<h1>Initial take on Smart Media Token – A path to be a portfolio manager</h1>

Thank you @ned and his team on the effort and introduce the groundbreaking "Smart Media Token" (SMT). Even the SMT would be mainly applied to “content business”, I will try to use SMT to set up the portfolio management company as I believe the analogy is similar such that the objective of this post is to facilitate the discussion of both pro and con and hope to provide some insight leveraging on my financial background.

<h3> Setting up the WIG company – Cheap and Easy</h3>

Let say today I would like to set up a portfolio management company (“WIG company”) in which it invests in Crytocurrencies for the investor of “WIG” Token. The advantage for me to raise fund this way is that the community already have a basic understanding on Crytocurrency where in the real world, I may need to go through a stringent regulation as well as giving many presentations before the audience can reach a certain comfort level and decide to invest in this fund. More important, I could raise fund with certain interface provided by STEEMIT and  the cost is considered a lot lower.

<h3>Pricing of WIG company – Clear and Simple </h3>

Therefore, I will decide issuing 1000 WIG token in exchanging of 1000 ETH as my funding. Because of the business purpose, I would decide the reserve level (CRR) is 20%. As the pricing is leveraging on the BANCOR protocol, I could tell the price of WIG token is 1 ETH as P = Reserve / (Supply X CRR). So far so good. 800 ETH will be converted to something else as part of my investment assets. 

<h3> Charging of the investment fund – 2 / 20% - where the NAV rockets. </h3>

Then I will decide how my fund will be charged. I will just follow the industry practice and charge 2% initial fee and 20% performance fee. So that the price of the token will be increased every time I charge this 2% fee as it will be put aside as reserve.

| New capital | Reserve | Supply | Price |             |
|-------------|---------|--------|-------|-------------|
| Initial     |         | 200    | 1000  | 1           |
| day 1       | 100     | 300    | 1098  | 1.366120219 |
| day 2       | 100     | 400    | 1196  | 1.672240803 |
| day 3       | 100     | 500    | 1294  | 1.931993818 |
| day 4       | 100     | 600    | 1392  | 2.155172414 |

Interesting how 10% of new money injection could bring in 36% increase in price. This is because the new capital will place in reserve as part of the BANCOR protocol. The solution is simple, simply split the new capital with the CRR calculation where 20% will be reserve and 80% will go to funding, such that the value of the token will truly reflect the performance of the business.

<h3> Trust the principle or not? </h3>

OK, let put the new capital issue aside, now I am starting to invest and manage the money for my client. Unfortunately, due to market correction, the portfolio drops 10% in ETH term. See the problem? So far, the pricing of the WIG token is a function of (reserve, supply and CRR), the underlying performance will not be reflected in the reserve. If the agent (Owner of Wig) is trustworthy, he would simply disclose the performance result and let the market adjust the price by selling the WIG token in exchanging ETH which could drive the price of WIG token back to the fundamental value. But what if the agent is not trustworthy where he would not disclose the result and keep accepting new funding? Even the underlying business is not investment portfolio but some sort of business, the same P/L issue applies. 

<h3> Role of Arbitrageur </h3>

Lastly, it is also interesting to include arbitrageur in the discussion and the role of arbitrageur becomes critical in this new world. If the pricing mechanism is driven by arbitrageur, the liquidity and activity of the market will be very important. Let say there is 500 of new SMT tokens being released, does the market has enough capital to reflect the true pricing on time. 

All the points listed are simply a result of my initial reading of the whitepaper so in any case my concept is wrong, please feel free to point it out. 

At the same time, I believe the new SMT tokens would bring STEEM into a total new height and I have a lot of sample cases (what about an arbitrage company?) in my brain that I can’t wait to share with all of you guys and in here I would like to congratulate the great work of @ned and his team.  

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