Risk and Return Management through Smart Contract Profit Redistribution

Investing into a new product or service is a high-risk, high-return activity. This is best symbolized by the observation that the return over investment distribution of startups is a power law. Introduction of new products or services to the market might fail to generate profit even though there is...

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Bibliographic Details
Main Authors: Victor Deleau, Jia Yuan Yu
Format: Article
Language:English
Published: MDPI AG 2019-10-01
Series:Proceedings
Subjects:
Online Access:https://www.mdpi.com/2504-3900/28/1/3
Description
Summary:Investing into a new product or service is a high-risk, high-return activity. This is best symbolized by the observation that the return over investment distribution of startups is a power law. Introduction of new products or services to the market might fail to generate profit even though there is a demand. Early adopters are also penalized, as they often pay a high price for something which will end up being cheaper, and might lose their warranty if the firm goes bankrupt. Innovation is slowed down. We propose to equally redistribute part of the generated profit at the end of a predefined time period to previous customers using Ethereum smart contract. Because customers are aware of the amount they would get back, their behaviors will change. The return over investment distribution and therefore the risk and return balance of the firms will also be affected. We formally define both a classic market and a market that is using our proposed system, and present an architecture to deploy such system. A preliminary numerical simulation is provided.
ISSN:2504-3900