Transparent And Diverse Defi Real Estate
Bernard Madoff is a former investment advisor and perhaps the most notorious white-collar criminal in American history. In what is considered the largest ever financial fraud in the United States, Madoff operated a multi-decade Ponzi scheme that resulted in billions of dollars in losses to clients through securities fraud, money laundering, and wire fraud.
Madoff’s conviction in 2009 following the 2008 housing crash shook the world. The Netflix documentary Madoff: The Monster of Wall Street recounts the rise and fall of Madoff’s scheme, incidentally revealing how a lack of technological sophistication can enable fraud and financial crime.
Madoff’s investment firm was known for not allowing clients electronic communication or electronic access to records. Put simply, this was a deliberate method to make it easier to deceive investors and create false investment records. Paper statements would present real and fabricated data mixed together. If a third party asked to see a trade ledger from a particular day, the staff would print pages of a fictitious trade ledger, crumple up the pages to give the paper a used appearance, and then put the pages in the fridge to cool the paper and ink off from the heat of the printer.
A Ponzi scheme is an illegitimate investment operation whereby existing clients are paid what they believe to be investment profit, but are, in actuality, funds from new clients. The illusion of profitable returns can only be sustained as long as funds from new clients are continually siphoned in. There is usually no ledger involved in a Ponzi scheme, as it is a fake enterprise where records tend to be maintained for the sole purpose of perpetuating falsehoods.
Madoff and his staff exploited their era’s lack of financial digitization, skimming past auditors and regulators with a veil of secrecy that could not be electronically traced. In contrast, the modern world is one where technology can provide peace of mind through trustless, decentralized finance. Unlike Madoff’s Ponzi scheme, a decentralized ledger contains a publicly-accessible electronic record of transactions. The blockchain ledger is immutable and transparent, meaning that the data cannot be altered and can be viewed by anyone (while personal identification information remains confidential).
Furthermore, the blockchain enables tokenization, which is the commerce of fractional asset ownership on the decentralized ledger. Cryptocurrency and digital tokens can be bought and sold for anything from art to real estate here. Fractional real estate ownership refers to the share of a property, rather than its entirety. Multiple investors can potentially invest and profit from a single property.
In asset categories like real estate, traditional investing may not be financially feasible for young investors. Fractional investing is not only an affordable entry into the real estate market, but it also allows investors to diversify their portfolio among the properties themselves. Rather than owning a part of a property through a traditional timeshare, smart contracts on the blockchain facilitate secure transfers of ownership, expense payments, and income distribution on shares of luxury vacation properties or high-value commercial properties. This automation can save parties plenty of time and money without the traditional extent of paperwork and middlemen.