By Jonathan Channing
AS we see a world increasingly driven by impact investing and productivity up-tick through AI and other digital technologies, it’s important to reflect on the parts of the assembly line that make the product a success.
History tells us that financial institutions and their competitive edge often face challenges from disruption, in some cases through a chain of consumer-based power.
One of the most notable recent examples of disruption comes from the Gamestop saga. In 2021, YouTuber and independent financial analyst Roaring Kitty rallied a following of retail investors through social media.
This David versus Goliath narrative unfolded as they took on hedge funds like Melvin Capital, which attempted to short Gamestop stock to profit from its decline.
What these hedge funds failed to account for was the collective buying power of retail investors, largely mobilised through Reddit’s WallStreetBets.
The result? Billions in losses for Melvin Capital, as they were forced to cover their positions.
This event is a prime example of how disruption, powered by new forums and consumer influence, can upend the status quo and challenge even the mightiest financial institutions.
Another striking example of disruption is Robinhood, a platform that gave everyday consumers access to the stock market through fractional shares.
By removing the traditional gatekeepers, Robinhood enabled retail investors to purchase shares in major companies, breaking down barriers that had previously kept them out of the investment market.
Ironically, however, Robinhood eventually succumbed to its own hubris, halting purchases of Gamestop stock on its platform – illustrating how disruptors can themselves fall victim to institutional pressure when they stray from their original mission.
The power of belief in financial systems
These examples illustrate a fundamental truth: value in financial systems is created through belief. Whether it’s belief in intrinsic value or in the stability of our monetary systems, people’s faith is what drives these markets. Without belief, even the most established financial systems would falter.
What is tokenisation?
Tokenisation isn’t just about owning an asset; it’s about being able to divide up an asset and enabling more consumer-based investments. It’s not just about ownership; it’s about making assets more accessible through fractionalisation. Tokenisation allows for the division of a wide variety of assets – art, property, or even commodities – into digital tokens. Investors can then purchase tokens representing fractional ownership of these assets. While similar to fractional shares in principle, tokenisation broadens the scope, allowing consumers to invest in a wider range of asset classes, not just stocks.
What are NFTs?
NFTs (non-fungible tokens) are often confused with tokenisation, but there is a key difference. NFTs typically represent ownership of digital assets, such as digital art, rather than physical assets. Think of NFTs as the digital equivalent of a limited-edition coin minting; you own something with a limited supply and a certificate of authenticity. Unlike tokenisation, which enables fractional ownership of a tangible asset, NFTs grant ownership of a unique digital item, with proof of this ownership stored securely on the blockchain.
Tokenisation in financial services
Tokenisation also has transformative potential in financial services, especially in compliance. By using tokenised identity information stored on blockchain technology, processes like KYC (Know Your Customer) and AML (Anti-Money Laundering) can be streamlined. This approach accelerates verification, reduces costs, and saves time – much like building a process on established rails, where critical compliance checks are already in place and securely recorded.
The hallmarks of disruption are clear, and the benefits are numerous. Those who shy away from it almost always pay the price. Whether it’s Blockbuster’s desire to hold onto its negative income streams and seek a more innovative future too late, paving the way for Netflix’s dominance, or Apple’s disruption of home computing with their famous slogan “Think different”, MP3 players, and mobile technology, removing the superfluous and returning to basics illustrates the risks of following the crowd.
Just as financial institutions inadvertently become custodians of people’s lives and economies, they must act responsibly. This means adopting both a shareholder and stakeholder mindset. It is imperative that institutions strive to be a net economic good, serving the broader public interest and propagating fiscal policies that ensure widespread prosperity.
Tokenisation is here to stay and will provide greater efficiencies than current systems, which are less streamlined and more labour-intensive. In an island that requires a digital future to survive the coming storm and redefine its value proposition to the wider world, Jersey must choose whether it seeks to be an innovator or a consolidator. Knowing the entire “assembly line” of the ecosystem is key to an innovative and holistic approach – yet many simply will not seek to live in this reality of responsibility.
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Jonathan Channing works with businesses to better understand neurodiversity and bridge the communication gap that is often present in organisations. In addition to this Jonathan has a keen interest in stoicism, broader philosophy and Jungian psychology. Jonathan also stood for election as Deputy of St Saviour in 2022.
