Today as announced earlier I’m going to present you with the report written by V-Project admin Amanda Hamilton. Why should you read it? Because it’s a real professional overview of SHYM (Small High Yield Market). It’s a detailed analysis of the investors, the programs, the risks and legal issues and many other aspects of the HYIP industry. I’d like to express my enormous gratitude to Amanda who let me publish this report on my blog. If after reading this report you are as impressed as I was you can always check Amanda’s program V-Project or read her detailed interview for my blog where she also shared some useful ideas and facts about the industry (it’s published here). Ok, here’s the report.

“1. E-currency. The system’s core is represented by electronic currency and related to payment processors, some of which permit making an anonymous payment, so as to help the use of the Internet as a tax-free area corresponding to the one of the offshore jurisdictions (or rather, as an extraterritorial area: see below). The status of payment processors is so the first index to consider in order to evaluate the status of the whole system.

2. A Free Market. This market is substantially impossible to regulate, with all its positive and negative consequences. The global, supranational and anonymous nature of the Internet permits the market to operate in an environment substantially lacking a central authority: economic laws of supply and demand represent the only existing law. Therefore it is an extremely vital market, but also a savage and high-risk one, greatly emotional and characterized by a very low threshold.

3. Typology of Investors. The SHYM is intensely peopled by small and small investors that could not participate individually to the “large” offline high-yield market, where the minima to access investment instruments are rather high. Investors tend to organize in a kind of online community who lives in specialized forums, blogs and monitors. Because of the lack of official and institutional channel of communication, information pass by word of mouth, in an often imprecise and fragmentary way. Market trend suffers greatly from emotional participation of investors community and lack of accuracy of information.

4. The Demand. This market has an incredible ability of regeneration and stabilization after the crisis. This ability depends on the nature of the demand sustaining it and the kind of risk involved in it. It is indeed obvious that investments demand at low threshold and highest interest rates is essentially rather inexhaustible; this feature is amplified by the global diffusion of the Internet. The demand is also fragmented and requires an high number of investment programs in order to be satisfied: the high risk coefficient in fact induces investors to differentiate their own portfolio as much as possible.
It is also important to clarify that risk is high in absolute, but not in relative terms: compared with the chance to realize high profits, the amount of money you may lose is generally very low if not insignificant. Anyway, losses are far lower than those which may occur in traditional markets: for example, investing in stock market.
In addition, you must not underestimate that the small investor can access to the market comfortably from his PC, without any specialized technical knowledge or consulting financial brokers in technical sense.

5. The Supply. The SHYM is greatly asymmetric. The high demand of concrete profit opportunities is not accompanied by a proper supply of reliable investment programs. The percentage of real HYIPs or, at least, programs with a life cycle allowing for profit realization is limited compared to the high number of scams and pyramid schemes. The market is therefore dominated by few programs demonstrating, in a given period, to have a greater capacity of resilience, even if it is not possible to speak of a sort of oligopoly. Actually, these programs are not sufficient to fill demand, which remains constantly higher than supply. So there are not insurmountable barriers to entry for new competitors into market. As a consequence, there are very high chances of success for a real investment program based on a concrete business activity.

6. Legal Risk. Also from a supply perspective, thresholds are low: in this field there are many swindles, because it is rather easy and cheap to create a scam in an unregulated, anonymous and substantially offshore market. On the contrary, the creation and management of a serious investment program require many efforts and may imply a considerable use of resources.
The creation of a HYIP may anyway imply a legal risk, if and as the law rules of the state where the manager is operating are applicable (see below). All programs, the real ones and not, have to survive in a de-regulated jungle, disentangling themselves from many threats that put their existence at risk: “DDoS” attacks and other acts of unfair competition, technical problems, etc. If an investment program closes or fails, the managers’ country-of-origin law, or international conventions, generally do not distinguish between swindlers and honest but unfortunate managers. From this point of view, the market is at a high risk even on the hand of supply.
This explains privacy requirements and reluctance of all managers, included real HYIPs “admins”, to provide to investors personal data, detailed information about companies and documents for carrying out due diligence according to traditional schemes. Whereas in traditional and regulated markets these information are generally used by people concerned with the evaluation of a company’s reliability, in the SHYM they may be easily used by any unfair competitor or discontented investor to shoot down a program in few days. This reality still does not seem completely clear to investors’ community, tending to apply concepts and methods of due diligence not always proper to this kind of market.

7. Extraterritoriality. As we explained before, one can understand why privacy, as the chance offered by the Internet to protect anonymity, is one of the conditions that permit companies operating in this market field to offer higher interest rates.
In the so-called “ponzi schemes” the profit realization is only apparent, the distribution of high returns is simply a magic trick and anonymity is only a way to mask one’s own identity.
In real HYIPs, that are based on a concrete business activity, the situation is quite different: wealth is really produced and anonymity is strictly related to the distribution of higher returns. It is known that the application of managers’ and investors’ countries-of-origin laws represents a very considerable managerial, administrative and fiscal cost. However, law rules, in order to be applied, require the existence of a territory. Therefore, until HYIPs managers and investors operate on the Internet keeping therefore their anonymity, the SHYM operates in an substantial extraterritorial area, without any subject to connect with a specific territory, where no law is applicable but the pure “law of the market course”. This makes possible a strong abatement of costs and the opportunity to offer higher interest rates. Obviously, if anonymity fails or, anyway, if privacy is not assured with select ISP and host for program website, this system will collapse.

8. Self-protection. Whereas in traditional and regulated markets the businessman benefits from protection by authorities, in the SHYM every program is like one boat sailing the High Seas: none protects it, it has to be protected by itself. So privacy, seen as anonymity, is also a means of self-protection. But it represents a double-edge weapon: on the one hand, it allows serious professionals or, anyway, respectable people to consider the entry in this market profitable, since it gives a protection against spam, specious reports and many acts of unfair competition; on the other hand, it allows scammers to disguise as respectable people. So investors must always be prudent and wise.
It is necessary to clarify that also investors largely use anonymity: to get profits in an extraterritorial area, unconnected with application of fiscal rules in their countries of origin.
Self-protection means available to HYIPs managers have a technical nature: no investment program can be defined as “reliable” if it does not provide at least hacker-proof script, SSL certificate and above all an effective anti-DDoS protection.

9. Current situation and future directions. Currently, the SHYM has emerged from a negative trend mainly due to the consequences of e-gold‘s crisis. E-gold has been the leader of SHYM until about one year ago. The crisis is consequent to a firm position of the United States Government against severe abuse which might occur using processors allowing anonymous forms of payment located in their own jurisdiction. We fully agree with the necessity to fight any manifestation of criminality, but, with regard to our competence, we only note that anonymity means extraterritoriality and financial freedom. Anyway, we have to specify that e-gold gives the chance to recover money from their frozen account.
Today e-gold has become just one of the many payment systems in this market and the progressive rise of new alternative e-currencies is an extremely positive fact, which has contributed to the full recovery of the SHYM.
The constant threat of DDoS attacks also presents some positive outcomes: in fact, investment demand is currently more oriented towards more reliable programs, provided with adequate protection. In general terms, we have noticed a sensible improvement of the investment programs’ average quality.
In this context, opinion leaders have a lot of work to do, because the market is young and investors’ community might need a greater emotional balance and a more precise framework. On the contrary, the investor rarely seems to have a clear idea about SHYM and what this market can really offer. They pass from demonizing attitudes to forms of excitement, both unjustified. Really, this market represents a middle course between pure gambling and traditional markets, but with its own distinctive features.
Anyway, it is sure that the determining factor to evaluate potentialities of the Small High-Yield Market is represented by e-currencies: in view of the essentially inexhaustible nature of the demand, until offshore payment processors are in great number and in healthy condition, we believe that the market has strong potentialities of development, although the frequent fluctuations proper to its intrinsic nature.”

I’m sure Amanda, the admin of V-Project and the author of the above published report would be pleased if you left some comments or feedback regarding this article. Do you agree with Amanda’s observations? What seemed controversial to you? Maybe you would like to dispute something? I’m open for further discussion and I will be looking forward to receiving your feedback. As usual I will see you on my blog tomorrow for more news and updates!