This month, a big figure with a long reputation on Wall Street passed away. He was sentenced to 150 years in prison in 2009 for manipulating the largest and most destructive Ponzi scheme in financial history. He is Madoff Nader L. Madoff).
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The death of Madoff brought the Ponzi scheme that was closed 11 years ago back to the public eye. It was a major financial case that touched the financial world and shocked Wall Street. It engulfed 136 countries and more in 40 years. There are 37,000 people and the amount involved exceeds 60 billion U.S. dollars. Many ordinary investors, large financial institutions, banks, and wealthy families have suffered huge losses, bringing tragedies to many families and even the traders themselves.
After many years, what lessons can we learn from this scam? Does the financial industry now have new technologies and new changes to solve the hidden dangers of scams of the year? Today we will have a chat together.
Looking back at the Ponzi scheme, pyramid drumming to spread flowers
Madoff was successful in his youth. He set up an investment securities company from scratch when he was in college. In the 1960s, he seized the dividends of the U.S. stock market boom. In the 1970s, he launched a computerized securities trading system. Since then, the company’s reputation has risen and become the largest independent securities trading company in the United States. Dealers. After that, Madoff himself served as the chairman of the Nasdaq exchange. His market leadership and daring to challenge the innovation of traditional models made him a prestigious financial advisor. At the same time, he was also a benevolent philanthropist. , Funded charities and public undertakings are all over the United States.
Behind such a successful person with both fame and fortune is taking a road of financial fraud, and it can be described as “the invincible hand of the world”, turning many financial tycoons on Wall Street cheated round and round.
The first victims were Madoff’s friends, relatives, and people met at the club. The scope soon expanded to large charities, universities, global institutional investors, and wealthy families. There are many celebrities among the clients who were deceived by him, such as the legendary baseball pitcher Coface, the owner of the New York Mets baseball team Wilpen, the New York developer Sveer Stein who rebuilt the World Trade Center; as well as HSBC, UBS, and Morgan Many large financial institutions, banks, etc., including Chase, Bank of America, BNP Paribas and Citigroup.
If you want to become a Madoff customer, it is not enough to have money alone, you also need to have a personal relationship. In many people’s eyes, investing money in Madoff has become a status symbol, and these high-level customers are also Astoria’s company has brought a celebrity effect, making Madoff’s reputation growing.
10% annualized, stable income
In the eyes of many investment veterans, when investing in Madoff’s company, you should not worry about losing money, but if you invest one day late, you will lose one day’s opportunity to make money.
Regardless of whether the market is good or bad, Madoff’s customers can basically get an annualized return of 10% every year. Someone asked about the logic behind the investment, but he was sloppy, saying “no detailed explanation”, “inside information”, etc. Answering prevarication, if someone repeatedly asks about investment principles, Madoff will be kicked out. Many rich people know that the capital market will inevitably have some inconvenient means to show others, so they think this behavior is reasonable and they trust Madoff more.
Not open, opaque
In fact, the core of this 10% stable investment product is a Ponzi scheme, relying on the funds invested by the latecomers to provide income for the predecessors, the pyramidal drumming and spreading mode, as long as there is no large-scale principal withdrawal, and There will always be a steady flow of new funds, and there will be no thunder. Due to the non-open and opaque investment model, it has defrauded investors, regulators, and the media. It has been 40 years without gangsters.
But how can a lie never wear a gang?
In September 2008, during the global financial crisis, hedge funds and other institutional investors were under pressure to withdraw hundreds of millions of dollars from Madoff’s account. As of December, more than 12 billion dollars had been withdrawn, and there was almost no new cash. Inflow, so the scam is difficult to continue.
Under the pressure of his son, Madoff finally confessed that he did not have any reasonable profit model. All of this is a fraud. It is a pyramid-style fraud. The first comer earns the second. Now, he has defrauded 50 billion US dollars. Madoff’s sons issued him a warning, exposing this shocking 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. The SEC was also discredited. There were too many Madoff fraud cases as early as 1992. Clues, but no results; many people went from wealth to bankruptcy overnight, some lost their homes, some desperately committed suicide due to losses, some died of a heart attack during a long lawsuit; together with Madoff’s own family It 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. The younger son died of cancer, which is embarrassing.
DeFi financial reform, transparent and public governance to avoid risks
As we mentioned above, the network of scams organized by Madoff has not broken for 40 years. A big reason is that the investment model is not open and transparent.
This kind of dark box operation, if it is put in the world of DeFi, it will be a perfect solution.
DeFi refers to the very popular decentralized finance in the blockchain industry in the past two years. At present, the total locked position is 76 billion US dollars. This amount of funds has exceeded the total assets of many established banking giants such as Deutsche Bank.
Openness and transparency
Traditional finance is managed by a centralized team, which can easily cause people-related risks, just like the global financial crisis in 2008. In contrast, DeFi does not need to rely on intermediaries/third parties, and creates trust by eliminating third parties and relying on the decentralized characteristics of the blockchain.
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, whether the project is open source, and the audit is true and checkable, and funds can be recharged at any time. If the development team of a certain agreement 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, the users of the agreement have the right to vote on the main decision-making, such as adding protocol features, deploying new versions, etc., further improving the decentralization of the DeFi project Degree of chemistry.
By eliminating third parties, realizing the concepts of decentralization, open and transparent data on the chain, and DAO public governance in the underlying technology, the security, privacy, and transparency of the blockchain are fully demonstrated on DeFi. The current DeFi is still in its infancy. In the future, we can expect more financial and other application scenarios. The current DeFi is just a seed, and it may grow into a towering tree in the future!
Liquidity mining, revenue rolling
When reviewing the history of the Madoff Ponzi scheme, one statistic caught my attention very much: 10% annualized return.
At the time, it seemed that although it was not too high, it was not affected by market conditions and it was very difficult to stabilize year after year. Therefore, such a stable yield attracted many people to invest money in the market frantically.
But this rate of return has to be put in front of today’s DeFi players, I’m afraid they will say: This is my daily chemical (dog head).
The DeFi boom has swept the encryption industry in the past two years, and the form of “liquid mining” has injected vitality into the funds on the chain. Many top mines have an annualized rate of hundreds or thousands (or even higher), and many mines have stable income. The annualization rate is 30-40%, and the annualization rate of Madoff is 10%. If it is now, I am afraid that people who want to deceive the encryption industry will be difficult!
Therefore, we see that DeFi can well solve the problems of over-centralization of centralized finance, black-box operation caused by excessive opacity, and lack of supervision to a certain extent; the innovative financial gameplay on DeFi also brings more to investors. High-yield financial products gave birth to a large group of “DeFi scientists” and created many stories of getting rich.
postscript
However, even in a secure, private, and transparent system such as DeFi, there are still 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 developments Those who stay at the back door, donate and abscond; such as public chain congestion, and some corresponding security issues.
In the case of Madoff, the huge financial scam eventually could not escape the recovery of the law and swept money in an improper way, but ended up in life imprisonment and betrayal, which brought tragic fate to countless people. People can’t help feeling that technological change also requires people’s righteousness. Gentlemen love money and get the right way!
Finally, I would like to say a few words about finance/investment. You cannot give up contact with these innovative things in the financial field because of some of the failures of the predecessors. We must embrace innovation. Sometimes innovation does involve some risks, but at the same time, It also contains some opportunities and wealth codes. It is recommended to invest in some spare money that does not affect life on the basis of idle funds. It is untouchable and fundamental.