to more diverse perspectives, lower bias, lower fees, and an incentivized structure that gives investors the opportunity to earn a secondary token for community contributions (Crypto Pro: CPRO) which allows its registered holders to stake part of the Fund’s management and performance fees. In aggregate, these advantages should allow the Fund to achieve superior returns compared to traditional asset management.
The following studies examined the benefits of collective decision making, along with potential pitfalls:
The Wisdom Of Crowds: A book by James Surowiecki (2004) which argues that the gathering of information in groups leads to collective decision making that is often better than the individual opinions of experts. Cites diversity of opinion, independence, decentralization, and aggregation as being the 4 key elements to form a wise crowd.
The Right Way To Use Wisdom Of Crowds: A Harvard Business Review article (2018) that emphasizes the importance of when someone forms an opinion in relation to evaluating someone else’s opinion. Conducted several studies that demonstrated those that form an opinion prior to evaluating another person’s opinion are more likely to view the other person’s opinion in a negative light if substantially different than their own opinion.
A high degree of importance is placed on open mindedness, intellectual humility, and welcoming disagreement in the search for truth.
Network Oscillation: A study by the University of Chicago (2016) which examined investment banker data and found that bankers which oscillated between closure (deep engagement in a group) and brokerage (a period of connecting across groups) had earnings higher than other bankers that did not oscillate, regardless of if they had a network advantage.
These studies all support the effectiveness of collective decision making if structured in an appropriate way, and using Crypto Pro (CPRO) as an incentive should facilitate the behavior and culture needed to achieve this.
Our Approach To Collective Decision Making: Bitdollar Fund Community Process
The community process as a whole can be summed up by its 3 phases on a quarterly basis: discovery, debate, and decision.
Discovery: a six week, relatively open part of the community process where investors are encouraged to cover certain topics in crypto and to expand their network to crypto groups of which they are not a member (a crypto investor networking with blockchain developers for example). CPRO bonuses could be a factor in encouraging this behavior, if necessary.
Debate: a four week, focused part of the community process where investors are deeply engaged with other investors in a working group to formulate bull and bear cases for certain cryptocurrencies, and to debate these cases with other groups. Quarterly elections, for example, will analyze 2 cryptocurrencies in a head to head, “sweet 16” format to determine the final 2 candidates for addition to the fund during annual elections.
Investors will be asked prior to the debate phase how strongly they feel about “Crypto A vs. Crypto B” with the choices being “Crypto A”, “Crypto B”, and “Unsure”. The top CPRO earner in terms of content contribution will be asked to lead each team (Crypto A, Crypto B) and choose up to 9 other team members for their group. Each team will be asked to formulate bull and bear cases for cryptos A and B in preparation for the video debates that will take place between the 2 teams.
Higher CPRO rewards will be given for these debates and additional CPRO bonuses could be given to those teams with diverse functional membership (crypto investors, non-crypto investors, developers, etc.)
Decision: a two-week election period as described in the Fund’s Constitution (section 3.3), Articles V and VI and illustrated below:
The community process as outlined above encourages and incentivizes investors to grow their networks to include investors from many professional disciplines (brokerage in Discovery phase) also provides the opportunity for deep engagement (closure in the Debate phase). This process together with an appropriate community culture emphasizing open-mindedness, intellectual honesty, and humility will result in sound, well thought out allocation decisions made by the Bitdollar Fund Community provided that there is wide enough array of opinions within it.
In turn, this will result in superior returns compared to traditional asset management models, which are over reliant on the opinion of one person, the portfolio manager, and highly subject to bias.
Blockchain technology has the potential to disrupt many long established industries, and asset management itself is no exception. Incentivized Network Asset Management is an innovative new fund model that incentivizes individual investors with a secondary token to make contributions to the community for its collective betterment.
While Bitdollar Fund will be the first fund to implement this model, it can also be applied to ICO investments and even asset classes other than cryptocurrencies as long as those assets are tokenized. Watch out for next week’s article that will explain how to earn Crypto Pro (CPRO), the secondary token of Bitdollar Fund.
*Cryptocurrency investing involves a significant risk of loss and is not suitable for everyone. Please do your own research or consult your investment professional before investing. Citizens of the USA, Canada, Cayman Islands, Estonia, China, South Korea, Singapore, & New Zealand are not eligible to participate in Phase 1 of the Bitdollar ICO, however, we are working to accept citizens from these countries during future phases of our ICO in 2020 and beyond.
Nick Kitcharoen is Founder and CEO of Bitdollar Capital, which recently launched its private sale for Bitdollar Fund, an incentivized worldwide investment club for major cryptocurrencies. Both planned collectively managed funds from Bitdollar Capital aim to provide clarity to the cryptocurrency community by guiding fundamental analysis and facilitating research, while also providing a relatively safe place for those that are new to cryptocurrencies to get started.
Nick has a background in corporate finance and trading in financial markets and was most recently Founder and CEO of Acumen Algorithms LLC, a formerly registered Commodity Trading Advisor, where his sole focus was the development of trading algorithms based entirely on technical analysis.
See more stories by Nick here.
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