Why we do the things we do.
Recently, a supporter of the Ignite RATINGS project posted an opinion piece on a well-known crypto sub-reddit, in which he sought to explain to others the virtuosity of Ignite RATINGS and its (much-needed) place in the wider “ICO” ecosystem. My thanks to that individual for their ongoing and completely impartial support…but gratitude is not the purpose of this piece…
What stirred me to turn to the written word, was an almost throwaway comment from another redditor in reply:
“I barely understand the need to decentralize a rating system…”
This statement somewhat stopped me in my tracks as, for me, someone who has worked tirelessly for months on end to breathe life into the vision that my business partner and I had for an empowered, decentralised financial future for all, I could not even begin to comprehend why someone could not understand “the need”…I paused, and really thought about why someone might not understand, and it dawned on me that the question of need is so fundamental to the solution that Ignite is trying to create, that I was unable to accept it as anything but a foregone conclusion that “the need” simply exists. I have been so caught up in creating and presenting solutions, that I have not stopped to consider that others may not perceive the problem, certainly not in the same way I do. So let’s talk…
The problem that the Ignite RATINGS solution seeks to address is two-fold — 1) the lack of reliable business intelligence within the wild, wild west of the burgeoning “ICO” and crypto space, and 2) the fundamentally-flawed business model of the traditional financial ratings agency, the go-to source of industry wisdom.
THE PROBLEM — Part 1: “The ICO”
The rise of distributed ledger technologies and the advent of the “ICO” is helping start-ups obtain funding on a scale, and with a level of ease, that is previously unheard of. While the start-up space is welcoming of this new source of funding, and ICOs are helping to breathe life into some truly innovative projects, many ICOs are doomed to failure, either due to a lack of feasibility in the concept, or a lack of execution capability on the part of management. Unfortunately, some ICOs have proved to be little more than scams.
The lack of regulatory oversight and the degree of anonymity afforded by decentralised blockchain technologies creates higher risks for investors looking to invest in the space, which gives rise to investor reluctance and, ultimately, reduced liquidity for those seeking funding.
Thus we have the first part of our problem — how to sort the wheat from the chaff, how to recognise the opportunities and dodge the donkeys, how and where to seek industry intelligence and assess true, non-manipulated market sentiment. However, it is not this first part of the problem that our friend from reddit was struggling to understand, but rather the need for any kind of solution that was drastically different to the status quo.
THE PROBLEM — Part 2: “The Status Quo”
The status quo is this: in traditional financial markets, investors rely on the subjective opinions of centralised ratings agencies, who are directly incentivised by the issuers they are rating, to help them arrive at an investment decision.
We should take stock for a moment and properly consider that statement, and its implications…in the world of traditional finance, where every player likes to consider themselves “sophisticated”, trillions of dollars of assets are subscribed for, bought and traded on the back of opinions paid for by those who issued those assets. In this regard, ratings agencies are simply service providers much like any other, providing a service for payment, and, as with any other service driven market, market forces dictate that custom will flow to those that provide the best service. In the context of a traditional ratings agency, an issuer is likely to see the most benefit from the service when their issuances are rated highly and they are able to maximise the sales of their bond, mutual fund, derivative…whatever. Big sales make for a happy customer, which makes for repeat business for the ratings agency…and the cycle repeats…
This is a problem. Two of the main drivers of the global financial collapse of 2008 were the industry’s systemic reliance upon these centralised ratings structures and the fundamentally flawed scheme of incentivisation for those agencies. This is an antiquated system which creates its own demand, justifying the existence of the ratings agencies in the first place.
In considering the appropriateness, or otherwise, of seeking to apply a “traditional” approach to blockchain and distributed ledger technologies, it is fairly easy to arrive at the conclusion that the incumbent standard is so drastically misaligned with the ethos of transparency and decentralisation promoted by those technologies, as to be completely incompatible.
This is “the need”. This is why we need to question ourselves and rethink our approach, wholesale. We did just that.
THE IGNITE RATINGS SOLUTION
Ignite RATINGS is the world’s first, truly decentralised and self-regulating investment intelligence and ratings platform powered entirely by crowd-sourced opinion.
IGNITE token holders are rewarded for participating in the Ignite RATINGS process via a proprietary incentive mechanism which links the wisdom of the crowd with the real-world performance of those assets being rated. We achieve this by listening to our community, investing in those assets that they rate most highly and sharing our gains with them.
Coupling a decentralised, incorruptible ratings structure with an incentive scheme which rewards the ratings body based directly on the performance of its highest-rated assets, drastically limits the amount, and impact, of questionable/false ratings, the likes of which caused the 2008 financial crisis. It is this principle which forms the backbone of the Ignite ecosystem, as the entire Ignite community would suffer financially by allowing poor and inaccurate ratings to influence the composition of the Ignite Indices. Accordingly, the Ignite RATINGS platform creates the world’s first democratic, self-levelling and self-governing ratings system, fostering transparency, fairness and trust in the marketplace while driving sustainability for both existing, and future, digital and/or traditional assets.
Meh, perhaps The Big Short explained it best: