One of the oldest criticisms of gold is that it earns no dividend or interest, which banishes it from the investment mandates of most fund managers.
With the recent launch of AuBit and its Alpha Gold Bullion crypto asset, that’s now a thing of the past. AuBit earns investors a return on gold by redistributing 80% of transaction revenues back to holders. That means any time that anyone, anywhere in the world, buys AuBit-networked gold, as a holder you get a cut.
There are no ongoing platform fees, so all gains users make are theirs to keep.
This is a far cry from the traditional asset management model, where value leaks out of the system to service providers through annual fees.
It’s early days yet, but simulated models show it could be possible to earn up to 1-2% additional asset gains per year as users join and trade on the network. This can yield total additional returns of up to 70% a year after five or six years of compounding, based on historical asset price data. All this is based on less than 200 000 users adopting the system over the next five years.
The power of the network effect
The network effect AuBit leverages to generate additional returns is the same kind of network effect that has powered the valuations of companies such as Facebook, Apple, Google and Uber. Network effects occur when each additional customer adds value to existing customers. One study estimates that over the past 23 years network effects have accounted for approximately 70% of the value creation among tech companies.
These seem like extraordinary returns, and they are, though they rely on continued network activity. This forms the AuBit USP (unique selling proposition), as the downside is the ‘normal’ performance of the underlying assets, in this case gold, but the upside is enhanced as the amount of gold in each user account is designed to increase over time.
And it’s not limited to gold. “The same network effect enhancements can be applied to any asset to boost returns,” says AuBit founder Peter Neilson.
“My view is that AuBit has the potential to revolutionise the global asset management industry as much as John Bogle’s passive index funds did 50 years ago.”
Joel Krueger, global chief investment officer at Aon and AuBit’s chief investment advisor, agrees: “The network effect has revolutionised just about every industry. However, no one has yet used the right tech to leverage its potential in the world of finance and asset management, until AuBit.”
In traditional asset management, the volume of assets in your account remains static, though the value of those assets may rise and fall. AuBit is changing this model by redistributing revenues to asset holders and continuously increasing their total volume of assets.
AuBit co-founder Graham Doggart says AuBit represents a paradigm shift from the traditional investment model to a new model based on asset volume, and with that, enhanced risk-adjusted alpha (outperformance of a benchmark index) through network effects.
The same network effects can be applied to traditional equities such as Apple, where many high-performing annual stock returns can be sweetened by about 6%, or the US Bond Index, where the AuBit network-enabled model simulations show a potential for an additional annual gain of 25-51% without changing the risk profile of the underlying assets.
Tokenisation – is it the future of finance?
The ETF (exchange-traded funds) market is worth $5.3 trillion today and Bank of America forecasts it will grow to $30 trillion by 2030. The World Economic Forum estimates that tokenised markets (where assets are issued on the blockchain) could potentially grow from $1.7 billion today to $27 trillion by 2027.
Joachim Godet, CEO of London investment bank 01 Capital, believes programmable securities like AuBit represent the future of asset management because of the benefits they provide in automation and cost reduction.
The AuBit network rests on what is known as the Freeway platform, which is a downloadable app that will offer an expanding range of financial products. The more people that sign up, the bigger the network grows, and so too does the asset wealth of the network participants, who will be able to purchase and trade individual stocks, bonds, commodities or the leading ETF projects from the likes of Vanguard, BlackRock and State Street.
Bridging the traditional investment world with the new world of digital and decentralised finance, AuBit’s first product, the Freeway Token (FWT) listed in November and has already seen over 200% appreciation in value. FWT is now available on digital exchanges Bithumb Global and Uniswap.
Institutions are also starting to back the venture.
Last week, AuBit announced that Canadian merchant bank GreenBank had acquired 400 million FWTs for about $3.2 million. Greenbank CEO David Lonsdale says the multi-trillion-dollar global asset management industry, though growing, has barely changed in decades and is ripe for disruptive technology such as AuBit.
“One of our declared objectives is to invest in companies whose business can be scaled globally and have the potential to be worth at least Canadian $1 billion. We believe AuBit fits that criteria very well indeed,” said Lonsdale in a statement.
According to AuBit’s website, the plan is to roll this network out to 180 countries and bring financial services to the mass market, while continuing to grab the interest of institutions and traditional investors.