, Author: TideChain, published with permission.

"The appearance of the third-generation financial world should be finance between people, finance between people and enterprises, finance between enterprises and enterprises, and a completely decentralized distributed financial system."

Editor's note: Hello readers, since the author wrote an article about Noah's 3.4 billion bond investment fund last time, many netizens are very interested and are asking me how to use blockchain technology Solve the problem of stepping on mines in the future. In fact, I am not engaged in a specialized technical position, but have been a brick-and-mortar dog in financial institutions for many years. The only valuable thing is that so many years of brick-and-mortar experience has given me a lot of reflection on traditional financial institutions and some ideas for improvement. We have also seen the changes brought about by blockchain technology. Thank you for your support for the previous article, which gave me the motivation to continue to update the article, and also gave me the opportunity to talk with friends about how the existing traditional financial institutions and asset management institutions operate, and what is caused by excessive centralization How to solve the problem. At the same time, I also hope that it can arouse your reflection and resonance, which is the origin of this article. (Original title "An article describing what asset management in the future DeFi world will look like?")

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opening

Keywords: the overall scale of global funds at this stage, fund classification, fund operation mode

The traditional financial institutions that everyone comes into contact with in daily life are divided into "banks", "funds", "brokers", "insurance", "trusts", several major categories (other strange P2P and wealth management companies in the market are basically It is not considered a traditional financial institution. Mutual finance companies under Tencent, Ali and other big companies are basically the financial industry version 2.0, and there are also many flaws. If you are interested, you can leave a message and discuss it in detail later). In fact, the above-mentioned types of traditional financial institutions all do the same job in essence, which is to absorb savings from ordinary people at the cost of a certain interest or return, and then invest or borrow from some specific assets or entities, such as Debt rights, income rights, equity, stocks, currencies, ETFs, REITS, etc.

Due to differences in regulatory requirements and types of institutions, the asset management business names, investment thresholds, and investment target requirements of the above-mentioned traditional financial institutions are also different. For example, trust products are called "collective trusts/single trusts", and funds are called "equity investment funds/securities Investment funds", brokers called "asset management plan". But the ultimate goal is to achieve the expected return on investment and pay the principal and interest to investors, so the above-mentioned businesses can be regarded as fund transfer businesses in the modern economy and society. Therefore, friends, don’t panic when you look at the professional terminology of the financial industry and the marble front desk. You think that the investment bankers in traditional financial institutions are professional and tall. However, it’s not the same thing. When encountering debt thunderstorms, financial crises, and large-scale stock market crashes, financial institutions also have footprints. The only difference from us is that after investment, they step on thunderstorms. We stood shivering in the cold wind holding up the red banners of human rights protection.

By the end of 2018, the global asset management industry will reach more than 80 trillion US dollars. After the financial crisis in 2008, the compound growth rate of the market has reached 12%. In recent years, the overall size of China’s asset management market has remained at 124 trillion yuan. It will reach the level of 200 trillion yuan per year, mainly led by "bank wealth management", "trust plan", "insurance asset management", "securities asset management" and "public/private equity funds". Among them, public and private equity funds accounted for 21.46% of the market share, and many products that have stepped on thunder recently are also such products. So today we will discuss the classification of funds and the operating mode of funds. Finally, let’s think about the disadvantages of asset management under the fund mode. risk assessment.

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Fund classification and investment targets

Keywords: domestic classification, public and private equity fund models, investment methods, thresholds, targets

Open-end funds are usually open-end funds that publicly sell shares in the market. The initial investment threshold is 1,000 yuan, also known as "public funds". You can choose from a lot of apps such as Tiantian Fund. On the contrary, most of the funds that are not sold publicly, the investment targets are usually relatively risky, and the investment threshold is 1 million yuan are closed-end funds, also known as "private equity funds." We can also see whether the fund is an open-end fund or a closed-end fund by looking at whether the underlying assets invested by the fund are liquid. For example, most of the investments in open-end funds are financial derivatives in the secondary market with strong liquidity. , such as bonds, stocks, futures, currencies, etc., because the specific net value of the invested product can be calculated after the secondary market is closed every day, so it is open for a long time and can be redeemed at any time and bought at any time. The net value of the share It is also updated daily.

Closed-end funds are similar to the literal meaning. The reason why they are closed is that the underlying assets invested have no relative liquidity and cannot be easily realized. During the period, the net value of the underlying assets cannot change significantly every day, so it cannot be calculated every day. The net value of each fund share. For example, equity investment funds, debt investment funds, and alternative investment funds. For example, the author established an equity investment fund. The product invested by the fund is the equity of OFO Xiaohuang Bicycle. Assets are dispersed into shares in a way that can accurately calculate the net value of each share on a daily basis. Therefore, most of the thundering products in the market are closed-end funds, which either redeem the proceeds and principal at maturity, or directly step on the thunder.

I hope that all readers will keep an eye out after reading this article. If you make billions in currency speculation in the future and want to buy some low-risk fund products, please read the evaluation report of the underlying assets and the law firm’s report. If the investment amount is relatively large, the fund manager can even ask the fund manager to issue a copy of all originals and affix the official seal to prevent follow-up. Fraud Evidence. Everyone, don't just swipe your credit card just because the PPT is well written and the girl who promotes financial management is pretty. However, judging from my years of experience and the centralized operation of funds, these documents will not be shown to investors.

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Key words: the operating mode of private equity funds and public equity funds

The operation mode of public funds: Investor Bob saw the sales content of a certain fund on a third-party fund sales agency, and he thought it was good, the performance comparison benchmark was also quite high, and the performance of the fund manager over the years was not bad, so he bought 1,000 yuan After signing the fund agreement for the shares of this public offering fund, the funds are transferred to the special account of the fund’s custodian bank. The asset manager, that is, the fund manager, starts investing after the fund is formally established, and buys the subject matter after research through securities brokers. , such as stocks, debt, currency, etc., the net value of the invested shares is also updated according to the daily loss and profit of the fund, and Bob can also redeem or buy the fund at T+1.

Private equity fund operation mode: Because the National Fund Industry Association stipulates that private equity funds cannot publicize funds in public places or in the media, most third-party sales agencies of private equity funds conduct publicity through telephone sales, Internet software, or private meetings . One day Bob received a call, and the other party had a sweet voice and moving words, "Dear, do you want to buy financial management, with an annualized XX% return rate, high-quality assets, and professional performance of the investment team?" After many communications, Bob dispelled his doubts. Injected subscription funds into the wealth management company and signed an agreement. After the funds enter the fund account of the custodian bank and the total amount reaches the establishment standard, the fund is established and begins to invest in the target. The target of the investment is actually known before the investment. It may be the equity of a certain company or the debt of a certain company. Or assets such as usufruct rights.

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Many domestic funds run away and step on thunder, what is the reason?

Keywords: centralization, untimely supervision, internal risk resolution, severe idling of funds in the financial market, heavy reliance on real estate companies

In the above three chapters, the operation mode and characteristics of the traditional fund industry have been basically introduced, so why are there so many public or private equity funds that have stepped on thunder or their investment performance has changed? The following will take the private equity fund with the most thunderstorms as an example, and the reasons for some problems can be explored from its operation flow chart.

The above picture shows the operation process of a general private equity fund. Investors invest funds into the fund, and the fund manager looks for potential investment targets in the market. However, under normal circumstances, the work of finding investment targets has basically been pre-prepared. Projects have been selected in the project pool, and the highlights of the fund are added through investment analysis and project prospects, which is convenient for increasing investor confidence and reducing the difficulty of fundraising. There is also a phenomenon of "blind investment" in individual funds in the market, which means that investors have great confidence in the investment capabilities of the fund manager. The fund prepares investment funds before selecting specific investment projects. However, this situation usually exists in large-scale funds. Between fund managers and investment institutions, no more detailed discussions will be made here.

After the fund is successfully raised, it is officially established and enters the closed period. Here comes the important point. During the closed period, the fund manager needs to complete several steps in the red dashed box in the above figure before investing in the project: due diligence, investment analysis, investment agreement review , risk control review, etc., but these steps are completely black-box operations for investors. These steps are hardly supervised by any external agency, and the specific progress and investment links are not subject to investment. human supervision. Of course, some real estate funds or non-performing asset funds may be more formal before the specific investment. The risk control department will require the fund manager to seek a third-party independent evaluation agency in the black dotted line to conduct legal, financial, Asset evaluation, but this does not solve the fundamental centralization problem, why? Because Party A of the third-party evaluation agency is an asset manager, and their expenses are paid by Party A from the fund management fee, the evaluation results given by the third-party evaluation agency are written in accordance with Party A’s ideas, strictly In terms of fairness and trust, if the interests cannot be independent, how can there be any fairness of the third party? A large part of the reason for the outbreak of the financial crisis in the United States in 2008 was also due to the large discrepancy between the credit rating of the underlying assets and the actual situation in the process of mortgage asset securitization. The three major international evaluation companies Moody’s, Standard & Poor’s, and Fitch International are all to blame . Interested friends can watch the movie "The Big Short" or watch some other financial documentaries, so I won't go into details here. Because most of the asset management business processes of traditional financial institutions mentioned in the first chapter of the article are similar to the above, so based on the above facts, we can basically list the "seven deadly sins" of traditional asset management institutions, and then pass Reflect on the problem to explore how to use blockchain technology to improve the shortcomings of traditional asset management institutions.

1) Black-box investment process: There is no third-party or investor supervision in the overall process, and the filing system of relevant regulatory authorities does not control actual risks and processes.

2) Invalidation of the risk control link: the management fee income of asset managers is the first assessment target, especially the risk control of some small and medium-sized asset management institutions has already become a decoration or just a show for investors, because in the final analysis it is still a matter of interests, The interests of the risk control link are bound to the interests of the managers. If the product cannot be released, no one will invest, and the salary and bonus of the risk control department will also shrink. In the case of turning a blind eye and closing one eye, everyone is happy , if there is a thunderstorm incident in the future, it is not a lifelong responsibility system anyway, and there is no need to bear any responsibility. Even the risk control manager of the project at that time has already left the original unit.

3) Petization of third-party evaluation agencies: It should be an independent evaluation result of the investment project, and publicly remind investors and the market of the risks of the product, but because of interests, it is on the side of the asset manager. It is not uncommon for high asset valuations, upgrades to credit ratings, etc., to seriously damage the interests of investors and reduce the impartiality of third-party evaluation agencies.

5) Short-sighted project benefits: Some fund development projects charge a three-year management fee at one time, why do they do this? Because the fund can realize the maximization of short-term benefits after receiving the management fee at one time, then we can imagine whether it will be responsible for the regular review of the project after the investment and the investigation of the operation of the asset holder. Some projects have problems in cashing out At the time, the project manager had even changed three or four times, just like the recently hyped incident of Noah's 3.4 billion thunderstorm. The creditor's rights were not known to be fraudulent when the contract was paid. Why did you go? Why not check before the management fee? How many years have passed, and the payment has difficulty, and you still dress yourself as a victim?

6) Insufficient asset liquidity: The underlying assets of most domestic asset management products are real estate, debt, equity and other assets. Due to the lack of liquidity of such products, the inability to transfer non-standard bids during the investment process, and insufficient diversification of investment, etc., and It is easy to cause liquidity risks, stepping on mines and other problems.

7) Hollowing of underlying assets: The underlying assets of projects invested by many asset management institutions, such as supply chain claims, real estate projects, etc., have been hollowed out after years of risk control failures and improper project management tracking and monitoring. , the underlying assets have lost their original value, misappropriation, disguised transfers, etc. have occurred from time to time. After a thunderstorm occurs, some more powerful asset management platforms will issue another asset management product out of thin air to make up for the previous Stepping on thunder project funds to solve the problem of rigid payment, which gradually formed a fund pool business with idling funds. If you have the opportunity to take a look at the underlying assets of the current major wealth platforms, the results may be shocking. Let's see how many bad debts the so-called platforms with hundreds of billions of management have? I don't know when this thunderstorm will explode.

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How does DeFi solve the pain points of traditional finance at this stage?

Keywords: decentralization, transparent management, distributed platform, platform, third-party evaluation agency, platform and investors advance and retreat together

Since the end of 2018, decentralized financial DeFi has ushered in the wind, part of which was originally the beginning of the 1C0 wave. Many blockchain pioneers plan to use smart contracts on Ethereum to achieve various ideals. In fact, these ideals are Okay, but many projects are actually not suitable for smart contracts due to issues such as transaction frequency, transaction volume, and transaction costs. However, the decentralized financial DeFi project thrived in the cold winter at the end of 2018, because the essence of finance is the flow between funds and assets, and asset management institutions only build pipelines between the capital demand side and the capital supply side, and most of the business It meets the characteristics of low frequency, high transaction volume, and high gross profit, and has the basis for using smart contracts. At this stage, many trading, lending, and stable currency projects are also developing very well, so what characteristics should asset management platforms in the blockchain world have in the future? Of course, these features will also solve the shortcomings of traditional asset management institutions.

1) The asset management platform is transparent: all transactions, cash flow, underlying asset status, contract documents and other data are uploaded to the chain, and permissions are opened for transaction participants to track and check at any time, so as to prevent the black box of the transaction process and let investors clearly know their own Where did the money go.

2) Independence of the risk control link: decentralized operation of asset management rights, the responsibility of asset managers is replaced by smart contracts, and it is clear that risk control management is an independent link, part of the risk control rights is handed over to project investors for voting, and part of the risk control The rights are transferred to an external management agency for paid services, and the profit part after the final transaction is completed is automatically transferred to the risk control agency by the smart contract. If a risk event occurs, the cost will be deducted accordingly.

4) Decentralization of the asset management platform: The core of the asset management platform is similar to a relatively complex decentralized management system, in which functions such as account management, demand matching, fund settlement, and income distribution need to be completed by smart contracts, and the connection layer of the platform uses API Port link department risk control agency, third-party evaluation agency, OTC service provider, brokerage service provider, fund lending service provider, etc., investment rights, management rights, and risk control rights are reasonably allocated to check and balance each other, and finally realize the binding of interests between service providers and investors Determine and jointly promote the benign development of the platform ecology.

5) Joint binding of value-added benefits: In the traditional asset management industry in the past, investment managers and risk control departments neglected the exploration of the intrinsic value of the invested projects, the project operating environment and Therefore, many asset management products do not emphasize the long-term value of the investment project during the issuance process, and even do not seriously study the cash flow, return ability, and market fundamentals of the project itself, but emphasize asset holding People’s background, solvency, ability to perform contracts, etc., but this is actually putting the cart before the horse. Each project subject company’s solvency and ability to perform contracts will undergo many changes with changes in the external business environment and market environment. Therefore, in the short term The risk control method will become uncontrollable in the long-term operation. In the future, only through the construction of decentralized asset management ecology, investors, third-party service agencies, external risk control agencies, etc. can focus on the essence of the project, and bind the interests of investors and external service agencies in the asset on-chain and issuance process Only then can we jointly pay attention to the long-term development of the project.

6) Asset Tokenization: In the long-term history of asset management at home and abroad, we can see that most of the investment targets cannot be converted from non-standard to standard within the closed period, which makes the risk premium of assets unable to be compared with the current value. It is fully reflected in the above. For example, BOB invested in an asset management product with a closed period of 3-5 years. If BOB needs the money urgently within these 3-5 years, he has no way to realize this asset. Trading and exiting, this situation has a great negative impact on asset managers and investors at this stage. The smaller the asset manager’s management scale, the easier it is to generate liquidity risk, that is, the risk of redemption, especially After the China Banking Regulatory Commission strictly prohibits the introduction of the new regulations on the fund pool business, that is to say, if there is an asset management platform with a management scale of 100 billion, 20% of the projects will need to be paid in the same period in the future, but as long as there is more than 30% of the risk of stepping on thunder or delaying payment , then the asset management platform is likely to face liquidity depletion without a fund pool business, which will cause a chain reaction in the overall market and even cause a local financial crisis. However, if all debt assets, fixed assets, and equity assets are tokenized in the future and can be traded on the platform at any time, the change in the net value of assets will smooth out the fluctuations caused by asset risks.

The future DeFi world in my eyes

In the future, in the DeFi asset management platform, it is expected that all assets on the chain will be tokenized, and Token will be able to flow freely in different public chains and trading platforms. The profit and loss of offline assets represented by Token will change from time to time It is always reflected in the current value of the Token. If he bought an asset management product for BOB, he can choose to resell the Token at any time when he needs to use the money urgently, or use it in DeFi asset management. Mortgage lending on the platform effectively eases the liquidity of assets. Capitalization in asset tokens also brings many benefits to asset holders. Assets are more liquid, financing costs are reduced, and there is no need to bear the fees of third-party evaluation agencies. The redemption and trading of assets will become more convenient.

After the above analysis, we already have a vision of a future DeFi world asset management platform in our minds. The platform will connect investors, asset holders, third-party evaluation agencies, third-party financial service agencies, etc. to jointly build an efficient financial platform At the same time, it can also bring better liquidity to the assets of some high-quality assets in the society. If there are some teams in the future who can land and improve the overall functions of the decentralized asset management platform I have described, and even enrich other functions such as transactions and payments, then the scale of assets managed by this platform in the future should exceed the trillion-dollar level. I also hope that it can become a truly phenomenal DeFi application, then the value of the future platform will be incalculable. The functions of the future platform are as follows:

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epilogue

Key words: first-generation, second-generation, third-generation financial models and characteristics