How to Allow Everyone to Invest Cryptos with 99% Safety?
In the last couple of days I met with Shorupan Pirakaspathy and Warren Carson (of Nvest and Global X Change) at World Blockchain Summit (WBS) Taipei.
They have developed systems that will disrupt the financial and banking systems and and they’ve also provided valuable feedback on Joint Commonwealth Fund, which is our crypto index fund of the top 10 cryptos in order to make basic income truly universal.
Many people might be curious or interested to invest in an expected crypto / blockchain boom, yet how to safely invest is one big hurdle. Index fund is proven mechanism that allows even “dummy” investors to profit handsomely in the long-term, even considered by Warren Buffett as the investment vehicle of choice for most people.
Some important questions they raised were:
1. How can JCF be sold to North Americans without being identified as a security token that will require complicated compliance and only credited investors could participate?
2. If people know how much their portfolio is worth, yet values they considered already theirs are taken out periodically, will they accept that?
3. Can people build their own portfolio of crypto and have more choices?
Together (but Shorupan offered most of the key ideas), we came out with the following that could potentially address the above. It may be called a “do it yourself (DIY) index fund” approach to crypto investment, while still supporting a Universal Basic Income (UBI)-like system.
1. A user first creates an account and selects certain parameters for an index fund, for example: how many of the top X cryptos to hold, which can be top 5, top 10, top 20… or maybe a custom set of cryptos, such as privacy cryptos, or IEO cryptos, etc.), and a re-balancing period (weekly, biweekly, or monthly, etc.).
2. A user can start building his or her own portfolio of cryptos via transferring major cryptos such as BTC/ETH into the system (or even by credit cards, if allowed by the jurisdictions).
3. The portfolio is built automatically by the system according to the user-specified parameters.
4. 7% of the investment is transferred immediately as “donation tokens” to another account on the system that the user specifies, it can either be an existing account of a person or a charity, or simply an e-mail address to invite a friend or relative to join (in which case the donation amount is temporarily held by the system). This is to enlarge the user base to receive periodic passive income to non-investors.
5. At the specified periods, the system helps the user to re-balance the portfolio automatically.
6. The portfolio’s current and recent past performance (7-day, 1-month, 6-month, 12-month) can be very visibly seen at any given time by the user.
7. Whenever the user withdraws any amount, if there’s any “profit” (increase in the portfolio’s value against invested amount in USD), a certain percentage is deducted into a “dividend pool” automatically, akin to getting a “profit tax” by the system for the benefit of all users. The percentage can be set in a bracket fashion, for example, if the withdraw amount is low and investment period short, then a higher (like 15%) charge is made. However, “profit tax” becomes lower with larger amount of invested amount, and longer time in the system, to encourage people to take on a long-term perspective to index fund investment.
8. The user would get a portfolio of individual cryptos in his or her own crypto wallet in the system. The user may choose to then transfer any of those cryptos to other places or to private wallets.
8. The “dividend pool” would pay out 25% to all KYC-verified accounts (individual or organizational alike) annually with equal portions. The account must also have at least certain balance. This is the part where all participants receive a form of passive income. If the amount can meet basic living needs (which of course depends on the region), then it actually would serve as a form of “basic income”.
9. A small annual “management fee” is charged against the user’s portfolio (such as 0.1%), to maintain the system’s basic operations.
Some of the interesting effects of the design are the following:
1. There’s no “security token” being issued, the user simply provides some fund to be managed by the system, which provides the automatic re-balancing mechanism / software for the user. And the user can liquidate / withdraw at any time.
2. There’s very little “fees” involved. No entry fees. The 7% donation is given to people or organization the user wants to care for, and only very low annually fee (0.1%) is charged to maintain the operations.
3. The effect of paying out just 25% of the “dividend pool” is that it encourages people to stay longer in the system. The longer you stay, the more passive income you’ll receive.
If the above system can actually be built, it might just start a revolution in DIY index fund investments in the crypto space, by lowering the barriers to crypto investments to more people, and to support basic income while people profit.
