Tech Labs wins 3rd price at the world’s largest Blockchain Hackathon
The Decentralized Autonomous Pensions Plans (DAPP) solution was awarded the 3rd price in the future for pensions track during the Dutch Blockchain Hackathon in Groningen.
With an Ortec Finance Tech Labs (OFTL) delegation of five (Joris, Alex, Sebastiaan K, Sebastiaan V and Jelle) we participated in the world’s largest Blockchain hackathon hosted in Groningen. This well-organized event was a through eye-opening experience for us.
Blockchain Technology in Pensions
During the hackathon we used the concept of smart contracts in our solution: The second generation of Blockchain (referred to as Blockchain 2.0) provides a platform for smart contracts which embed software code in a Blockchain record that contains defined rules and can execute code based on those rules. Via such contracts parties can agree on terms of execution, confident that these terms will be respected by everyone involved.
This enables the formation of a Decentralized Autonomous Organization (DAO) which functions without human employees. This greatly extends the potential applications beyond digital currencies, especially in the financial industry. Blockchain has just scratched the surface of many traditional finance industries like Banking, Insurance, Trading and Asset Management. However, as of now there is little known about the application of Blockchain technology in the pensions market. In addition, with all kinds of financial services and products becoming available with Blockchain technologies, the decentralized nature of the Blockchain raises many regulatory questions. How should the Blockchain community deal with concepts like KYC (Know your Customer) and AML laws (Anti Money Laundering) for instance?
During the Dutch Blockchain Hackathon (2017) OFTL designed a Blockchain based pension system called the DAPP (Decentralized Autonomous Pension Plan). The smart contracts in this DAO resemble a pension in its purest form where longevity risk is carried by the community while investment risk is borne by the individual. The DAPP organizes the distribution of the longevity risk between all the smart contract holders and autonomously rebalances its investment portfolio to reflect changes in the individual investment profiles as well as the demographics of the contract holders. Individuals are responsible for maintaining their preference profiles and for making regular contributions. This model requires no blind faith in a mediating organization because all matters which require trust are transparently delegated to the DAPP.
The DAPP solution was awarded the 3rd place in the future for pensions track during the Dutch Blockchain Hackathon in Groningen.
The Future of Blockchain in Pensions
One of the drawbacks of the DAPP is that due to the lack of an executive body, there is no entity which regulators can hold accountable. For example, when an individual made unfortunate investment decisions and loses his or her pension, who is to blame? Will the individual be compensated? Regulation needs to be brought up to date with new techniques like Blockchain such that it becomes once again clear who can be held accountable for what. Hybrid pension models are another possible next step. A combination of a (human) governing body and an executive DAO offers the transparency of using Blockchain technology with the benefit of clear accountability.
The hackathon results demonstrated above all that, while Blockchain technology has the possibility to disrupt large sectors in the financial world, a lot of work still needs to be done to pave the way for a smooth implementation in the current pension system. Through events like the Dutch Blockchain Hackathon, meetups with Blockchain pioneers and our own in-house research and development team, Ortec Finance remains at the forefront of technological innovation in financial decision making.