This month, a well-known Wall Street figure, who was sentenced to 150 years in prison in 2009 for running the largest and most destructive Ponzi scheme in financial history, died. Nader L. Madoff).

The death of Madoff brought back the Ponzi scheme that was closed eleven years ago. It was a big financial case that touched the financial world and shocked Wall Street. In 40 years, it deceived 136 countries and many There were 37,000 people involved, and the amount involved exceeded 60 billion US dollars. Many ordinary investors, large financial institutions, banks, and rich families suffered huge losses, and brought tragedy to many families, even the family of the trader himself.

After so many years, what lessons can we learn from this deception? Does today's financial industry have new technologies and new changes to solve the hidden dangers of fraud in the past? Let's talk together today.

Looking back at the Ponzi scheme, pyramid-style drumming to pass flowers

Madoff was a successful young man. He founded an investment securities company from scratch when he was in college, and seized the dividends of the prosperity of the US stock market in the 1960s. In the 1970s, he launched a computerized securities trading system. Since then, the company has become famous and has become the largest independent securities trading company in the United States. Dealers. Afterwards, Madoff himself served as the chairman of the Nasdaq Exchange. His market leadership and innovation that dared to challenge the traditional model made him a prestigious financial consultant. At the same time, he was also a philanthropist , Funding charities and public causes all over the United States.

It is such a successful person with both fame and fortune who is walking a road of financial fraud behind his back, and can be said to be "the invincible hand who cuts all over the world", defrauding many financial bigwigs on Wall Street.

The first victims were friends, relatives, and club acquaintances of Madoff, and the range soon expanded to large charities, universities, global institutional investors, and wealthy families. Among the clients who were deceived by him were many celebrities, such as the legendary baseball pitcher Koufax, the owner of the New York Mets Wilpon, the New York developer Swellstein who rebuilt the World Trade Center; Many large financial institutions, banks, etc. including Chase, Bank of America, BNP Paribas and Citigroup.

secondary title

10% annualized, stable income

In the opinion of many investment veterans, when you invest in Madoff’s company, what you should worry about is not losing money, but losing a day’s chance of making money if you invest one day late.

secondary title

Not public, opaque

In fact, the core of this investment product, which claims to be stable at 10% annualized, is a Ponzi scheme, relying on the funds invested by the latecomers to provide income for the predecessors, and the pyramid-style drumming model, as long as there is no large-scale withdrawal of principal, and There will be no explosions due to the continuous inflow of new funds. Due to the undisclosed and opaque investment model, investors, regulatory agencies, and the media have been deceived, and they have not been exposed for 40 years.

However, how can a lie never pass through?

Hedge funds and other institutional investors were pressured to withdraw hundreds of millions of dollars from Madoff's accounts in September 2008 amid the global financial crisis, and as of December, more than $12 billion had been withdrawn with little new cash Inflow, so the scam is hard to continue.

Under the pressure of his son, Madoff finally confessed that he did not have any reasonable profit model, and all of this was a fraud, a pyramid-style fraud, in which the first come earns and the later come later. So far, 50 billion US dollars have been defrauded. Madoff's sons alerted him, exposing the horrific fraud to the world.

There were tens of thousands of victims in the Madoff fraud case. Some investment managers lost their careers because they invested their clients’ money in Madoff. Many people went from rich to bankrupt overnight, some lost their homes, some committed suicide because of losses, and some died of heart attacks in long-term lawsuits; together with Madoff's own family Also fell apart, he was sentenced to 150 years in prison, the eldest son committed suicide two years later, the younger brother was sentenced to a fine, and the youngest son died of cancer, which is embarrassing.

DeFi financial reform, transparent public governance to avoid risks

As we mentioned above, Madoff’s web of deception has not been broken for 40 years. A big reason is that the investment model is not open and transparent.

This kind of black-box operation can be perfectly solved if it is placed in the world of DeFi.

secondary title

openness, transparency

Traditional finance is managed by a centralized team, which is prone to human-related risks, just like the 2008 global financial crisis. In contrast, DeFi does not need to rely on intermediaries/third parties, and relies on the decentralized nature of the blockchain to create trust by eliminating third parties.

At the same time, the top-level design of DeFi technology avoids the risk of opacity. The data on the chain is open and transparent. If the development team of a certain protocol decides to close/terminate the project, other companies/individuals can use the open source code.

In addition, DeFi also introduces the concept of public governance such as decentralized DAO governance. Through DAO governance, protocol users have voting rights for major decision-making, such as adding protocol features, deploying new versions, etc., which further improves the decentralization of DeFi projects. degree of transformation.

secondary title

Liquidity mining, income crushing

When reviewing the history of Madoff’s Ponzi scheme, there is a statistic that attracted my attention: 10% annualized return.

At that time, although it was not too high, it was very difficult to be stable year after year without being affected by market conditions. Therefore, such a stable rate of return attracted many people to invest wildly in the market.

But this rate of return should be put in front of today's deep DeFi players, I am afraid they will say: This is my daily chemical (dog head).

In the past two years, the DeFi boom has swept across the encryption industry. The form of "liquidity mining" has injected vitality into the funds on the chain. Many top mines have an annualized rate of several hundred, thousands (or even higher), and many mines have stable income. The 30-40% annualized rate of the company, and the 10% annualized rate of Madoff, if it is now, I am afraid that it is difficult to deceive people in the encryption industry!

postscript

postscript

However, even in a safe, private, and transparent system like DeFi, there are many problems. For example, the assets are completely controlled by themselves. Once the mnemonic/private key is not backed up, the funds will not be recovered; for example, the contract is hacked; for example, many decentralized applications are not truly decentralized; for example, some development Those who leave the back door, make donations and abscond; such as public chain congestion, and some corresponding security issues.

In the case of Madoff, the huge financial scam could not escape the legal recovery in the end, swept money in an improper way, but ended up in prison for life, betrayed relatives, and brought a tragic fate to countless people. People can't help but feel that technological change also requires the righteousness of people's hearts, and a gentleman loves money, so get it in a proper way!

Finally, I would like to say a few words about finance/investment. You should not give up contact with these innovative things in the financial field because of some failures of previous people. You must embrace innovation. Sometimes innovation does have some risks, but at the same time, It also contains some opportunities and wealth codes. It is suggested that on the basis of idle funds, use some spare money that does not affect life to invest, and do not move at all.

Supported by the Roast Boy Creators Alliance.