Each year, Gartner ranks emerging technologies and places them along a Hype Cycle curve. The curve starts with an innovation trigger, followed by a peak of Inflated Expectations brought about by success and failure stories from early adopters.
Naturally, this leads to a steep decline into the Trough of Disillusionment, the make-or-break point for producers of the technology — when iterations either catch on successfully or fail to deliver. Fret not, there is a gradual upswing through the Slope of Enlightenment, where the innovation becomes more understood and accepted in terms of realistic functionality, finally landing at the Plateau of Productivity.
This is the sweet spot where paradigm-shifting technologies become socially adopted and broadly recognized.
This year, non-fungible tokens (NFTs) sit proudly at the Peak of Inflated Expectations; we know what’s coming next. But with the resilience of stable coins, the rebranding of Facebook to Meta and regulators finally paying attention to DeFi, we can safely assume that blockchain, in general, is heading up the Slope of Enlightenment.
Blockchain’s most obvious financial applications appear across lending, insurance, money transfers and audits, but there are emerging, powerful and often overlooked applications within the traditional investing space. Below, I outline three areas where blockchain is starting to make quiet waves in noisy capital markets.
Threatening Traditional Exchange Mechanics
Some of the world’s oldest and most lucrative institutions over the past century are in the business of clearing (NYSE, NASDAQ), custody (BNY Mellon, JPMorgan Chase) and brokerage (Fidelity, Vanguard). All three services are traditionally required in order to trade securities. This means power, control and pricing/cost are completely centralized.
Blockchain, on the other hand, is immutable, decentralized and transparent. Blockchain companies have recognized that, in theory, assets can be traded on a blockchain in an accurate, secure and non-modifiable way that disintermediates traditional institutional players. Storing traditional market pricing data on the blockchain, for example, is a way to know exactly how an instrument should be priced at the moment of a transaction. Assets can be priced, traded, settled, stored and secured with the help of oracles along the blockchain.
It will take time for the lion’s share of trading to move from traditional exchanges to blockchains, and it’s possible that some traditional exchanges will launch blockchains, but I believe it’s inevitable. This will render clearing, custody and brokerage relatively defunct, and it will also impact traditional market data businesses. In a world where enough of us head to the blockchain to buy shares of Tesla, the volume of trading would become significant enough to be a powerful and accurate source of pricing and reference data. The source of market data, then, becomes the blockchain, not traditional exchanges. That’s (at a minimum) a $32 billion transfer of value.
Democratizing Traditionally Exclusive Markets
There are dozens of lenses with which to view the opportunities surrounding the NFT space. Whether or not you “game,” it’s hard to ignore the fact that we’re heading in the direction of The Matrix — or the Metaverse if you’d prefer. Digital, non-fungible assets hold true value when applied to the gaming industry. Audio NFTs have the potential to provide true independence for musicians who are traditionally beholden to record labels, managers and more.
But perhaps one of the most compelling arguments in favor of NFTs may be the simplest: We have a new medium of creative exchange. Take fine arts auctions, for example. It’s hard for the average person to participate in an industry where a Van Gogh can fly off the shelf for over $80 million. Yet, art — and creators — are everywhere. There is a market that exists for cool, visually pleasing, trendy things. Blockchain has the ability to ensure that as we digitize art and creativity, those assets can be secure, immutable, unique, valuable and rare. They can also be fractionalized, increasing accessibility. It’s a democratized, Main Street medium for creative and artistic exchange.
It’s hard to argue that this is much different from trading fine arts, rare baseball cards or any other physical assets or collectibles that most are familiar with. What’s different, thanks to blockchain, is that it’s accessible. It’s (usually) affordable. It’s decentralized, democratized and applicable across the digital world. Blockchain is democratizing traditionally exclusive markets to the tune of $10 billion in volume.
Pouring Fuel on the Fintech Fire
Over the past two years, several factors have contributed to a drastic increase in retail trading, the most obvious being the Covid-19 pandemic, the WallStreetBets/GameStop trend and early fintech innovations like Robinhood. These influences have pushed new traders straight into the arms of the blockchain-influenced sandbox — more accessible, new and intriguing markets.
Yet Main Street has always struggled for resources when it comes to investing; exclusive tools like Bloomberg Terminals price average traders out of the game. This problem is compounded with the sheer volume of new retail traders hitting the market: Where do they go for data? Resources? Tools? Education? Thanks to blockchain, this new breed of trader demands more, creating massive opportunities for fintech innovators to build solutions.
Fintech startups have been quick to roll out options like trading platforms, crypto wallets, investment education websites, accessible data and research tools, and much more for this new market. Blockchain’s recent advances have, through creating new markets, indirectly created a multibillion-dollar ripple effect on a fintech industry that was already growing at a rapid clip.
As blockchain climbs the Slope of Enlightenment, it’s impossible to ignore its most fervent applications. New technologies create new worlds, but they also transform old territories. Traditional markets must brace for massive impact — adopt, evolve or fade. Every generation faces a paradigm shift, and that’s where wealth is created. Ours just happens to include cryptoadz and thingies. It’s a brand-new world.
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