The world of investment is changing, and the balance is tipping in favour of smaller investors. Look around, and you will see that the entire cosmos of the finance capital remains an elite sport. This is because the current model is based on big investors getting big wins.
On the other hand, the era of disruptive technologies is coming fast. The main drivers are blockchain (DLT), artificial intelligence, machine learning, robotics, genome sequencing (CRISPR), and energy storage tech, all of which have the biggest impact on the global economy. Speaking of impact, CNBC has published their selection of the top 50 private disruptive innovation companies. They use the proprietary Disruptor 50 methodology at an implied valuation of more than $388 billion.
In fact, in 2020, 13 out of 50 made it to public companies via IPO. Others demonstrated year-on-year exponential growth of around 300%, according to the Disruptor 50 index. This is the tip of the iceberg. It’s just a small portion of private market capitalization. Now, think about the public companies, other startups, SMEs, and private innovation labs not covered here. These all have huge potential that is waiting for investors to unlock.
Gatekeeping investment
Here comes the problem. According to rules by the Securities and Exchange Commission (SEC), only so-called accredited investors - basically individuals having a net worth exceeding $1 million - are allowed to enter disruptive world investment in the US. Evidently, there is a huge reformation potential hidden here. On the other hand, the risk suitability of disruptive tech doesn’t work properly for institutional investors. This is because due to traditional and backwards-thinking patterns driving them. However, innovation happens in the future.
In their realm, disruptive tech numbers are mapped to some benchmarks and metrics created on past outcomes, which result in “no-go” decisions. Put simply, the muscle memory from the internet bubble and other crises doesn’t allow eyes to be open to the potential exponential growth buried in disruptive tech. Moreover, the horizon of an institutional investor’s analysis is usually only one year. In comparison, exponential growth manifests over a more extended period (around 5 years). As you can see, many fundamental disconnects are blocking the way forward for institutional investors.
How can we bring power to retail investors?
Decentralized finance (DeFi) means that finance capital no longer requires powerful intermediaries or intermediaries of any kind. Middlemen are currently very necessary for parties to establish trust in transactions, trade contracts, or investments. Paying for the services of these middlemen can be written off as the cost of doing business for large companies and wealthy individuals. However, these expenses remain prohibitive barriers for many retail investors.
With DeFi, anybody with an internet connection can do deals globally at whatever level they can afford. In addition, tokens run these deals. Only your personal risk preferences define the DeFi protocol match. Along with the time you like to freeze your funds while getting a high yield. It’s worth noting that here your funds do not leave your digital wallet. Therefore, you still have fully controlled ownership in your pocket.
The benefits of DeFi
The advantages of decentralizing investment are too many to ignore. They include lower friction for transactions due to automation, much quicker (real-time) results and analysis of market conditions, greater security through transparency, and a higher level of customization for financial products and services, to name just a few. Think of the emerging gig economy, where nobody really seems to have a steady job anymore, where each of us is some kind of professional mercenary, moving from gig to gig.
Instead of paying brokers to facilitate your investments, you can now just invest directly in the enterprises that interest you. These include formerly out-of-reach sectors like art, music, technologies, or a basket of technologies changing the world. Finally, and most importantly, you can finally invest in human capital or simply in people.
Embracing openness
From a technology perspective, we face a radical amount of openness: open source, open data, and open markets. There is no way to hide inefficiencies that are currently not visible due to politics, regulations, and institutional bureaucracy in such an environment. Furthermore, the open-source nature of the investment research data coming from the community empowers retail investors even further.
An inclusive model both from Web 3.0 and DeFi incentivizes retail investors, not institutional ones. For the first time in history, retail investors can be better informed than institutional ones, so the gravity of power is shifting very fast. This is not a zero-sum game. It’s a positive-sum game where the DeFi, powered by Web 3.0, is an exit from Wall Street and the start of a renaissance for retail investors.
