Amy Webb and Kristofer ‘Kriffy’ Perez: Embracing banking’s brave new world

Recently, a group of online acquaintances decided to pool their money together and bid on a collectable. The item was making its first appearance at public auction in nearly three decades, and because it was extremely rare and historic, the auction house, Sotheby’s, created a one-lot event. Nothing else would complete for attention or investment on the night of the sale.

The group, who had never met in person, raised $1m to start, but quickly realised that the auction would net significantly higher bids. So, they sought additional investors using a decentralised autonomous organisation (DAO) — a group of investors leveraging open source code to perform automated, decentralised transactions and without the typical management structure of a private equity firm or hedge fund. This allowed others to invest in the auction bid using a crowdfunding platform called Juicebox.

Word spread about the opportunity, and eager investors converted bank funds into cryptocurrency in return for something akin to proportional voting shares, which the DAO created and named $PEOPLE tokens.

Word spread further, and within days the DAO raised more than $40m, putting them in pole position to win the auction. Their ultimate prize? An original copy of the US Constitution.

If the DAO won, those with the most $PEOPLE tokens would get to decide the fate of America’s founding document. They could vote to donate it to a museum. They could vote to fold it into a paper airplane and fly it straight into a bonfire.

But when the group ultimately lost the auction to a hedge fund CEO, chaos ensued. Even decentralised organisations still need administrators, and the DAO’s leaders simply did not have a plan to manage investments if they lost.

The rise and spectacular fall of a group of decentralised investors circumventing traditional financial systems might seem like a blip, but in our view it is a harbinger of sweeping changes. It is becoming clear that we have entered a new era of finance — one that will reorganise the landscape and result in radically different power brokers. What happens when everyone is an asset manager or loan officer? What happens when value creation comes from devices themselves, rather than the people operating them? What happens when groups of Twitter friends hatch organisations that effectively function like financial institutions (FIs), but are not constrained by the same regulations and rules?

Today’s FIs are narrowly focused on traditional transactions, such as deposits, loans, investments and currency exchanges. To meet the demands of tomorrow’s economic systems, FIs should pay attention to signals of change or risk being disintermediated.

There are three emerging trends that reveal the forces shaping the future of finance.

Stonks are the new stickers

Early 2021 saw a frenzy around so-called ‘meme stocks’, such as GameStop and AMC, that spike or drop in value due to social media. Critically, the stock’s movement is generally decoupled from the underlying business. While the term ‘meme stock’ might be new, irrational pricing goes back centuries. In 1630s Holland, a collector managed to hold a near monopoly on a variety of tulip bulb, known as Semper Augustus. Local fascination with the red and white striped tulip, and with the man who supposedly took all bulbs off the market, led to a massive spike in demand. By 1638, a single bulb was advertised for 13,000 florins, which could fetch a nice house.

What we have today is more akin to thousands of microbubbles, powered by algorithms, influencer activism and social media sites. Increased participation of retail investors in financial markets through gamified trading apps, fractional stock ownership and zero-commission trades have enabled more people to participate in the trading of ‘stonks’ — a deliberate misspelling of the word stocks, often used on social media.

The combination of new people who can massively aggregate outside traditional investment channels will reshape the investor landscape. This means that demand is being driven by two factors: the fear of missing out due to scarcity and a renewed sense of populism. Meme stock influencers mix accessible financial advice with brutal political commentary on TikTok, Instagram and YouTube — platforms serving content to an ever-widening base of young people. Since financial markets are now digital and within reach, influencers are making their allegiances clear: stonks are the new stickers.

NFTs are here to stay

Non-fungible tokens (NFTs) are not a fad, but rather the building blocks of the internet of the future. They are unique objects that hold value, with that uniqueness coming from the ability to own an original digital item. As a result, the first use cases to gain scale have been NFTs that represent a unique copy of an artwork or collectibles. But that is about to change.

These tokens will soon serve a functional approach to valuing culture and fashion in the physical and digital worlds. For example, some luxury brands struggle with counterfeits or reselling in unauthorised marketplaces. Brands might offer both a physical handbag and an NFT of it, which would demonstrate provenance and authenticity, and be easier to track as the bag gains value or is resold.

But as new digital environments take off, in the forms of new games or metaverse spaces, NFTs will add scarcity to a historically non-scarce resource. Previously, something in digital format could be duplicated for essentially no cost. By creating a mechanism for digital scarcity, NFTs enable digital assets to play by the traditional rules of supply and demand, thus extending existing financial structures to the digital world. 

Fractionalised ownership of people

Earlier this year, Paris Saint-Germain Football Club (PSG) introduced $PSG Fan Tokens, which function like a gamified fan club built on the Ethereum blockchain. Fan tokens are digital assets or ‘utility tokens’, designed to increase fan engagement by offering access to exclusive experiences and polls to influence minor club decisions, such as music selection and locker-room mural design. Fans purchase tokens through the platform’s app using its cryptocurrency — in this case, $CHZ.

In August 2021, a rally sparked by rumours of the impending signing of superstar footballer Lionel Messi to the team generated €30m in new $PSG fan token sales, with PSG reportedly raking in half of that. The allure of quick cash is drawing in sports teams across the globe. Fan tokens enable club owners to monetise fan engagement without diluting ownership.

Players like Messi also stand to profit if the club increases in value. This hints at a future possibility of direct valuations and funding of private entities. We are starting to see the infrastructure to enable coins for people, not just companies. A personal coin will enable investors to purchase fractions of a ‘person’, in exchange for a portion of future profit or decision-making. Someone might issue personal coins in advance of a new business venture, or even the start of an MBA programme, and promise to pay dividends as their personal wealth grows.

While marketplaces for tokens of individual people may seem far off, scoring individuals based on their potential and assigning a tradeable price to them is not a new concept. Klout.com was a company in operation from 2008 to 2018, and it rated people’s social media influence. Those with high scores were rewarded with perks from businesses. What is coming is new fractional ownership and investment models, which will allow people to assign value to each other.

Here is where this gets really interesting: in the future, activist investors betting on Messi or other athletes could try to earn quick cash by shorting their personal tokens and, by extension, their personal value.

These are just three examples of emerging technology that will influence the banking, and we know that you now have just one overarching question: when should we act? Our observation is that banks tend to wait for obvious inflection points to develop a point of view or their strategy. Decisions on technology are tied to balance sheets and no one wants to get the timing wrong.  

To be frank, we cannot tell you exactly when the next big inflection point will hit. There are too many variables influencing the futures of distributed networks, decentralised organising and finance, blockchain and cryptocurrencies. But from our vantage point, banks are already slipping behind this wave of innovation. Younger consumers are seeking greater transparency from institutions. They want to see their voices reflected in governing decisions. A generation of people have come of age learning how to leverage digital tools to organise massive, distributed groups of like-minded people. Incremental improvements to consumer banking apps misses the point. In a world of algorithmic decision-making, people seek agency — especially from the institutions that directly impact their everyday lives. Banks can play an active role in designing that future. Start by looking beyond the immediate sphere of finance to be prepared for what is coming next.

Amy Webb is the CEO of the Future Today Institute and Kristofer ‘Kriffy’ Perez is a senior foresight affiliate with the Future Today Institute.