There is a massive global problem that no one is talking about right now. Unfunded pension liabilities are expected to rise to $400 trillion USD by 2050 and we have no current or viable solution to reduce this explosion of debt. Without a significant change to retirement laws, we will not be able to meet the obligations owed to these contributions in the future and it could lead to the collapse of many developed economies.
Technology though can help, specifically the blockchain to “disintermediate” services and third party providers and reduce fees. Smart contracts are immutable and trustless, meaning that any verification or auditing is already built into the code. When they execute a record is kept and the transaction is viewable by anyone. For some industries, like pensions, costs will be dramatically reduced, as the bulk of services costs provide for administration and management, reducing the need for high salaried fund managers, lawyers and other professionals who are a drain on contributors’ funds.
I used to work as a wealth manager for a few years and it made me sick to see the fees charged by most pension funds. For someone who would earn 4-5% a year in gross returns, the actual amount received would be around 1%. This is because of the large number of fees paid to both the pension provider, as well as the fund managers themselves. To top all of this off, all of the funds were locked into the plan for a minimum period. For a 25 year plan, the first 23 months of payments would be “locked” and were essentially payment for the company. Only after that point would a person be able to draw out any of their own capital. It was highway robbery.
Blockchain ICO Auctus is trying to change this though. They are building out a software solution for pensions which will allow them to put a lot of their services on the blockchain reduce fees greatly. The team is a “group of blockchain enthusiasts with backgrounds in pension funds, investments and software engineering,” mostly Brazilian, who have come together to devise and operational solution to the previously stated pension issues.
Auctus’ smart contracts will contain information “such as retirement benefits, minimum contribution time, deferred compensation withdrawals (including rollovers, early distribution, lump sum distribution and hardship withdrawals).” Each pension fund plan will have its own smart contract and stand alone, acting as an immutable record for the contributor and company to document the investment process. The smart contract will the pension funds to take a hands off approach to the management of the funds. All of the logic and coding of the smart contract will dictate how often contributions are made, whether a co-contribution from an employer is needed, where the funds will be invested into and at what time to start distributing funds. More so, the transparency of the smart contract will allow the contributor to see exactly how much and how often they are being charged. Auctus summarizes the advantages as follows:
- Full transparency allowing participants to make better informed retirement decisions
- Transparent fee structure, no hidden fees
- Fully automated processes that signi cantly lower operational costs
- Easily auditable and easy compliance verification
- Resistant against fraud and full traceability
- Faster/more automatic retirement processes
- Easier and faster portability to other pension funds
- Multiple plan options with transparent rules
- Different investment profiles
- Flexible drawdown
- Lump sum withdrawal (pre- or post-retirement) Transfers to other pension funds (pre-retirement)
All fees on the Auctus platform will be paid in Auctus Tokens (AUC). There are several different types of fees:
- Platform Fees – Auctus will charge a flat 20% of all fees on gained on the platform, the exact % to be negotiated between Auctus and the funds and be stated in the smart contracts.
- Smart Contract Customization Services and Fund Set-up Fees – Initially zero, but as the amount of contracts held on the Auctus platform grows, the team will have to charge for their services to keep up with listings.
- Annuities Marketplace – Auctus wants to use their smart contracts to allow insurance companies to sell Annuties on the platform and also use their pension proceeds to invest into annuities. Auctus plans to charge commissions between 1 and 8%, depending on the complexity of the annuity.
The biggest issue with Auctus team is their lack of experience in the pensions market. No member of the team has ever run a pension or is a fund manager. They are a collection of software developers and engineers who are trying to tackle a problem outside of their own sphere of influence. I see this as the biggest stumbling block for them going into the future. In fact, it’s probably why they didn’t max out their 1000 ETH pre-sale. They have serious issues in this regard and until they bring on an experienced, well connected pension fund manager known globally and with ties to large pension funds, I will pass on them.
More so, there is no “CEO” of the company. Instead, they all consider themselves “co-founders” and address issues as a team, rather than putting the decision making and leadership into one person. I don’t think this can work, especially if they expect to grow and bring on billion dollar funds. There needs to be the one guiding vision who in the face of everything pushes onwards and drives the team forwards. Right now, they don’t have this.
Auctus makes a big point about not unloading their ETH right after the crowdsale is over. I disagree with them in this respect, as every company is different and who is to say what will happen with Ethereum in the next few years. The volatility in the market is extreme and moving operational capital to less volatile instruments probably isn’t a bad idea.
The pre-sale for Auctus just ended, and they only raised around 250k. As I said before, this is directly related to their lack of experience and connections to the industry. If they had better advisors and team members with real experience, they would have a better chance.
Token Sale Summary
- Total Minimum cap: 15,000 ETH
- Hardcap: 90,000 ETH
- Equal, daily updated, individually-assigned purchase cap for all registrants Whitelisted addresses will have guaranteed participation
- Starts: November 14th, 2017 (TIME TO BE ANNOUNCED)
- Ends: November 28th, 2017 (TIME TO BE ANNOUNCED) or when maximum cap is reached
- Token Price: 2000 AUC / ETH
- Tokens will be immediately transferable after the Token Sale ends Raised funds locked by smart contract
- The smart contract will be revealed a few days before the ICO, allowing auditing of the locking rule. This is intended to make a responsible ICO and prevent ETH offloading. Revealing the contract early will help to avoid funds being sent to an incorrect address.
- All funds raised will be locked during the ICO period. At the end of the ICO period, the contract will allow up to 20% to be transferred in the first month and 5% in the following months.
Auctus has issues at their core, namely, their team makeup. They will not be able to move forward without good pension industry contacts. Plus, their understanding of what the end goal of tokenization will be is weak. The smart contracts and equity tokens can do more than just allow for contributions to be made to a plan. The pension can leverage their own assets to provide basic services through the smart contract to keep people fed, clothed and healthy. They need a visionary leader who can see the consequences of their project 10-20 years in the future, not just a simple application of the blockchain to pension funds today.