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We came up with a way to allow investors to independently verify how much profit a business makes with certainty without having to trust company directors or ac

We came up with a way to allow investors to independently verify how much profit a business makes with certainty without having to trust company directors or accountants. Clearly this is a value-add for new/small companies which don't yet have a reputation as it reduces risk for the investor. It's also a value-add for investors of big companies as it prevents them from being mislead about quarterly profits. In our specific case, we applied it to a real estate rental business. We use the token as the primary store of value for the profits of the underlying economic activity. We have a holding company but the share was made worthless as part of the company's memorandum of incorporation. This can be achieved with a couple of simple clauses. The token is a much more transparent and more reliable financial instrument to represent ownership of some economic activity than the share. Being able to then trade it on decentralized exchanges is another advantage but more of a convenience at this stage. The next phase for the community will be to build search engines which can crawl blockchains and decentralized exchanges to find tokenized businesses.

timkam 5y ago
Can you elaborate? I doubt your claim because "how much profit" a business makes is tied to the legal/financial system(s) the business operates in. To me it looks like we have the "object level vs. meta level" fallacy that is so typical for crypto enthusiasts: in the end, what governs our society is not crypto tech (object level), but meta level institutions. And even if these institutions were to agree that, for example, a smart contract is a legal contract, they could still reverse this decisions and hence move the agreement back to the meta level.
- redpiller 5y ago
  Here is an article about our use case: https://jonathangrosdubois.medium.com/how-leasehold-achieves-decentralization-8e311c6e55f https://jonathangrosdubois.medium.com/how-leasehold-achieves...
  - RandomLensman 5y ago
    Maybe I get this wrong, but doesn't this rely very classically on aligned interests and various parts keeping the other parts in check? No blockchain or tokens required... I did not see anything how profit is verified. Could always use expenses to funnel money out, opex and capex are mixed creatively etc.
    - redpiller 5y ago
      It costs real money to buy back tokens from the market and to burn them on the blockchain because they are provably scarce. Because new tokens cannot be created, burning them on the blockchain permanently reduces the remaining circulating supply of tokens so the value of remaining tokens goes up (supply versus demand). Someone could potentially funnel money out from the stream of profits but anyone could independently check expected earnings (looking at the assets in the portfolio) against the on-chain buyback amount. At least, it significantly limits how much money can be funnelled out. On the other hand, with a regular company, the directors can make up any numbers on the books and funnel out all of the profits and could keep this going for years undetected. That is far worse. Altogether, it's not 100% trustless but it's orders of magnitude more transparent than a share-based system. As a small business with directors located in different parts of the world (some of which only met over video chat), this model was essential for us to get over the trust hurdle. Now that we can see tokens being bought and burned, it is building trust within the community. Many community members have already sold some tokens back and seen them burned. Some small investors already made a profit over their initial investment and still have half of their tokens left. That said, it's not going to be ideal until we we multiple real estate companies (run by different people) hooked into the LSH blockchain. The more companies there are, the less trust there is.
      - RandomLensman 5y ago
        Fair enough. For me this is a much better "pitch" than the "absolute certainty" above. The way I understand it, you help align incentives better and improve financial oversight while your tool of choice is some blockchain structure (others might work, too). And it seems to me that is mainly directed at smaller businesses with limited auditing requirements and in distributed settings.
qeternity 5y ago
> We use the token as the primary store of value for the profits of the underlying economic activity. Wonderful, so when the proprietor starts embezzling from the real-world operations, I’m sure you have that sorted out. Just sprinkle some blockchain on it. Your comment seems well meaning, but you do not seem to understand the real issues with due diligence. Source: ran US equity book for large hedge fund
- redpiller 5y ago
  There is no single operator. The company is decentralised with each director having the same vote. Even if an insider started embezzling funds, we would be able to see it based on the absense of proof of profit on the blockchain. Since each person can verify the profits on-chain independently, it would raise raise flags if the amount if profits did not correspond to the expected amount of profits based on the assets which the business claims to have. All assets are disclosed publicly.
  - qeternity 5y ago
    I understand how you think the world works. I’m saying that it doesn’t work that way. You can verify what you _think_ the profits are. What I’m saying is that you’re verifying something that isn’t relevant. Do you think there aren’t sophisticated accounting systems, auditors, banking checks, etc to accomplish what you describe? And yet people will always find a way with enough incentive.
    - redpiller 5y ago
      The buybacks can only be done with real money. This is not an opinion, it's a hard fact since buybacks are done on the open market. Sure, the directors who handle finance could fake profit by taking on debt and using it to buyback the token to drive up the price artificially... But there is no incentive for someone to commit such crime since the buybacks benefit the whole community and not specifically the attacker. Also, the community can see if a director is selling their tokens (since it's all on the blockchain and the director's wallet is known). A director could potentially do something elaborate like buy a lot of tokens at a low price anonymously, then take a bank loan and use it to pump up the price through fake buybacks then dump for a higher price some years later hoping that they don't get caught by their bank in the meantime for misusing the credit... But then why would they use our blockchain and jeopardize the value of their own large director's stake (from their main wallet) with such scheme? Why not use a random token not affiliated with them and which has lower volume where this scheme would have more effect on price and where the attacker has nothing at stake? No matter which way you look at it, this is a huge transparency improvement over shares.
lottin 5y ago
Nothing of what you say suggests that you have "come up with a way to allow investors to independently verify how much profit a business makes with absolute certainty without having to trust company directors or accountants".
- redpiller 5y ago
  Imagine if there was a tamper-proof ledger of who owns what shares of what companies in such a way that no new shares could be issued and existing shareholders could not be diluted in any way. Tamper-proof in this case means that even the company directors themselves could not modify it, even if all of them wanted to. Now imagine if all share buybacks (which were purchased by the company on the open market in exchange for real money and then permanently taken out of circulation) where recorded on this ledger in such a way that it could not possibly have been faked (can be independently verified using cryptography). If you see the value in this hypothetical scenario above, then you see the value of our use case.
  - lottin 5y ago
    This only keeps track of the shares that that the company has issued, it doesn't tell us anything about the profit that the company is making.

timkam 5y ago

Can you elaborate? I doubt your claim because "how much profit" a business makes is tied to the legal/financial system(s) the business operates in. To me it looks like we have the "object level vs. meta level" fallacy that is so typical for crypto enthusiasts: in the end, what governs our society is not crypto tech (object level), but meta level institutions. And even if these institutions were to agree that, for example, a smart contract is a legal contract, they could still reverse this decisions and hence move the agreement back to the meta level.

redpiller 5y ago
Here is an article about our use case: https://jonathangrosdubois.medium.com/how-leasehold-achieves-decentralization-8e311c6e55f https://jonathangrosdubois.medium.com/how-leasehold-achieves...
- RandomLensman 5y ago
  Maybe I get this wrong, but doesn't this rely very classically on aligned interests and various parts keeping the other parts in check? No blockchain or tokens required... I did not see anything how profit is verified. Could always use expenses to funnel money out, opex and capex are mixed creatively etc.
  - redpiller 5y ago
    It costs real money to buy back tokens from the market and to burn them on the blockchain because they are provably scarce. Because new tokens cannot be created, burning them on the blockchain permanently reduces the remaining circulating supply of tokens so the value of remaining tokens goes up (supply versus demand). Someone could potentially funnel money out from the stream of profits but anyone could independently check expected earnings (looking at the assets in the portfolio) against the on-chain buyback amount. At least, it significantly limits how much money can be funnelled out. On the other hand, with a regular company, the directors can make up any numbers on the books and funnel out all of the profits and could keep this going for years undetected. That is far worse. Altogether, it's not 100% trustless but it's orders of magnitude more transparent than a share-based system. As a small business with directors located in different parts of the world (some of which only met over video chat), this model was essential for us to get over the trust hurdle. Now that we can see tokens being bought and burned, it is building trust within the community. Many community members have already sold some tokens back and seen them burned. Some small investors already made a profit over their initial investment and still have half of their tokens left. That said, it's not going to be ideal until we we multiple real estate companies (run by different people) hooked into the LSH blockchain. The more companies there are, the less trust there is.
    - RandomLensman 5y ago
      Fair enough. For me this is a much better "pitch" than the "absolute certainty" above. The way I understand it, you help align incentives better and improve financial oversight while your tool of choice is some blockchain structure (others might work, too). And it seems to me that is mainly directed at smaller businesses with limited auditing requirements and in distributed settings.

qeternity 5y ago

> We use the token as the primary store of value for the profits of the underlying economic activity. Wonderful, so when the proprietor starts embezzling from the real-world operations, I’m sure you have that sorted out. Just sprinkle some blockchain on it. Your comment seems well meaning, but you do not seem to understand the real issues with due diligence. Source: ran US equity book for large hedge fund

redpiller 5y ago
There is no single operator. The company is decentralised with each director having the same vote. Even if an insider started embezzling funds, we would be able to see it based on the absense of proof of profit on the blockchain. Since each person can verify the profits on-chain independently, it would raise raise flags if the amount if profits did not correspond to the expected amount of profits based on the assets which the business claims to have. All assets are disclosed publicly.
- qeternity 5y ago
  I understand how you think the world works. I’m saying that it doesn’t work that way. You can verify what you _think_ the profits are. What I’m saying is that you’re verifying something that isn’t relevant. Do you think there aren’t sophisticated accounting systems, auditors, banking checks, etc to accomplish what you describe? And yet people will always find a way with enough incentive.
  - redpiller 5y ago
    The buybacks can only be done with real money. This is not an opinion, it's a hard fact since buybacks are done on the open market. Sure, the directors who handle finance could fake profit by taking on debt and using it to buyback the token to drive up the price artificially... But there is no incentive for someone to commit such crime since the buybacks benefit the whole community and not specifically the attacker. Also, the community can see if a director is selling their tokens (since it's all on the blockchain and the director's wallet is known). A director could potentially do something elaborate like buy a lot of tokens at a low price anonymously, then take a bank loan and use it to pump up the price through fake buybacks then dump for a higher price some years later hoping that they don't get caught by their bank in the meantime for misusing the credit... But then why would they use our blockchain and jeopardize the value of their own large director's stake (from their main wallet) with such scheme? Why not use a random token not affiliated with them and which has lower volume where this scheme would have more effect on price and where the attacker has nothing at stake? No matter which way you look at it, this is a huge transparency improvement over shares.

lottin 5y ago

Nothing of what you say suggests that you have "come up with a way to allow investors to independently verify how much profit a business makes with absolute certainty without having to trust company directors or accountants".

redpiller 5y ago
Imagine if there was a tamper-proof ledger of who owns what shares of what companies in such a way that no new shares could be issued and existing shareholders could not be diluted in any way. Tamper-proof in this case means that even the company directors themselves could not modify it, even if all of them wanted to. Now imagine if all share buybacks (which were purchased by the company on the open market in exchange for real money and then permanently taken out of circulation) where recorded on this ledger in such a way that it could not possibly have been faked (can be independently verified using cryptography). If you see the value in this hypothetical scenario above, then you see the value of our use case.
- lottin 5y ago
  This only keeps track of the shares that that the company has issued, it doesn't tell us anything about the profit that the company is making.