Kaal claims by topic: risk-and-incentives, page 2

779 atomic, individually citable claims from the published work of Wulf A. Kaal tagged risk-and-incentives.

Because several core Form PF questions feeding the FSOC's stage one threshold screen are themselves defective, the FSOC's systemic risk assessment process could be compromised. 2014
The Form PF counterparty questions most affected by filer interpretation, Questions 22 and 23, are the very ones the FSOC uses in stage two to determine the interconnectedness of private funds. 2014
If the FSOC relies on inaccurate Form PF data in its systemic risk assessment, its work on private funds may itself be erroneous. 2014
Private fund advisers reporting under Form PF encountered issues that could affect the FSOC's systemic risk assessment, but the author does not claim that the FSOC is unable to fulfill its congressional mandate. 2014
Matching the identified Form PF defects against the FSOC's specific uses of that data suggests possible inaccuracies in the FSOC's systemic risk assessment process, although the author disclaims scientific or empirical precision for the analysis. 2014
Fixing the identified problems with Form PF data would help optimize the FSOC's systemic risk assessment of private funds. 2014
The market values N/DPA governance changes during the term because those changes effectively address the underlying corporate wrongdoing and its damage to goodwill and reputation while reducing the likelihood of continuing fines and litigation. 2015
Private party litigation against hedge fund managers stays minimal because well counseled managers make extensive disclosures to investors who are presumed sophisticated, unlike mutual fund advisers who face ongoing high value investor suits. 2016
Alternative mutual funds generally cannot deliver the same absolute returns as hedge funds, a shortfall some attribute to the lighter touch regulation and better incentives available to hedge funds. 2016
The inherent conflict of interest facing an adviser who simultaneously runs a mutual fund and a hedge fund is an important limiting factor on the continued rise of side-by-side management. 2016
FSOC's SIFI designation framework does not distinguish between mutual and hedge funds, even though evidence indicates designation would have disparate effects on the two asset classes. 2016
Merging the regulatory requirements of mutual funds with the formerly distinct rules for hedge funds creates incentives for private investment managers to launch retail alternative funds, which raises supply, then demand, and so feeds back into further confluence. 2016
Rising demand for alternative strategies creates incentives for mutual fund managers to find ways to simulate leverage, in an industry that historically used little leverage and presented little risk. 2016
The mutual fund industry of the future could carry more risk than its historical averages suggest, a possibility with systemic implications given the comparative size of the mutual fund market. 2016
A second channel by which Title IV could lower performance is risk reduction: private fund advisers have expressed concern that regulation will force them to take on less risk and therefore earn lower returns. 2016
The quarterly Form PF reporting obligation imposed on advisers with more than $1.5 billion in regulatory assets under management attributable to private funds exists to give the FSOC timely data for identifying trends in systemic risk. 2016
Early regulatory intervention is subject to massive information asymmetries and associated regulatory uncertainty because the early stage of an innovation often provides insufficient information about its possible risks and benefits. 2016
Government assessments of hedge fund systemic risk conflict directly: the OFR, FSB, and IOSCO treat private fund activities as important threats to the financial system, while the UK Financial Services Authority concluded from its first comprehensive survey of London's private fund industry that hedge funds pose no systemic risk. 2016
Despite conflicting government reports, the weight of post-crisis evidence from leading financial economists supports the conclusion that hedge funds introduce at least some systemic risk into the financial system. 2016
Public perception, rather than measured risk, is the principal driver of the hedge fund systemic risk debate and of the policy responses to it, and that perception is shaped chiefly by industry growth and by the collapse of prominent funds. 2016
The combination of unprecedented private fund industry growth and the low interest rate environment produced by post-crisis quantitative easing pushed private fund managers into reaching for yield, and the leverage and complex derivative transactions used to boost that yield further increased private funds' systemic risk. 2016
Because hedge fund losses are absorbed directly by a large and dispersed body of investors and their equity capital, private fund advisers are unlikely to trigger a systemic event, and their activity may even reduce market volatility. 2016
Post-LTCM counterparty credit risk management, in which regulators pressed banks to monitor and limit the leverage of their hedge fund clients, appears to have worked: the Amaranth failure produced no financial market repercussions. 2016
Any conclusion that hedge funds contributed to the financial crisis of 2007-2008 is circumstantial or anecdotal, because the data needed to test it, on leverage, counterparty relations, AUM, and portfolio holdings, were not collected for any substantial period before the crisis. 2016
The opacity of the hedge fund shadow banking system blocks direct measurement of hedge funds' role in the crisis, leaving researchers with indirect measures extracted from existing data rather than primary pre-crisis sources. 2016
The contagion story, in which hedge fund losses spread to other financial institutions and undermine systemic stability, is counterbalanced in practice because hedge fund collapses are rarely sudden and almost always unfold in incremental steps over a long period. 2016
Hedge funds' risk management practices are typically evolved enough to constitute a major barrier to systemic shocks, and their trading counterparties and lenders further help prevent losses large enough to disrupt the financial system. 2016
Pre-crisis regulatory attention was misallocated: although Bernanke identified failure to manage counterparty risk as the primary cause for concern, the SEC and the Senate Banking Committee concentrated on hedge fund transparency instead. 2016
Even if the risks hedge funds pose to financial institutions are often overstated, liquidity risk remains a serious issue because of the critical linkages created by over-the-counter credit risk relations. 2016
The performance pressure on hedge fund managers incentivizes them to take disproportionately high risks in order to deliver sufficient client returns, and those disproportionate risks translate into proportional systemic risks. 2016
Market-neutral arbitrage strategies implicitly minimize systemic risk, because funds using them construct returns that do not depend on the direction of the market. 2016
The systemic risk of hedge fund leverage comes from its capacity to amplify liquidity losses and to contribute to asset overvaluation during bull markets, not from leverage as such. 2016
When hedge funds simultaneously liquidate positions and reduce leverage, leverage generates a fire-sale externality that raises systemic risk, arising when a fund must sell assets it regards as drastically undervalued in order to meet margin calls or redemption requests. 2016
Strategy diversification does not insulate the hedge fund industry from systemic risk: returns across different hedge fund strategies were more correlated during the financial crisis of 2007-2008 than before it, so the industry can pose systemic risk despite investing across a broad spectrum of assets and strategies. 2016
The growth of hedge fund replication strategies packaged in exchange traded funds may further increase the systemic risks associated with certain hedge fund strategies. 2016
Title IV of the Dodd-Frank Act addresses alleged hedge fund systemic risk through an information strategy rather than a substantive one: it authorized the SEC to require registration and enhanced disclosure from private fund advisers and to facilitate data collection for assessing systemic risk. 2016
Hedge fund redemptions and margin calls, both liquidity reducing events, were the primary drivers of asset selloffs during the financial crisis of 2007-2008, and hedge fund investors are three times more likely than mutual fund investors to withdraw capital during market downturns. 2016
Hedge fund redemption policies are not irrelevant to risk: the rewards to liquidity risk are positive in part because redemption gates allow hedge funds to avoid asset fire sales. 2016
Traditional risk-adjusted alphas underestimate hedge fund risk: once correlation risk is controlled for, previously observed significant hedge fund alphas disappear, which makes correlation risk a systematic risk factor for hedge fund returns. 2016
Once liquidity risk is incorporated into the analysis, the superior performance previously attributed to predictability in managerial skills disappears in hedge fund portfolios. 2016
Risk measures that are not adjusted for serial correlation in hedge fund returns can considerably underestimate the true extent of both individual and systemic hedge fund risk, so empirical work in this area must account for autocorrelation. 2016
Systemic risk rankings that place a loosely defined other financial services sector above banking and insurance are of limited use, because the analysis does not clearly identify the firms included in that category even though a substantial portion of them may be hedge funds. 2016
Hedge funds have the potential both to amplify and to mitigate systemic risk, and which effect dominates turns on their particular risk management incentives, leverage, and investment strategies, which is why the academic evidence remains mixed. 2016
The most useful product of the post-crisis empirical literature for regulators is a set of methodologies for evaluating hedge fund systemic risk and prescribing remedies, especially methodologies addressing the counterparty credit measures of hedge funds and their prime brokers. 2016
Regulation is mostly reactive and follows business cycles rather than being proactive; data on venture capital investments lets regulators see where innovation trends are heading and what risks they entail before the disruptive innovation actually materializes. 2016
Because a material omission or misstatement in Form ADV Part 2A can support a serious securities law charge, private fund managers have an incentive to keep the narrative language of that required disclosure as high level, summary, and non committal as possible. 2016
Fund managers were incentivized to route capital to Madoff because he charged notoriously low fees for the hedge fund business, taking only transaction fees rather than fees based on assets under management. 2016
The data suggest that since 2010 private fund advisers increasingly engage in investor due diligence in order to protect themselves from investor criticism and lawsuits. 2016
Private fund investor due diligence may follow the evolutionary path of bank risk evaluation, which fifteen years ago operated without uniformity or applicable standards and is today heavily regulated and has evolved into a science. 2016
The collapse of Long Term Capital Management in 1998 and its Federal Reserve orchestrated bailout made hedge fund risk to international markets apparent, and concerns over excessive leverage combined with a lack of transparency drove the demand for new regulation. 2016
Some of the most sensitive Form PF disclosures are not readily obtainable by the funds themselves: counterparty credit exposure often cannot be determined by individual fund managers, which makes the reporting requirement burdensome in practice. 2016
The investor verification requirement defeats the purpose of the Rule 506(c) liberalization: fearing liability for investor misrepresentations of personal wealth, most hedge funds raising money from individuals continue to use old Rule 506 rather than Rule 506(c). 2016
There are no legal limits on hedge fund leverage; the only constraint comes from market discipline supplied by creditors and counterparties through interest rates, credit availability, credit limits, initial margin, and credit spreads. 2016
Direct regulation of hedge fund leverage collapses on the details because balance sheet leverage is not an adequate measure of risk and would push funds into off-balance sheet avoidance strategies. 2016
Alternative risk measures such as value at risk have severe measurement problems, so any direct regulation of leverage would be set conservatively and would substantially limit hedge funds' ability to provide market liquidity. 2016
Direct regulation of hedge fund leverage increases moral hazard costs, because lenders and counterparties relax their own vigilance once they rely on government rules to constrain fund risk taking. 2016
Any prescriptive regulatory regime for hedge funds risks leaving the financial system less stable rather than more stable, because counterparties relax vigilance when they believe authorities are monitoring and constraining fund risk taking. 2016
Indirect regulation through bank capital adequacy standards can reach systemic risk because those standards alter not only banks' credit standards but also counterparty credit risk and therefore hedge funds' level of leverage. 2016
A system in which hedge funds submit position information to an authority that aggregates and publishes it cannot address liquidity risk, because protecting proprietary information requires so much aggregation that the resulting information loses value to market participants. 2016
A public database of nonproprietary hedge fund information might demystify the industry, but it would not address the central policy concern that opacity creates liquidity risk. 2016
The prohibition on performance fees for investment companies is the most important structural difference from hedge funds, which rely heavily on performance fees of up to 20 percent of capital gains and appreciation to give advisers incentives to produce absolute returns. 2016
Higher compliance costs from hedge fund regulation can create barriers to entry for new market entrants and can accelerate consolidation of the hedge fund industry. 2016
Barriers to entry for small firms are becoming an increasing problem in the private fund industry under the evolving post-Dodd-Frank legal environment, with references to such barriers rising from 24 percent of respondents in 2012 to 33 percent in 2015. 2016
Form PF raised regulatory oversight of private funds to unprecedented levels by requiring managers to disclose, for the first time, information about themselves, their funds, their investors, performance, financing, risk metrics, strategies, and credit exposure. 2016
A majority of private fund adviser respondents, 74.5 percent, do not plan any strategic response to Title IV of the Dodd-Frank Act. 2016
Private fund advisers in the sample did not terminate existing employment relationships, and only few severed advising relationships, changed fund legal structure, liquidated positions, changed investment styles or portfolio structure, or closed funds to new investors. 2016
Of the advisers who responded, 70.60 percent would not take the current regulatory regime into account in determining the assets under management size of their funds. 2016
Among advisers who factor the regulatory regime into fund sizing, the direction of adjustment is split: 18.2 percent would lower assets under management to avoid the regulatory hassle, while 27.3 percent would still increase AUM and another 27.3 percent seek the right size to cover expenses. 2016
Asked how Title IV will affect the private fund industry over the next five years, the largest groups of respondents identified additional expenses, at 34.9 percent, and barriers to entry for private fund market entrants, at 32.6 percent. 2016
The long-term effect of the Dodd-Frank Act on the private investment fund industry is likely to be characterized by increasing additional expenses and associated barriers to entry for new market entrants. 2016
Unconstrained mutual funds share multiple investment strategy and risk attributes with fixed income hedge funds, a finding the authors ground in trading data and prospectuses of all such funds launched from 2010 through 2015. 2016
Average unconstrained mutual fund performance over the three years preceding the study was lower than the return on the ten-year Treasury, and poor performance was often accompanied by high fees and increased credit risk. 2016
Three features make it uniquely challenging for retail investors to evaluate the risks of unconstrained mutual funds: the lack of standard benchmarks, the recent emergence of the fund type, and the diversity and complexity of the strategies and risk exposures involved. 2016
Proposed Rule 18f-4 would be highly limited in mitigating liquidity and other risks in an unconstrained mutual fund portfolio, because material leverage, counterparty, and liquidity risks in such a fund can arise from investments in a range of non-derivative instruments that the rule does not reach. 2016
Because unconstrained mutual funds share investment strategy and risk attributes with private funds, the average unconstrained fund's risk profile is substantially more complex and generally involves more risk than the average mutual fund, and is closer to that of a private fund. 2016
Unconstrained mutual funds take on private fund-like risk without a corresponding return advantage: private funds' incentives and investment flexibility help explain their performance advantage over mutual funds, but the performance record of unconstrained mutual funds is less clearly distinguished from that of other mutual funds. 2016
Existing evidence about risk-shifting by the average derivative-using mutual fund is less relevant to unconstrained mutual funds, because their derivative use is closer to that of a typical private fund. 2016
A retail investor's experience investing in traditional mutual funds is likely to be a poor indicator of whether that investor will understand the risks of investing in an unconstrained mutual fund. 2016
Pressure on the incentive fee side operates through blackened carried interest, under which a manager cannot collect carry until all limited partners have had their capital returned within the lifetime of the private equity model. 2017
Shifting inflation indexed hurdle rates from quarterly to monthly calculation lowers manager compensation: for managers with pension plan limited partners this often means receiving 5% plus inflation instead of an 8% hurdle rate. 2017
In the Numerai model, the use of artificial intelligence achieves efficiency and optimum capital allocation by reducing overhead costs, because there is no cost of human capital. 2017
The threshold for change for bigger fund managers is dictated by the implementation cost of the new technologies. 2017
Blockchain enabled platforms for setting up private investment funds exert significant pressure on the existing fee structure because they generate competitive gains through fewer cost and time barriers to setting up and running a fund. 2017
Repeated use of the same dataset by data scientists creates an overfitting risk: the training model fits the test set so closely that its performance on a different dataset degrades. 2017
Requiring data scientists to stake a cryptocurrency on their own predictions converts private confidence into a public signal, which enables the fund to select the optimal model and improve fund performance. 2017
Large managers will begin adopting blockchain and related technologies only once the long term benefits exceed implementation cost, and because implementation cost is much higher for large managers than for the small managers now experimenting, adoption is delayed at the top of the industry. 2017
Blockchain platforms for fund formation lower start up and compliance costs, which especially enables new and future managers to enter the market rather than merely benefiting existing managers. 2017
In the decentralized DLT model, distributed consensus replaces the trusted central validation system, substituting cryptographic solutions and economic incentives for a central validator. 2017
The authors interpret the AUM difference as suggesting that larger European advisers are more willing to fund blockchain infrastructure, while in the United States legacy systems used by larger advisers create a barrier to entry. 2017
The authors undercut their own legacy systems explanation: legacy systems in the EU should theoretically create the same barriers, and there is no reason to believe US legacy systems are more of an obstacle than European ones. 2017
Because American funds lean on smart contracting, they have a better opportunity to launch disruptive blockchain implementations, but they may also experience a higher rate of failure from greater exposure to technological risk. 2017
The Numerai model reduces overhead costs because there is no cost of human capital, and it eliminates barriers to entry because participating users need neither capital nor any special finance or data knowledge. 2017
Even where a smart contract reflects the underlying bargain between the parties, lawyers may argue that smart contracts are void and unenforceable under the law. 2017
Promoted minorities do not necessarily use their new position to promote other minorities; in the existing American corporate structure they often have incentives to race to the top while lifting the ladder behind them. 2017
Top management retains support only so long as others in the corporate structure keep them in power, which gives incumbents an incentive to keep upper management composition unchanged. 2017
Problems with smart contracts are inevitable because of subjectivity in human relationships, bounded rationality of coders and contracting parties, incomplete foresight, incomplete information, and opportunistic behavior. 2017
The economic incentive for Aragon judges to follow the more popular vote, since judges keep their bond only if they voted with the majority, calls into question whether the mechanism delivers effective, non arbitrary, and fair dispute resolution. 2017
By internalizing the costs of bank failure, contingent capital may be able to minimize moral hazard, avoid financial contagion, and limit systemic risk. 2017
Appropriate use of contingent capital triggers can further lower the default risk of the contingent capital securities themselves, on top of the moral hazard reduction that comes from internalizing bank failure costs. 2017
The threat of dilution of stock holdings, combined with the threat of loss upon conversion, could help reduce the pressure shareholders place on management of systemically important financial institutions to take increasing risks. 2017
Where conversion has a negative effect on stock price, management is further incentivized to maintain and manage risk in order to avoid reputational loss and the income reduction caused by losses in stock options. 2017
Crypto platforms typically launch an ICO when they have only an intangible product based on a basic crypto idea, so token holders invest in the future promise of an idea, and while that works for core infrastructure products such as Ethereum, most other platforms struggle to fulfill that promise. 2017
ICOs provide the highest possible liquidity for investors at the very beginning of a platform's lifecycle, before the reporting, accounting, and legal infrastructure that gives the investing public assurance of underlying business success, so investors trade on very limited information and volatility of the tokens and the whole cryptocurrency market increases. 2017
Because token offerings are built on open source code, the utility of an issued token can at any time be recreated in another token with essentially identical features at marginal cost, so investors cannot rely on the implicit promise that promoters and developers will increase the value of the acquired token rather than launch a duplicate. 2017
Legacy businesses own their code and can sue competitors who copy it, whereas open source crypto start-ups rely only on licenses, and this weaker incentive structure makes ICO investments riskier. 2017
On bankruptcy or termination of the platform, token holders typically have no liquidity preference and no recourse at all once debt holders and outside creditors are satisfied, so unlike a venture capital seed investor with at least a simple liquidity preference, they typically lose everything they invested. 2017
Private initiatives are emerging to fill the ICO disclosure and rating gap, including a joint venture between Ambisafe and the rating agency ICOrating created to ensure high quality standards and support investor due diligence. 2017
An ICO that proposes an uncapped raise without an underlying product is a very serious red flag, because uncapped raises are perceived by the crypto community as greedy and raise investor uncertainty about the valuation of the platform or product being bought. 2017
Capped token issuances became the dominant structure between 2016 and 2017 because a cap increases the likelihood that the ICO will be oversubscribed, which creates a significant incentive for investors to attempt to get in first. 2017
Because the legal origin of smart contracting is unsettled, lawyers may argue that smart contracts are void and unenforceable under the law even where the smart contract accurately reflects the parties' underlying agreement. 2017
Banks overexposed themselves to private investment fund lending, which allowed LTCM and similar funds to grow significantly and led banks as counterparties to put their own existence at risk. 2017
Post LTCM proposals for clearer credit risk strategies and credit risk management policies at financial intermediaries were inappropriately applied across the whole range of business models and lacked concrete implementation elements. 2017
Stress tests, Value at Risk, and Monte Carlo scenarios imposed on financial intermediaries that lend to private investment funds necessarily rely on historical data, so they are of limited value as indicators of high risk sensitivity to future events. 2017
Because advisers and third party service providers can flatten out and sanitize the information disclosed in Forms ADV and PF, the resulting disclosures may be less useful to the FSOC and the SEC in determining the systemic risk posed by private funds. 2017
The second survey found long-term negative effects of Title IV: 34.9 percent of respondents expected it to affect the industry over the next five years through additional expenses, and 32.6 percent expected it to create barriers to entry for new private fund market entrants. 2017
Because Title IV compliance costs bring increasing returns to scale and therefore favor larger firms, Title IV may create barriers to entry for smaller private fund advisers, forcing them out of the market or into consolidation with other advisers. 2017
The SEC's private fund data collection encountered accuracy and consistency problems that hampered the FSOC's ability to evaluate the systemic risk of private funds. 2017
The FSOC relied most heavily on some of the most problematic disclosure items the SEC collects, even though SEC data played a crucial role at every stage of its systemic risk assessment of private funds. 2017
Several core Form PF questions that feed the FSOC's stage one threshold assessment are defective, most importantly because the definition of RAUM required substantive interpretation by the filers themselves. 2017
If the FSOC relies on Form PF data that is subject to inaccuracies, because uncertain filers complete the form using estimates and assumptions, then the FSOC's own work on private funds may in turn be subject to errors. 2017
Since 2010 private fund advisers increasingly engaged in investor due diligence partly to protect themselves from investor criticism and lawsuits, rather than in response to regulatory mandate. 2017
Private investment fund due diligence may follow the same trajectory as banks' risk evaluation, which moved from unstandardized general strategies in the early 2000s to a heavily regulated and scientific practice today. 2017
Merging the regulatory requirements applicable to mutual funds with the formerly distinct rules applicable to private investment funds creates incentives for private investment managers to set up retail alternative funds. 2017
Regulators too often define success negatively, as the avoidance of catastrophe, which makes regulatory experimentation unattractive to them. 2017
Because regulators seek to avoid grounds for criticism, they inevitably adopt an overly cautious posture, which is what the precautionary principle amounts to in practice. 2017
Contesting the safety rationale offered for restricting Uber, the authors argue that the two way rating system and the algorithmic matching of drivers and customers already provide an effective means of policing drivers and ensuring a safe ride. 2017
A demand driven approach does not require ignoring the risks and negative side effects of new technology; what it requires is that entrenched interests with a clear stake in obstructing a disruptive product or service not be allowed to dominate the debate. 2017
Because public and close corporation shareholders differ materially in bargaining power, close corporation shareholders should be granted greater flexibility to order their affairs by agreement. 2017
Voting arrangements are not self executing: their existence does not relieve the corporation of observing the legal formalities of director and shareholder action. 2017
US law gives corporate participants wide latitude to restrict share transfers, and such restrictions are usually upheld unless their terms are unreasonable in the circumstances. 2017
Where a shareholder agreement is folded into the charter or bylaws, it thereby becomes subject to whatever amendment procedure those documents or the statute provide, so charter integration exposes the arrangement to later modification. 2017
A focus on quarterly earnings and short-term stock price performance distracts an organization from identifying the strategies that would keep the firm relevant, which is why financially successful companies can still lose their market. 2017
Microsoft lost relevance under Steve Ballmer because it optimized for short-term financial metrics instead of designing products for the next generation of consumers, even while sales tripled and profits doubled. 2017
Reforms that increase executive accountability to shareholders and increase shareholder control over executives do not solve the problem of corporate short-term focus. 2017
Increasing shareholder control over executives can be actively counterproductive: it further incentivizes the damaging emphasis on quarterly financial reporting that reform was meant to cure. 2017
Stewardship pressures push companies toward an unhealthy focus on short-term dividends and share buybacks designed to please the stock market, the opposite of the long-term orientation the codes intend. 2017
The novel element of the architecture is a dynamical evolutionary feedback system that ties an expert's reputation to their proof of ability and productive contributions, verified by validation pools that are generated by public fees sent to the system. 2018
The chosen expert is deliberately not paid directly out of the fee but only indirectly in newly minted tokens, because the architecture secures itself by making reputation more valuable than any one time payment. 2018
The tragedy of the commons arises in any system lacking a well designed incentive structure; in blockchain proof of stake design this is the nothing at stake problem, where unregulated systems lead pseudonymous users to abuse the system. 2018
Reddit's upvote system imposes insignificant punishment for voting randomly, and this lack of cost compromises the informational value of an upvote, which is the failure mode a staked validation pool is designed to avoid. 2018
Healthy expertise tags are secure not because attack is impossible but because it is easier to profit from them by improving them than by harming them. 2018
Even a successful takeover yields the attacker only a fraction of one transaction's fee before the expertise tag topples, so as long as any single fee is smaller than the total reputation there is no incentive to game the system for fees. 2018
Because earlier minted tokens pay out more than later ones at a steady fee rate, later experts have less motivation to join, and the remedy available to the bench is to change the exchange rate between fees and sem tokens to attract new recruits. 2018
There is no absolute certainty that using an expertise tag yields a fair resolution, because malicious experts can always choose an unfair algorithm to distribute the disputed assets. 2018
Under equal token weighting a successful poster receives no greater reward than the upvoters who merely read and vote, so the system pays the same for crafting a comment as for voting on it, which encourages voting over commenting. 2018
Crypto-economic incentive design is only limitedly successful at shaping future human behavior, because the designer must speculate about future human mental states and belief systems that may turn out entirely different from what was anticipated. 2018
Reputation tokens supply a staking mechanism that incentivizes high quality work and task completion by workers, and that simultaneously lets requesters verify and track worker quality, integrity, and quantity. 2018
The protocol architecture together with its incentive structure is what produces enhanced 51 percent attack resistance, which the author claims exceeds prior reputation verification attempts in both decentralized and centralized networks. 2018
Staking creates disincentives for malicious actors, and it is this disincentive structure that makes the network both more efficient and attack resistant. 2018
Verifiers stake proportionally smaller amounts of reputation tokens than workers, because their higher reputation scores make them less likely to be malicious actors. 2018
Reputation scores clear the market on both sides: a low requester score makes workers less likely to accept that requester's offers, and a low worker score reduces the worker's likelihood of retention. 2018
Because requesters select workers by reputation score, workers acquire an incentive to keep their scores high by performing tasks with high accuracy and efficiency. 2018
Sharing all work fees with the expertise creates a positive feedback loop: the more fees flow to the platform, the more reputation is worth, and the more workers prefer reputation tokens to one time fees. 2018
Existing decentralized gamification attempts for micro task workers fail because they are monodimensional and permit earning only by playing the game, whereas a multidimensional design gives players several ways to earn and builds stronger loyalty. 2018
ICOs lower barriers to entry for a diverse body of investors and thereby increase the diversity and heterogeneity of start-up funding. 2018
In a truly decentralized system any mistake, such as a stolen or lost password or a programming bug, is permanent and irrevocable. 2018
A reputation verification platform matters because trust created through an eternal reputational record would be open to review and driven by proper incentives. 2018
Putting the counterparties' reputation at stake reverses smart contracting's degeneration, because the opportunity to earn new valuable reputation tokens makes members act in ways that improve the platform over the long term rather than exploit short term arbitrage. 2018
A successful Semada block producer wins half of the newly minted reputation tokens for a block while the remaining members share the other half for policing the block in the validation pool. 2018
Because all fungible fees are already shared in proper proportion among Anchor holders, participants have less reason to join a mining pool, which makes the system more decentralized. 2018
New reputation tokens are minted in every validation pool for every block, so block production is strongly encouraged through a larger share for the successful producer while policing is only gently encouraged through a shared allocation to all active members. 2018
Semada's voting algorithm is designed so that gaming the system is not economically feasible without contributing genuinely valuable improvements, because value is proven through the fees added to the system and every fee is subject to a fair validation pool. 2018
A secure proof of stake protocol requires an incentive structure that perpetually motivates users to do three things at once: produce valuable blocks, police blocks that violate protocol, and improve the production protocols in response to gaming. Incentivizing only block production is insufficient. 2018
Because all block creation fees are shared with the whole group as a reputation weighted salary, SPoS removes the direct monetary reward for forming mining pools or block production cartels, which the authors identify as a decentralization threat that raises the likelihood of 51% attacks. 2018
The current dominance of altruists in the crypto space will not persist: once the crypto economy matures, an influx of hedgers and rent seekers can be anticipated with certainty, and they will exploit any weakness in the system for profit. 2018
Successful proof of stake experiments running today cannot be used to infer that their protocols are truly secure, because the current participant population is atypically altruistic; confidence must instead come from sound reasoning about incentives. 2018
A healthy expertise will have near unanimous consensus on every evidence of work validation pool, and that very unanimity creates an impediment to development, because honest members risk their stakes by voting for untested changes. 2018
When a fork skips valid blocks, fees previously distributed to the bench from those blocks lose their valid histories and ownership reverts to the transaction authors, which creates a direct disincentive for validators to endorse such forks. 2018
Issuing coins or tokens across all ecosystem participants creates a level playing field and helps establish a flatter, community-owned platform that is not based on the traditional hierarchies between shareholders, executives, managers and staff. 2018
Dynamic power organization in a DAO succeeds only if the decentralized governance structure motivates token holders to collaborate productively by fairly rewarding development, work, and the policing of any diminishments. 2019
Fungible cryptocurrencies are by their nature a corruptive element because decision makers can be influenced by power that grows with the size of fungible holdings; decentralized decision making therefore requires non fungible payout metrics combined with an indirect fungible payout structure. 2019
If curators and contractors are paid from a fungible currency source without a direct or indirect penalty for underperformance, such as lower token scores, DAO contractors and workers may be corrupted by external sources. 2019
Participants must be incentivized to improve their own utility while simultaneously benefiting the institution over the long run; without that duality of incentivization, rational and opportunistic internal and external constituents will attempt to game the governance design. 2019
Optimized DAO governance should pay members only indirectly, through fungible salary tokens issued in proportion to non fungible merit tokens, because the indirect economic effects remove corruptive elements and make the design more attack resistant and stable in the long run. 2019
Reputation based DAO governance turns a zero sum game into a positive sum game, because members are given incentives to build lasting non fungible value through a long term record of productive cooperation that improves the DAO. 2019
DAO incentives are intrinsic rather than extrinsic: the core common denominator for all DAO token members is the unifying desire to optimize the DAO structure and reputation token value, whereas hierarchical organizations rely predominantly on extrinsic structures such as wages. 2019
Existing ledger structures for securities offerings are defective: because individual firms rely on batch processing, the model generates dependencies, multi-day settlement times, distinctive operational risks, and duplicative costs. 2019
When multiple firms trade the same securities in legacy systems, each maintains its own ledger, and that duplication is itself the source of increased operational risk and cost. 2019
Blockchain reduces counterparty credit risk through a specific mechanism: a single shared ledger compresses the settlement cycle so that cash or securities are verifiably in the account within seconds of the trade, leaving almost no window for counterparty default. 2019
The double spending problem has not been eradicated in theory: a group or syndicate obtaining 51 percent control of a network could reverse transactions and create a private chain that the market could only limitedly discern as not real. 2019
Any settlement completed in less than ten seconds removes counterparty risk and with it systemic risk entirely, which makes settlement speed, not disclosure, the operative variable for systemic risk. 2019
If blockchain pushes settlement finality into the seconds range, the entire regulatory infrastructure built to address counterparty and systemic risk would have to be reformed, and most systemic risk and counterparty risk regulation would become unnecessary. 2019
Blockchain based offerings introduce technology risks from code design and functioning and from third party intrusions that are generally absent in traditional offerings, and these risks cannot really be quantified. 2019
Regulators' relative unsophistication about the technology is itself a risk driver, because a poorly informed regulator is likely to over-react and precipitate new or expanded regulation. 2019
Near instant settlement creates its own regulatory problem: there is no practical ability to correct trade errors when settlement is same day, whereas the T+2 or T+3 structure supplies a correction window even as its delay causes other trading violations. 2019
The SEC's rejection of the Winklevoss Bitcoin ETF, reasoned on Bitcoin's unregulated nature and susceptibility to fraud, reflects agency distrust of the crypto asset class as a whole rather than a narrow product objection. 2019
Because of bounded rationality, incomplete foresight, and information asymmetries, it is impossible for principals to contract for every possible action or inaction of the agent so as to induce the agent to act in the principal's best interests. 2019
The unifying interest of DAO token holders in raising token value means they will voluntarily perform optimization tasks, because doing so is directly in their own interest. 2019
In decentralized systems profit generation rests less on capitalistic economies of scale and more on open source volunteer contributions and greater good perspectives, with profits arising only if and when the solutions become mainstream. 2019
The high intermediary fees of centralized fiat payment systems make those systems economically viable only at higher transaction volumes, which creates barriers to entry that decentralized payment systems do not face. 2019
Without something that functions as an insurance policy when commercial risks materialize, the public has no reason to pursue the benefits of decentralized commerce, so decentralized underwriting is of core importance to any future decentralized technology solution. 2019
Democratized decentralized underwriting is more secure and stable than centralized underwriting because diversifying lenders and underwriters adds liquidity in all states of the economy and silos losses so that there is less cascading during economic crises. 2019
A DAO's profit distribution weights across present workers, past workers, protocol designers, and governance designers should match the DAO's current values, since a greater share for new workers attracts new workers, a greater share for older workers signals long term stability, and a greater share for protocol designers attracts innovation. 2019
A dynamic, changing set of governance rules can address the problem that any static rule set is gameable, and can establish the incentives necessary to stop such abuses. 2019
Less successful companies share a myopic short term focus on shareholder value maximization, which produces an unhealthy emphasis on share price, market valuations, and financial metrics that obscure issues of relevancy. 2019
Microsoft under Steve Ballmer missed the shift to networked technologies and mobile consumption because it focused on short term financial metrics rather than on designing products relevant to the next generation of consumers, and so ceased to be relevant despite excellent traditional metrics. 2019
Intermediary fees in centralized fiat payment systems make those systems economically viable only at higher transaction volumes, which creates barriers to entry that decentralized payment systems do not impose. 2019
Even if legacy insurers do enter the DApp market, their products may not fit the need, because actuarial methods for risk assessment under traditional insurance metrics are only partially compatible with rapidly evolving decentralized products. 2019
It is immaterial whether security incidents occur on centralized exchanges, on centralized systems appended to decentralized structures, or in the decentralized systems themselves, because the public perceives the resulting security concerns as a technology risk across all of these technologies. 2019
For any static set of rules in an infinitely repeated game using reputation stakes, there is a way to subvert the rules for an individual's profit at the expense of the group, which is why static decentralized governance rules can always be gamed and only dynamic, changing rules can address the problem. 2019