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Blockhain Crimes: Issues and Solving Strategies

Blockchain Crimes: Issues and Solving Strategies

Blockchain History

The great innovation of the crypto world and Bitcoin was in creating a totally decentralised exchange system, hence the complex and articulated De Fi (Decentralised Finance) market.

The crypto market was immediately noted for its high volatility, which led investors to move in speculative terms within a world that was increasingly difficult to understand. The rapid growth of the crypto market has leaded blockchain to have increasingly clear dynamics to the public, so much so that it is a market that has always attracted both large and small investors and is becoming less and less ‘decentralised’.

Indeed, the aspect that has made the crypto market very attractive is that it is perceived as something detached from the global macroeconomic situation. However, recent aspects of the economy, such as the Russian-Ukrainian conflict or the Federal Reserve’s raising of interest rates, seem to have also affected blockchain ecosystems.

So far, the crypto market’s characteristic has been subject to periods of high growth followed by dramatic downturns. The latest example was the big drop in Bitcoin’s price in mid-2022 from its peak of $69,000 in November 2021; of course, the recent failure of FTX exchange in November 2022 and the resulting shock have had the strongest impact on the entire crypto world.

DeFi and CeFi Considerations

The fall of FTX was not only upsetting because of the sudden bankruptcy, which more than ever made people think about the necessity of more stringent regulations in the sector, but also revolutionised the concept of trust in centralised cryptocurrency counterparties.

What happened was evidence of a strong lack of transparency and supposed fraud that made $10 million like simply disappear.

A comparison with decentralised protocols is unavoidable: smart contracts and the specific structure of the blockchain guarantee transparency and ensure immunity from mismanagement by insiders; although there are risks, those are related to external attacks and not to the internal security of the system. Automation, code verification and on-chain analysis in DeFi allow for better risk management and there are no unexplained flaws in the system, which can happen in human-managed systems.

Unfortunately, there have also been repercussions on decentralised protocols following the events; for example, the Solana ecosystem was strongly affected, but this was due to its centralised custody and not to the underlying blockchain technology. In particular, Sam Bankman-Fried, the founder of FTX and the crypto hedge fund Alameda Research, was one of the first investors in Solana. After these companies began their rapid fall due to a liquidity crisis, however, investors became concerned that Alameda would sell off its stake of more than $1 billion in SOL to seek funds. In turn, this led to a massive sell-off in SOL that sent the token plummeting.

Hacking in the De Fi Space

In a Decentralized Finance world, cryptocurrency-backed transactions are executed automatically and blockchain-based smart contracts allow people to trade directly with each other without the oversight of big banks (or any banks).  The openness that makes DeFi so powerful, brings with it several downsides; the easier accessibility, the chance for anonymity and the relative immaturity of the underlying technology have allowed hackers to steal users’ funds, while the deep pools of liquidity have allowed criminals to launder proceeds of crime such as ransomware and fraud.

In 2021, for instance, more than $10 billion was lost to DeFi scams. Frauds and scams are not uncommon even in regulated markets, such as stock markets, and unregulated environments like the cryptocurrency space can only increase the risk of such exit scams and rug pulls.

Blockchain features make the money easier to steal, the volumes are always larger and it’s becoming easier to hide tracks; this combination creates dangerous incentives to steal that are only going to grow from here.  Despite the constant evolution and maturation of blockchain technology and the crypto market, 167 attacks on Decentralized Finance protocols, 123 security attacks, and 74 fraudulent schemes over the last 11 years (January 2011-October 2022) have so far resulted in the stealing of approximately USD $14.5+ billion worth of cryptocurrency assets in total. Focusing on this last year, 2022, the total value of stolen funds surged to almost $3B, that’s nearly double the $1.5B hackers took in 2021 and nearly 12 times the 2020 total. A pick of hacking was verified in the month of March, but then the month of October has been particularly significant reaching a record of about $760M in exploits in October.

As shown by this ranking, Solana has been the second most hacked blockchain during 2022.

Beyond illegal hacks, there are various types of fraudulent schemes that bad actors have used to gain value from unsuspecting victims, including, for example, exit scams and Ponzi schemes.

The total number of cases of illegal activity in the first half of 2022 has already reached 154, with most cases, 80, being connected to the hacking of DeFi projects.

The danger of hacking is complex to deal with, and for this purpose, new companies have been born with the aim of protecting against these crimes, and others have come up with alternative solutions to work around the problem, such as the so-called Bug Bounty.

Bug bounty programs constitute an important Web3 Security Revolution, they offer monetary rewards to ethical hackers for successfully discovering and reporting a vulnerability or bug to the application’s developer, this allows companies to leverage the hacker community to improve their systems’ security posture over time.

Hacken

Hacken is a cybersecurity auditor who provides cybersecurity services to clients belonging to the blockchain, DeFi, and NFT ecosystems from Europe, Asia, and North America.

The business structure developed aims to build security infrastructure for the blockchain and crypto industry, ensure protection from major cyber risks, and create awareness of the dangers of web3 assets. In doing this, Hacken proposes many services:

  • Smart contract audit: identification of vulnerabilities to remove them, problem analysis and code optimisation to prevent hacks and increase audience trust.
  • Blockchain control audit: securitization of the entire architecture and optimization of protocols functioning.
  • Penetration Testing: testing services for simulations of real attacks.
  • dApp audit: decentralized apps run on peer-to-peer networks and use code-based smart contracts, they are open-source and based on blockchains where all data are stored. dApp audit helps projects create and maintain secure integrations with blockchains and protect assets.
  • Bug Bounty
  • Proof of Reserves: kind of audit conducted which aims to ensure that on-chain holding of cryptocurrencies by exchanges matches up with users’ balances. This could be an effective way to build trust in the market and verify transparency.

Elliptic

Elliptic provides blockchain analytics for cryptoasset compliance, to detect and prevent financial crime. The crypto economy is a new front that can no longer be ignored and gives rise to huge digital monetary operations, so the core mission is to secure transactions and investments. The kind of customers elliptic refers to mainly are crypto businesses, financial institutions, and governments.

In DeFi context, blockchains have become easily interconnected, decentralized exchanges (DEXs) and cross-chain bridges have removed many of the barriers to the free flow of capital and this creates an occasion for hackers and abusers to launder money or commit frauds. Elliptic aims to identify these illicit users by applying multi-asset screening and cross-asset tracing.

2022 has been a decisive year for the definition of a new series of blockchain analytics to interface with an ever-increasing exposure to risks. Holistic Screening is Elliptic’s response to the rapidly changing state of crypto crime; traditional blockchain analytics solutions are no more able to investigate transactions across different blockchains and so can not view the activities of the same entity across separate chains holistically, but this is actually a very important point. Going into detail, Elliptic implements several inspection activities:

  • Multi-asset screening: the screen of wallets across all assets that they have ever contained for incoming and outgoing exposure to risk.
  • Cross-asset tracing: the tracking of transactions involving the exchange of crypto assets on the same blockchain.
  • Cross-chain tracing: the tracking of transactions across different blockchains.

Chainlink

In DeFi context, oracles are middlewares that provide blockchains access to off-chain data and services: blockchains are by nature disconnected from the outside world, but most high-quality financial market data is generated out of these environments (“off-chain”), oracles are therefore essential to instantly obtain the current or historical price of various cryptocurrencies (or real-world assets) that determine the actions undertaken inside the chains. Unsafe price oracles can cause losses, so to protect billions of dollars, it is essential they are verified.

Chainlink Labs is a provider of trusted open-source blockchain oracle solutions that connect smart contracts to a wide range of off-chain data sources and calculations, such as asset prices, web APIs, IoT devices, and payment systems. The service is offered to any blockchain.

The Evolution of the Internet. Could Web3 be a new investment opportunity for qualified investors?





The Evolution of the Internet. Could Web3 be a new investment opportunity for qualified investors?

Web 3.0 is considered the third phase in the evolution of the internet, characterized by decentralization, ubiquity, and artificial intelligence.

The World Wide Web is the main instrument used by people to reach information and communicate through the Internet. It has changed drastically over the years going through 3 phases: Web 1.0, Web 2.0, and now we’re joining Web 3.0.

Web 1.0 was the first version of the internet that lasted from the beginning of the internet era, from 1989 to the early 2000s. Using a computer allowed people to access content uploaded by web developers. Interaction between Web pages was minimal.

The first Web1 upgrade was Web 2.0, also known as “Interactive Read-Write Web” or “Social Web” started in 2004, the innovation consisted in allowing users to create content using apps. At the same time, users had no control over their data since the information was stored and tracked without permission.  

Then there comes Web 3.0 (Web3), also known as “Semantic Web” or “Read-Write-Execute”. The implementation of this new technology is due to the birth and development of the blockchain and with it to a series of decentralized services that are giving life to the OnChain Economy.

This last evolution will allow users to monetize their own data, content creators will be able to receive crypto payments directly from their post views, and online services and platforms, ranging from e-commerce to social media to gaming, to be provided and controlled by democratic groups of developers. Decentralization, openness, and greater user utility are the features on which Web 3 is breaking new ground from the past.

The aim of removing the “middleman” has massive implications: it would be replaced by a decentralized app, or a dApp. These apps run on peer-to-peer networks and use code-based smart contracts to facilitate agreements between parties without the need for pre-established trust. In theory, these apps wouldn’t be owned by any single person or company.

To be considered decentralized, an app must be fully open source, with data stored on an open blockchain, it must generate tokens, required for the app usage, and awarded to users in exchange for their contributions; it adopts protocol changes only upon the majority consensus of most of its users.

Web3 apps and communities will be governed by decentralized autonomous organizations (DAOs), blockchain-based structures that run online platforms and embody collective ownership. Dao’s role is to replace companies that manage online platforms, the rules are written into smart contracts and the current evidence is that many Web3 startups have already begun the transition to becoming a DAO structure.

Thanks to the use of dApps Web 3.0 technically gives greater protection to the user. Additionally, a decentralized identifier (DID) has been implemented with the task to verify and track the identity of users. It takes the form of a series of numbers and letters at the base of applications called “identity wallets.”. the latter grants their owner access to their portfolio since it contains verified credentials and other data that a user creates on the blockchain. 

Web3 adoption is still in its infancy. The last few years have seen an incredible evolution of many dApps (which will form the basis of the future Web3) capable of making financial services more efficient and revolutionizing them. Decentralized finance DeFi is a great example of the innovative power of these technologies. some of the main types of Defi protocols are:

  • Decentralized exchanges (DEX) which are used to trade cryptocurrencies.
  • Asset management services and yield where depositors are rewarded for staking tokens, contributing to liquidity pools, or cultivating yield.
  • Payments in cryptocurrency tokens.

In addition to tokens, Web 3.0 counts also on non-fungible tokens (NFTs). NFT stands for NonFungible Token. It is a type of cryptographic token that is unique and noninterchangeable, meaning it cannot be replaced by another token of the same type and its value cannot be exchanged for another token of the same type. NFTs are typically used to represent digital assets such as artwork, collectibles, video game items, and other digital assets.

This is possible because NFTs provide a blockchain-based record of ownership of digital assets and each NFT represents a unique and immutable entry in a ledger. As a result, the exchange of NFTs allows the “ownership” of digital assets recorded in the ledger to be exchanged.

In addition, Web3 allows users to interact with the Metaverse blockchain, enabling them to securely transfer assets and build customised dApps.

The metaverse is the idea of shared worlds driven by virtual products and digital experiences that are highly immersive and interactive. A Web3 metaverse is blockchain-based and built on open standards and is sometimes called an “open metaverse.” It is an independent collective virtual space that offers virtual products and highly engaging and interactive digital experiences; it has its independent virtual economy using digital currencies and non-fungible tokens (NFT). It is an open ecosystem where no single entity is meant to exercise control. Most important companies of Gaming and Fashion industry, are early adopted on Metaverse, because it could be an ecosystem populated by young users, perfect targets for their products, and it is expected that tech giants are also mobilizing to this “new land”. One example is meta, which is investing heavily in building 3d reality, accessible with VR headsets and AR glasses.  

Summing up, one of the major promises of Web3 is the possibility of giving content creators control over the way their online content is used, distributed, and paid for. The management of such online content would then become direct, without going through a publisher or social media site.

Is it time for Digital Asset Bond?

Is it time for Digital Asset Bond?

After years of FOMO about crypto currencies and digital assets, no-one speaks about digital asset bonds. 

Have you ever wondered why?

Digital Assets were born and lived in “to the moon culture” where everything could potentially jump from zero to 1,000,000 in a moment (and do the opposite in the same second). 

Armies of weekend traders, incredible crypto-trading algorithms born overnight, tons of financial YouTube experts (disclaimer: Attention! they do not provide financial advice, but only personal opinions to an inexperienced audience) have crowded crypto markets for months, years in some cases, to disappear just as quickly during the crypto winter. They contributed to the idea that immense wealth can be created without competences, licenses, authorizations and control systems.

However, such a crowded market has rarely considered the possibility to seriously evaluate, with skillful analysis to make informed assessments on crypto projects that, perhaps, could have the stability and characteristics to issue digital asset bonds (or something like this).

In the meantime, with the token prices which are more volatile, people could invest in mid-long term projects, wait for annual interest and be given their money back at the end of a set investment period.

Wouldn’t it be an interesting asset to diversify even the most volatile crypto portfolios?

The digital assets market is entirely different from the bonds market. The only bond we have seen in this market (as an independent research company) was in 2018/2019 at the top of the crypto FOMO season. It was a credit linked note based on a mining company, the investors invested in the note to buy ASICS and GPU which contributed to the increase in power of the mining company, with the investors being repaid with annual interest and a repayment of their invested capital after 5 years.

 

 

But, why is the digital market not a good market for bonds?

Probably because the idea behind bonds is boring, with no exicing candles on your TradingView chart. 

Plus, to evaluate a bond the investors need more competence compared to those necessary to make a “weekend evaluation” on a token and its growth.

In the bond market, the technical analysis and the financial advice (opss sorry the “personal financial opinions”) of “YouTube Trader Influencers” are not so important, they do not have magic formulas or instagrammable charts to draw up a fair assessment of the protocol that will issue the bond.

So traditionally, the bond market is complicated, and probably one of the tightest and most difficult markets to understand deeply in the history of finance, if you want to join seriously.

 

However, with the growth and stabilization of some important DeFi protocols, which have proven to withstand crypto winter and repeated attacks and scam attempts, with the increase of specialized companies such as regulated financial boutiques and with the democratization of structured financial products, much more accessible and less expensive for issuers it will be possible and probably we will see the issuance of debt instruments, such as bond notes, credit linked notes etc also on digital protocols and DeFi projects that have grown over time and have “strong shoulders” to support and reopen loans to investors.

In recent times, many new companies with skills deriving from finance and the onchain industry such as the boutique of alternative investments Virgil Alternative Investments (www.vaiuk.finance), important data providers such as TheBlock (www.theblock.co), crypto compliance company such as Elliptic (www.elliptic.co) and disruptive protocols for DeFi Insurance such as Amulet (www.amulet.org) are contributing to bring skills and quality tools for the launch of this new and interesting market.

Stay connected to see what happens…

 

Central, Northern & Western Europe Cryptocurrency Activity

Central, Northern & Western Europe Cryptocurrency Activity

Currently, Central, Northern and Western Europe is the largest crypto economy in the world. In the entire region, users and institutions received USD 1.3 trillion between July 2021 and June 2022. On-chain activity compared to the previous year has grown strongly in the largest markets, reaching rates of around 30 per cent. A special case in point is Germany, where activity grew by 47%. This great success is also due to the fact that more regulatory clarity in the crypto market has recently been established in the European Union.

Germany has had such high growth for two reasons:

  • A long-term capital gains tax of 0% was applied
  • Many types of asset managers were allowed to invest in cryptocurrencies.

It is interesting to note which are the main platforms through which the share of DeFi web traffic occurred.

In all CNWE countries, NFTs had the highest popularity.

Here is a graph showing the annual growth in crypto transaction volumes in the top ten countries of Central, Northern and Western Europe and another showing the situation in smaller countries.

Here is a chart showing the ranking of the CNWE countries based on the cryptocurrency value received in the period between July 2021 and June 2022.


It can be seen that the UK is clearly in first place, with a value approaching $250 billion, followed by Germany.

Germany among all CNWE countries qualifies as having the highest quarterly growth in number of crypto transactions in the period between July 2021 and June 2022.

The United Kingdom Situation

The UK has seen considerable growth within the crypto market this year. It is ranked 17th in the Global Crypto Adoption Index and last year was ranked 21st. In terms of raw transaction volume, the UK received $233 billion worth of cryptocurrency in the period between July 2021 and June 2022, ranking 6th in the world and 1st in Northern, Central and Western Europe.

In the opinion of Dion Seymour, technical director for cryptocurrencies and digital assets at Andersen LLP and former policy advisor to HMRC, this growth is due to the certainty that has been given to the regulation and taxation of cryptocurrencies in the UK. Seymour argues that the UK needs to provide more and more consumer protection so that DeFi becomes increasingly popular.

As of 2022, 1.9 million people, corresponding to 4 per cent of the adult population) hold cryptocurrencies in the UK.

Bitcoin / British Pound Price by Trading View

The current Prime Minister of the United Kingdom, Rishi Sunakera, has introduced a new bill legitimising cryptocurrencies as regulated financial instruments, with Bitcoin recognised as a commodity.

What are Sunak’s reasons for introducing this proposal?

  • There is a widespread need for more regulation in the crypto world lately. Companies are looking for more regulatory clarity.
  • The Prime Minister’s aim is not only to make the crypto market more practical and easier, but also to make the UK a global crypto hub. This is a particularly difficult challenge given the need to contain the economic crisis in the meantime. Overall, the bill proposes: “A range of measures to maintain and enhance the U.K.’s position as a global leader in financial services, ensuring the sector continues to deliver for individuals and businesses across the country.”

So, if this project in fact contains even more ambitious proposals than simply popularising crypto, what are Sunak’s long-term goals?

  • Sunak’s great ambition is the change in leadership he wanted, which led to the appointment of John Glen as Chief Secretary to the Treasury. Glen’s is a political profile that has always been particularly sensitive to digital asset management. It will be this new leadership, according to Sunak, that will lead the UK into a prominent position in the global crypto market.
  • Sunak plans to regulate stablecoins as a form of payment. These new rules will be part of the ‘Financial Services and Markets Bill’, a post-Brexit reform aimed at strengthening the competitiveness of the City of London that still awaits approval by lawmakers.
  • A major aim of these radical changes is to introduce a digital pound. This is a proposal that is still under consideration but would represent the most innovative event in this whole series of changes.

Our team created a paper synthesising and integrating with other content the concepts expressed in the report 2022 Report Geography of Cryptocurrency

Is 2022 the year of Unicorn’s escalation slowdown?

Is 2022 the year of Unicorn's escalation slowdow?

Unicorn: ‘’ privately held startup company with a value of over $1 billion’’.

Unicorns are a regular feature in business and finance. There are more than 1,000 unicorns around the world, as of March 2022 and collectively they are valued at over $3,516 billion.

Some U.S.-based unicorns are Uber, Airbnb, SpaceX, Palantir Technologies, WeWork, and Pinterest. China claims several unicorns as well, including Didi Chuxing, Xiaomi, China Internet Plus Holding (Meituan Dianping), and Lu.com.

In 2021 the number of unicorns grew faster than ever, until reaching the number of 537 in that year. 2022 is meeting a huge drop of unicorn’s new births and expectations are even worse, indeed it’s estimated that by the end of the year only 27 unicorns will be born.

Near-zero interest rates and the adoption of digital technologies due to the Pandemic crisis are factors that led investors to gamble a huge capital into private markets so that unicorns’ valuations rose sharply during 2021.

2022 Trends, such as inflation, rising interest rates, and the war in Ukraine, led the macro environment to be unstable: big tech giants fell and emerging businesses turned down their plans to go public.

Source: Visual Capitalist

Furthermore, final-stage high-noticed start-ups’ valuation flowed down so that investors saw the value of their private portfolio markdown. 2022 unicorns’ decline might be attributed to investors’ uncertainty to have a return in venture capital funding since valuations are downwarding  Public market volatility discouraged also many companies to go public through IPO or SPA.

While USA and ASIA are the two regions that suffered the most the economic slowdown for what concerned the birth of new unicorns, with respectively a percentage decrease of 5% and 20%. Europe experienced an unexpected increase of newly instituted unicorns, indeed, three out of ten main unicorns in Q2’22 are European. Five of the most valuable unicorn in that Continent are Klarna ($37,5B), Checkout.com ($35,4B), Revolut ($27,8B), Northvolt ($9,7B) and Global Switch ($9,6B).

This difference between unicorn new births trend in the US and Europe can be attributed to the fact that interest rates were increased earlier in the former. Additionally, investors like Tiger Global Management and SoftBank, which were the driving forces behind 2021’s heat wave, have historically paid much more attention to startups in the US and Asia than in Europe. For this reason, when they began to retreat this year Europe was left relatively unaffected.

Sectors that have seen the biggest decline in new unicorns are Fintech with an annual unicorns percentage decline of about 58%, and Retail tech, with 46%. In the meantime, Digital Health is the sector with the least annual decrease in fact it dropped only by 27%.

Therefore, public market volatility brought by the crisis has decreased investment funds and operations. Many investors have withdrawn funds from backing late-stage companies since they are more exposed to public market instability, for this reason, they have already shifted a vast portion of their private-market investing toward early-stage deals.

Source: CrunchBase

 

If there is not as much competition as it was before the recession, there will be less funding, making it more difficult for any given company to achieve a valuation higher than $1B.

In fact, the balance of power is shifting from founders to investors. Investors will be looking to understand which start-ups can achieve high valuations to efficiently direct their capital to more profitable companies.  In this context, companies will need to demonstrate that they can balance sustainable growth and profitability to have a chance of reaching or maintaining the coveted $1 billion-plus valuation.

At the same time, unicorns will probably avoid raising new money if they can survive on current liquidity to avoid a bad round that would lower their valuations. Otherwise, they might seek alternative terms (e.g., debt capital than venture capital) that would limit the damage to their valuation.

 

Can Financial Institutions and Banks consider Private Equity and Venture Capital a good opportunity for their final investors?

Can Financial Institutions and Banks consider Private Equity and Venture Capital a good opportunity for their final investors?

Private equity represents forms of investment that consist of buying private companies, typically startup/scaleup from early to pre-IPO stage, before selling them with important returns. They are alternative investments, generally only available to private equity firms through investment funds on behalf of institutional and accredited investors.

ThePlatform.finance deals exclusively with financial Institutions and Qualified investors so typically, we are an excellent partner in the analysis and evaluation of private equity deals. In our experience we have collaborated as analysts for major transactions such as Palantir Technologies, Kraken, Revolut and Epic Games. 

PE and VC dynamics in Q3 2022

At the end of September 2022, long-only investors offloaded almost 25 per cent of the total they sold at the start of the year, selling $51 billion worth of stocks. These phenomena are due to rising inflation, which has led institutional investors to sell securities, especially growth companies.

In a context like the one described and at very low valuations, can these asset classes also represent an opportunity for private investors, not just for institutions?

Can banks and management companies consider these investment opportunities for their final clients?

Can banks and management companies consider these investment opportunities for their final clients?

Private equity has always been inaccessible to retail investors in the UK.  It has recently accelerated in the United States and now it is becoming increasingly attractive to individual investors in the UK as well. London-listed investment trusts focused on private companies have tripled their assets in a decade to around £35bn. 

 

What about retail investors and PE

Investing in private equity means locking money for long periods in illiquid products, i.e. difficult to sell, and with high fees. This has always made private equity a market sector not accessible to everyone.

In addition, it should be borne in mind that the conditions that favored high returns in the PE market were extremely low interest rates, which may soon disappear. Over the past 15 years, the private capital sector has grown rapidly to $8tn globally, of which 13 per cent is invested in western Europe. According to Morgan Stanley research, private equity delivered annualized total returns of about 13 per cent over the past 15 years, on a risk-adjusted basis, against about 8 per cent for the S&P 500.

So, is the private equity market really a convenient proposition for financial companies and banks that need solutions for retail investors? 

The most important element to evaluate is the return on investment.

In private equity, standard fees include an annual management fee of 2% and a carry interest of 20% on the value of the exits obtained. It is necessary to ask whether a retail investor is able to understand these fees, comparing them with the potential financial returns of the asset class.

There are also regulatory issues that restrict access to the EP only to sophisticated investors.

Research this year by Bain, a management consultant, found that the top quartile of PE managers was far ahead of the public markets, with annualized returns above 20 per cent. However, the same research found that – after outpacing public markets for a decade – the performance of PE funds, net of fees, was the same last year as if the money had been put in the S&P 500.

 

The solution for individual investors

Based on the elements considered, one solution for individual investors could be an investment fund known as ‘semi-liquid’. This is a fund that limits the amount investors can withdraw in a given period. This is not an entirely new proposal, but has been popularized by Blackstone in the US. 

Withdrawal limits are triggered if, in aggregate, investors attempt to withdraw more than a certain percentage of the fund’s total assets, typically 5% in a quarter. In such a case, a maximum of 5 per cent is withdrawn and divided among the investors who want cash. 

Another possible alternative may be a very popular solution in the UK: “traditional” investment funds. These, structured as listed companies, can be used to hold private equity stakes. According to Peter von Lehe, CEO of Neuberger Berman, it is in the UK that the most successful democratization of private equity has taken place.

Most investment funds are not limited to sophisticated investors and have no minimum ticket size. Their great potential lies in solving the liquidity problem because their shares can be traded freely on the public market while the assets they hold remain permanent. Investment funds also allow managers to combine private equity with listed shares or other assets, such as property or infrastructure, in a single vehicle.

The disadvantage of investment funds lies in the separation between portfolio and share price; the latter can fluctuate with the general trend of the market.

Furthermore, typically the cost of administering investment funds is too high, this creates problems when, following a market crash, the fund units need to recover value. Excessive costs weigh on the recovery, generating below-average returns for the investors involved.

 

For investors with smaller portfolios, one solution may also be to invest directly in private equity transactions by pooling their resources. Several companies, e.g. Moonfare, offer this type of service. The only disadvantage is that these remain transactions that are more suited to sophisticated investors and thus difficult for individual investors to access.

For UK investors, the most traditional method of accessing this type of market tends to be venture capital.

An innovative and interesting proposal for the private equity market, and investors, may be the AMCs (Actively Managed Certificates). AMCs are structured financial products, more precisely Tracker Certificates, which replicate the performance of an underlying strategy, in this case the venture capital portfolio.

These tools combine the benefits of mutual funds with lower costs and faster set-up speed.

They can be listed or unlisted and can be used to make small investments on the order of 3/5 million pounds total, thus allowing even private investors easy access.

The flexibility of these tools also allows for single and targeted venture capital transactions, not just for a portfolio of private companies.

 

ThePlatform.finance has gained important experience in these financial instruments, working as analysis company in the arrangement of AMCs dedicated to the purchase of pre-IPO company stocks such as Kraken or Epic Games or in the wrapping of important Holding companies such as Hamilton Global Opportunities