October 4, 2023
I am in Abu Dhabi for the 2nd time in 3 weeks. We are working with amazing partners here building the next generation of capital markets. The current banking system and the medium of exchange of value (or Store of Value) has developed over the last 650 years to the global benefit of the developed world. The move beyond barter and the creation of relationships of utility where surplus capital was deployed by banks spawned immense creative development in science, technology, industry, and sovereign infrastructure.
Bank depositors and debtors pursue different objectives with agreed upon conditions with banks as the oracles in the middle deciding how to deploy capital. This cycle of utility allowed capital to fund innovation, expansion, and creativity, while allowing those with excess capital to fund this when they did not have direct access to these opportunities. The global reach of banks, exchanges, and capital markets expanded those markets, broadened the scope of investment, and spurred greater and greater creativity and economic expansion. The role of DDLT is changing all of this to broaden reach and is the next major step forward in this cycle. We saw this with the Internet.
The expansion of the supply chain delivers global goods at the least cost of delivery at speed versus lowest cost of production. This is a masssive evolution, we moved from a centralized lowest price production to lowest cost of delivery using conditions that matter to the end buyer, ie, value, quality, organic, locally sourced, etc...
With data, we needed centralized production of Store of Value, the banks, Investment Bankers, and Wall Street were our oracles..Now we moving to a decentralized solution, pulling decentralized data, and watching informed capital be deployed in a manner that matters the end investor, in a manner that matters to them, greatest alpha, widest distribution, democratization of finance, ESG, ethically/morally responsible investing, local re-investment, etc.
Tokenization of RWA will change store of value, these RWA assets, with third party marks, scheduled liquidity, data driven correlation to other global RWA will become the basis for Store of Value. We need two things as a precondition:
These two items will drive better accounting treatment of RWA, moving them from level 3 to level 2. This will drive better collateralization - With real time pricing, dramatically broader comp sets, and surveillance of the asset, lending will change, where smart/reporting/auditable asset data with provenance will bring lower cost of capital vs dumb buildings with significant data latency... then watch secondary trading take off and finally new & novel forms of digital distribution ... It is coming ...