Babbitt column | Fragile mirage: blockchain + finance (on)

The so-called finance, as the name suggests, is the flow of funds. Just as the flow of water originates from the difference in ground potential, the flow of funds also stems from the “land difference” of funds – in daily production and life activities, from small individuals to large enterprises, the balance of funds for each stakeholder. There are often cases where supply and demand are not equal, either the family has surplus food, the funds are oversupply, or the storage is scarce and the funds are in short supply. To make an analogy: the former is like the highland, and the funds have a tendency to overflow; the latter is like a pothole, and there is a tendency to flow into funds.

Among them, the provider of funds is generally called the fund side; the demander of funds is generally called the asset side, and the responsibility of the financial industry and related institutions is to mix between the two so that the appropriate funds flow into Among the appropriate assets, the role can be directly docked, such as banks and securities, or indirect assistance, such as consulting companies and brokerage firms that provide investment services.

In view of the general industrial classification list, the monetary and financial services mainly based on direct financing such as banks, the capital market services mainly based on indirect financing such as securities, and the insurance industry account for a large proportion of the output value and proportion. In the previous article, the author has analyzed the combination of blockchain and insurance industry . Therefore, this series of articles only describes the impact of blockchain on the two businesses of banks and capital markets. This paper mainly discusses the development of macro finance and the role of blockchain in it.

Compared with other industries, the financial industry, especially the capital sector, may be one of the largest segments of the industry's decline in the past few years. Even for the average person who is far from the center of the industry, this change is visible to the naked eye – in the traditional stereotype, companies that can engage in the financial industry are often very high-altitude units with a background, and financial practice In addition, in just a few years, financial institutions and financial practitioners seem to become ubiquitous, everywhere in the online and offline, in a few years. "Developing finance" has become a mysterious and universal title, just like "dry engineering" ten years ago.

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The decentralization of the financial industry is not without rules, and the emergence of such changes can be attributed to two major reasons. First, with the development of the economy, the scale of current deposits and the number of projects requiring funds have increased sharply, while the original financial system has not been able to meet the corresponding investment and financing needs – in the traditional capital network, whether it is direct financing or Indirect financing, financing rights and investment rights are in the hands of a few people.

For example, in the securities market, companies that can list IPOs need to undergo a rigorous review. And the investment institutions that have the strength and the way to buy their shares in the primary market. In the case of equity private placements, private equity funds often have a strict pre-, in-, and post-risk control system for projects, and investors need to meet the three standards set out in the Fund Law. In other words, only those who have more social resources will have certain investment and financing rights, while SMEs and small and medium investors will not be able to do so.

Chart: In the years after 2011, the financial industry's added value as a share of GDP grew steadily

If the defects of the original centralized financial system constitute the underlying reason for the rise of the decentralized financial system, then a series of developments in economics and technology in recent years have become the fuse for igniting the decentralization of the financial industry. First, on the economic side, with the shift of macroeconomic growth in recent years, the industrial structure has been adjusted, and the shortage of funds in a number of traditional enterprises (such as manufacturing, foreign trade, etc.) has become increasingly serious, and the practitioners of these industrial chains have also suffered from the shackles of the fish. There is an urgent need for funds to ease the crisis of production and life.

In contrast, some emerging industries have accumulated a large amount of funds in the short-term, and some of the practitioners have even more money to spend on how to spend, and have a strong interest in projects that can increase the value of their assets, social financing and investment. The demand is further exacerbated. Secondly, on the Internet side, the information explosion caused by the mobile Internet has caused the shortage of funds and asset shortages caused by industry differentiation and class differentiation, and the emergence of electronic fast payment has made the rapid transfer of value become may.

In this case of the economic environment and the technological level, the P2P online lending platform, which was born in 2006, began to develop rapidly after 2011. Since such platforms often exist only as information brokers for collecting service fees, they do not have a pool of funds, that is, they do not absorb public deposits. Therefore, under the slogan of “Inclusive Finance”, they have not been strictly controlled by the policy. At present, it is supervised in the way of “market self-discipline, supplemented by administrative supervision”. There is no entry threshold and only negative list management is implemented.

Since then, the financing rights and investment rights in the (quasi) debt field have fallen sharply. [Note] After the rise of the digital currency trading market and the blockchain smart contract technology that can quickly realize the circulation of certificates, the financing party A certificate of escrow similar to equity has been obtained, which has also sunk the financing rights and investment rights in the equity field. Since then, both the creditor sector and the equity sector have seen significant decentralization of financing and investment channels. The ideal era of “subverting the traditional financing model” and “not needing to make money” in a certain currency circle seems to have arrived.

[Note] At present, there are many online loan projects that do not give a clear rate of return. They only give a floating income level, but considering that they can be guaranteed in general, they can be regarded as a kind of quasi-debt financing.

However, the subsequent facts prove that the negative effects of a highly de-intermediation, highly capitalized and asset-focused financial capital industry are likely to be catastrophic – for financing parties, there is no intermediary. In the case of the review, a large number of speculators have poured into this field, and after a very confusing self-packaging, they can easily integrate a large amount of funds, but they cannot give investors because they have no relevant operational capabilities at all. The expected return (in fact, many so-called platforms are the real financiers).

For investors, many ordinary people have been accustomed to the small market capitalization fluctuations of listed companies, and there is almost no concept of how the projects in the initial stage are reliable and how much risk they may face. Before investing, they often only pick the marketing voice the most, and after the investment, once they witness the equity project into a business dilemma, whether it is subjective malicious running or objective business risk, they will be condemned to defend their rights. For these phenomena, in recent years, many friends who have witnessed the P2P platform explosion and ICO fraud incidents can be said to be familiar.

From this point of view, the complete affirmation of finance envisioned by many idealists is virtually impossible. The differences in professional literacy, moral quality and psychological quality determine that the financial industry's financing rights and investment rights should not be delegated to everyone's hands, although its sinking is likely to break through existing financing restrictions, it seems At the beginning, the sinking of non-bank investment and financing business broke through the bank's investment and financing business, but after all, it still had to be under supervision and returned to a reasonable degree of sinking. As in the private equity sector, these regulations will cover the entire life cycle of fundraising before, during and after the event.

In the process of this supervision, the blockchain may play a certain role. The specific use scenario is mainly to link the capital flow information, so as to avoid at least two of the most feared people in the financing process. Phenomenon: First, in the field of debt financing, the platform side borrows the information from the name of the fund pool; second, in the field of equity financing, the asset project party uses the funds illegally. These two methods help to enhance the investor's trust in the asset side in the decentralized financial system, which in turn makes the financing and investment rights sink to a reasonable position.

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