Archive for January, 2020

Blockchain Based Gift Tax Hack

Posted on January 21, 2020. Filed under: Uncategorized |

I was reading something this morning about gift tax exemption and had a weird idea. I’ll premise this idea with the acknowledgement that this solves a problem that I’m not sure I philosophically want solved, but regardless, thought it was kind of a cool architecture.

The IRS taxes gifts of a certain size. Generally the giver pays said taxes, and the rate ranges from 18-40% depending on the context. Every year, every person can take advantage of a “gift tax exclusion” which allows the giver to give AS MANY people as she desires a $15K tax exempt gift. You could give a million sub-$15K gifts and not pay any gift tax, but you can’t give a single $20K gift without paying tax on the extra $5K. If you are trying to transfer wealth from one generation to the next, the gift tax exemption is like the first thing an accountant or tax adviser will guide you to take advantage of every year.

If you have $100M that you want to pass down, the exemption ain’t gonna get you very far, and there’s a nice 40% Estate tax waiting for you if you transfer your wealth at death.

But I had this weird idea that you could create a network of proxy recipients, and make exempt gifts in parallel to thousands of them, who in turn would be incentivized but not obligated to pass the gift along to an intended recipient via their own exemption. Interestingly, you could authenticate this flow of funds and identify an intended recipient without needing to expose the ultimate recipients identity or bank credentials.

You’d incentivize people playing the role of proxy to pass along the gift via a take rate that is meaningfully lower than the gift tax rate (i.e. 10% cut), and design the network to make the income generation opportunity of continuing to perform the role for many givers more lucrative than maliciously keeping the money from any one giver.

There are many crypto protocols that create roles or jobs within a system, where the right to an income generation opportunity is bestowed only upon the best actors in the system. Livepeer’s transcoder nodes are a good example.

I wonder if you could create a crypto based gift tax proxy protocol to allow for untaxed giving at scale between generations. You’d be able to both incentivize proxies, transfer funds in network, and authenticate that the proxy did their job / the intended recipient ended up with the money.

As I right this post, a) I hate this idea, and would prefer if wealth wasn’t easily transferred between generations, and b) may have just designed a money laundering scheme by a different name.

But, without a contractual obligation to pass the gift along, and rather simply a strong network based incentive to do so, I kind of think this hack would work.

A Depressing Startup Opportunity

Posted on January 17, 2020. Filed under: Uncategorized |

“Be fearful when others are greedy and greedy when others are fearful.” – Warren Buffet

I live downtown on the Hudson River in NYC (Flood Zone 1). During Hurricane Sandy, the Hudson enveloped my building and I spent the evening bailing water out of our entranceway, trying to protect the mechanical room from flooding. We live in a Co-Op and everyone who stayed, even the late Lou Reed, took turns both witnessing the craziness of our street becoming the river, and trying to protect the building, which is a Co-Op (we are all on the hook for the buildings health economically), from serious damage.

I sit on the board of our building, and after that event, we implemented a new flood protocol, made some tweaks to our physical infrastructure, and upped our investment in flood insurance. Securing additional flood insurance wasn’t easy, and my understanding is that in areas of high risk, it’s getting harder and harder by the day to find an insurance company who will underwrite the risk.

Generally speaking, the entire carrier market is fearful, as it should be. At the same time, demand for flood insurance is going to keep growing. In such a situation, it feels like the way underwriters approach this type of risk, the inputs to their actuarial models, and their economic agreement with customers needs an overhaul. I am far from an insurance expert, but it feels like there’s an opportunity for a new entrant to shake things up in this segment of the market.

I am inspired by USV’s commitment to investing in solutions to our climate problem. I think that’s the first order need. As bleak as it sounds, after reading Alberts post, I couldn’t help but ask “well what is investable if we don’t fix this fast enough or well enough?” There’s an entire class of businesses that will be built over the next 50 years not only to fight climate change, but to help us adapt as it inevitably progresses.

There’s a tinge of heartless capitalism in asking how companies will profit from such a destructive and existential challenge, but the reality is we have a responsibility to our planet AND also to maintaining or improving quality of life for those most affected by these changes. What services will be built to help people adapt to new reality? I think modern flood insurance fits that bill, but it’s a much broader question. Holler if you are working on something like this and thinking about raising capital: jordan@pacecapital.com