The software ate the world, this is how you will eat finances

Lex Sokolin, columnist. I have a simple and modest goal. Let’s move $ 15 billion of global gross domestic product to open source programmable blockchains. No more no less.

We do not need to change the nature of the human animal, short-circuiting its dopamine receptors with full moon fantasies. We do not need to break the artificial intelligence attention platforms, and somehow attract two billion people from one honeypot to another. We don’t need to turn the money upside down, throwing a stone in our own bulletproof window. These changes are all consequences of what I propose, not unprecedented. Let’s start instead with all the finances.

To understand the whole image, move the context away. Discussing protocols and forks is a great Twitter strategy. But making real software and market development is what matters. So let’s describe where we are from the perspective of digitalization and the global economy.

During the last decades, multiple industries have been destroyed by disruption. Start with a cheaper and simple version of a family product, which has some structural advantage. The product improves cumulatively, until the traditional industry can no longer compete, despite its initial market share. Napster separated the music industry so that revenues collapsed 50 percent and the rest was Spotify, not music labels. Google did the same with the media industry, as it incorporated all the Internet into its advertising jaws. Uber took advantage of Apple’s GPS and hardware footprint to create a substitute for the traditional taxi, reducing prices for New York taxi medallions by 80 percent. Amazon and Alibaba were deeply divided into retail trade, pushing cultural norms and the volume of payments to a new chassis.

In all these cases, which became risk capital clichés because they sound true, something fundamental happened. The software equivalent of the main product in that industry became free to manufacture. I can’t build a CD Spotify, but if digital music files are a piece of Lego available, then a blue ocean of opportunities awaits me. You can think of these developments as fractals that emerge from changing social tectonic plates. As humanity increases its technical capabilities, the form (but not the nature) of human activity changes. We may not know all the recursive folds of the fractal, but we know its spiral tendency.

“Our advantage lies, however, in global networks, public and private chains and programmable decentralized finance.”

Unlike the previous examples, financial services can be a much more difficult beast. Its sectors are highly technical and arcane. His language is specialized and protected. The barriers to entry come from relations with power in the form of regulation and licenses, and the effects of the network in the form of market infrastructure, liquidity and payment rails. It is more difficult for the digitalization vector to digest finances. But like all things, we already know the answer. Income groups and rates will continue to collapse, consolidation will create power laws and the rest of the industry will be natively digital.

Today’s bankers still have doubts about how Amazon and Apple will enter financial services, or if the Central Banks will release digital currencies, or what form the regulation for tokenized assets will take. The answers are predestined: you just need to know where to look.

Segment the financial services industry in (1) sector and (2) value chain. Historically, financial sectors developed independent infrastructure under separate local regulations. However, as the super applications and the grouped fintechs move to consolidate these products into unified experiences, everything begins to merge. Payments are located at the top of the information exchanges (ie chat applications), quickly moving the value among the participants. Once the money settles and is no longer moving, it becomes money at rest, to be deposited, borrowed or invested. And if you are making asset allocation decisions, both in terms of risk management and consumption smoothing, a variety of asset classes become relevant. You may be looking to trade stocks frequently or maintain a corporate bond for a long time or develop a deferred tax pension strategy. Coverage, insurance, derivatives and other techniques create greater certainty throughout the financial journey.

In terms of the value chain, we can reduce this soup to the essential. Financial products are manufactured at the factory, manufactured as deposit accounts, traded funds, subscribed debt or insurance policies. Some capital provider does the thing from various financial ingredients. Then they travel through an intermediate office or a set of connection providers. Think of CRM, KYC / AML, commercial software, warranty management, financial planning and other feature sets as the set of intermediate steps to put a financial product in the hands of your end customer. At the end of this maze there is a distribution channel: a store. This store can be a bank branch, a financial advisor or a loan officer. Increasingly, it is your mobile phone or some cryptographic influence of YouTube. Financial products are sold, not bought, which means that distribution remains valuable, regardless of form.

I say all this to return to the macro story. Over the past decade, venture capital has financed an incredible assault on financial holders. Annual investment increased from several billion at the end of the 2000s to almost $ 70 billion per year in 2019. The percentage of venture capital focused on fintech also grew from 5 percent to almost 20 percent. There was a seismic rebalancing of the investment of “disruption” of financial services, but focused mainly on distribution. That’s why today we have a dozen global unicorns, all making the same bet of fintech package. Although Robinhood, Revolut, Wealthfront, N26, SoFi, Chime, MoneyLion and others began in different verticals, today they are faced by the heart of the millennial client. It has never been easier to swing for fences. However, JPMorgan, Goldman Sachs, Santander, DBS, Schwab, BlackRock, Amazon, Apple and Uber are not far behind: the fractal develops parametrically.

So what is left for entrepreneurs? Knowing that finances comprise 20-30 percent of world GDP, what we must do is change the objective towards manufacturing your main product for free. Other entrepreneurs are trying to build the largest customer service platforms that sell deposit accounts based on 30-year central banking software. Our advantage lies instead in global networks, public and private chains, and decentralized and programmable finances.

Just as Linux drives most mobile operating systems in the world, open source projects such as ethereum (and others) can one day boost transaction, market and settlement infrastructure in all asset classes. Trillions in value-added economic activity can flow through modular and expandable rails that standardize and mutualize the identity, accounting, financial instruments and workflows that are captured today in thousands of niche software platforms. This is the work that remains to be done! But to appreciate the progress in that context, we have to follow all the chess pieces, which means keeping track of the efforts of AI technology companies, large financial companies and new fintech Web 2.0 companies, all of which contribute to borganism .


Disclaimer: This press release is for informational purposes information does not constitute investment advice or an offer to invest. The views expressed in this article are those of the author and do not necessarily represent the views of infocoin, and should not be attributed to, Infocoin.

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