A Comparison Of Traditional Asset Management And Incentivized Network Asset Management:
Incentivized Network Asset Management is superior to traditional asset management primarily due to more diverse perspectives, lower bias, lower fees, and an incentivized structure that gives investors the opportunity to earn a secondary token for community contributions (Crypto Pro: CPRO) which allows its registered holders to stake part of the Fund’s management and performance fees. In aggregate, these advantages should allow the Fund to achieve superior returns compared to traditional asset management.
The following studies examined the benefits of collective decision making, along with potential pitfalls:
The Wisdom Of Crowds: A book by James Surowiecki (2004) which argues that the gathering of information in groups leads to collective decision making that is often better than the individual opinions of experts. Cites diversity of opinion, independence, decentralization, and aggregation as being the 4 key elements to form a wise crowd.
The Right Way To Use Wisdom Of Crowds: A Harvard Business Review article (2018) that emphasizes the importance of when someone forms an opinion in relation to evaluating someone else’s opinion. Conducted several studies that demonstrated those that form an opinion prior to evaluating another person’s opinion are more likely to view the other person’s opinion in a negative light if substantially different than their own opinion. A high degree of importance is placed on open mindedness, intellectual humility, and welcoming disagreement in the search for truth.
Network Oscillation: A study by the University of Chicago (2016) which examined investment banker data and found that bankers which oscillated between closure (deep engagement in a group) and brokerage (a period of connecting across groups) had earnings higher than other bankers that did not oscillate, regardless of if they had a network advantage.
These studies all support the effectiveness of collective decision making if structured in an appropriate way, and along with CPRO secondary token incentives should facilitate the behavior and culture needed to achieve this.
Our Approach To Collective Decision Making: Bitdollar Fund Community Process
The community process as a whole can be summed up by its 3 phases on a quarterly basis: discovery, debate, and decision.
Discovery: a six week, relatively open part of the community process where investors are encouraged to cover certain topics in crypto and to expand their network to crypto groups of which they are not a member (a crypto investor networking with blockchain developers for example). CPRO bonuses could be a factor in encouraging this behavior, if necessary.
Debate: a four week, focused part of the community process where investors are deeply engaged with other investors in a working group to formulate bull and bear cases for certain cryptocurrencies, and to debate these cases with other groups. Quarterly elections, for example, will analyze 2 cryptocurrencies in a head to head, “sweet 16” format to determine the final 2 candidates for addition to the fund during annual elections. Investors will be asked prior to the debate phase how strongly they feel about “Crypto A vs. Crypto B” with the choices being “Crypto A”, “Crypto B”, and “Unsure”. The top CPRO earner in terms of content contribution will be asked to lead each team (Crypto A, Crypto B) and choose up to 9 other team members for their group. Each team will be asked to formulate bull and bear cases for cryptos A and B in preparation for the video debates that will take place between the 2 teams. Higher CPRO rewards will be given for these debates and additional CPRO bonuses could be given to those teams with diverse functional membership (crypto investors, non-crypto investors, developers, etc.)
Decision: a two-week election period as described in the Fund’s Constitution (section 3.3), Articles V and VI and illustrated below:
The community process as outlined above encourages and incentivizes investors to grow their networks to include investors from many professional disciplines (brokerage in Discovery phase) also provides the opportunity for deep engagement (closure in the Debate phase). This process together with an appropriate community culture emphasizing open-mindedness, intellectual honesty, and humility will result in sound, well thought out allocation decisions made by the Bitdollar Fund Community provided that there is wide enough array of opinions within it. In turn, this will result in superior returns compared to traditional asset management models, which are over reliant on the opinion of one person, the portfolio manager, and highly subject to bias.