INTRODDUCTION TO THE PROGRAM
- This program is meant for all those who are open-to/curious-about the possibility that the ongoing Crypto-revolution will lead to a significant, long-term, socio-technological transformation of human society; and who are interested in creatively participating in the financial realm specifically.
- The underlying belief is: that the Distributed Ledger Technology and its Decentralised Collaborative Organisation successor – are major governance innovations – and represent a new Institutional mode for bridging the deep chasm that is ‘LongTerm Trust’. Perhaps the most central implication of this belief for Financial Economics is that: the concept of Money is-being re-defined – Again! Exploring this fundamental change’s potential for creating value by solving some long-standing financial sector problems, is the leitmotif of this program.
Note:
- There are two complementary views of the Distributed Ledger Technology [Blockchain]:
- DLTs are the next step in the post WWII cyber-technological evolution. This is obviously a valid view, since the Blockchain has already lead to productivity improvements and novel products such as crypto-currencies and especially and new business models such as ICOs.
- The complementary view is that DLTs are a once in human history kind of innovation, that will transform human society through a new type of economic and governance institution. In this view – Markets, Governments, community governance of Common Property Resources, Limited liability joint-stock owned Firms are alternative forms of governance that have evolved over the centuries; and are now being joined by cloud-based, big data analytics enabled & AI/ML-enhanced DCOs. This view implies a multi-stage evolutionary process for the ongoing crypto-revolution, ending in a long-term transformative impact on society.
- It is this latter view – and exploring the alternative modes of techno-cultural- institutional co-evolution – that is the motivation behind this program.
Applied Focus
We focus on two different, and important, aspects to the financial services industry to elucidate the scope and variety of the kinds of fundamental problems that can be potentially solved by this evolving crypto-based governance innovation:
1. Smart Financing for Cities
- Note: We’ll discuss the notion that Covid-19 implies “the end of cities”; and dismiss it. [Hint: 7+ billion humans; Australian, Siberian & U.S wild fires & climate change (denial)].
- All the world’s cities, including ones from high income countries, need continual investments in their infrastructure. These investments are invariably long term in nature and are increasingly structured as a public-private partnership, and with the associated cost/benefit mismatch, necessitate a complex governance structure.
- However there’s a significant supply shortfall ($3-4 tn/yr?) in the market for these long-term financial products. The reasons for this enormous gulf can be categorised in a two-fold fashion:
- MASSIVE MARKET FAILURES – Natural Monopolies & cartelised oligopolies, Pure public goods, Externalities, Common Resources, Moral Hazard, Asymmetric Information, Coordination/‘Keynesian Macro’ Failures, Bounded Rationality, Character immaturity.
- MASSIVE GOVERNMENTAL FAILURES – Problems in determining ‘When to Intervene’ – Insufficient information. Problems in determining ‘How to Intervene’ – The ‘Replace’ versus ‘Regulate’ the market issue; as well as how to regulate. Governments also suffer from a severe principal-agent problem because of some ‘character-challenged’ politicians and bureaucrats. Governmental intervention can also cause major losses due to rent-seeking behaviour by some ‘character-challenged’ executives/ entrepreneurs/businessmen.
2. Debt Financing for small and medium businesses
- Finance for SMEs is a notorious problem globally. There are NO bond markets for SMEs.
- While corporates have highly liquid long-term bond markets, only banks will give only 4-5 year high-interest loans; and that too mainly to urban medium sized businesses
- There are a variety of governance failures – private sector ‘market failures’ and pubic sector ‘governmental failures’ – that drive this problem of debt market financing.
- The crypto-revolution presents huge business opportunities for FinTechs, MFIs, Non-Banking Financial Corporates, VCs & private/public-sector banks in the SME space.
Our approach
- The long-term vision underlying this program is for crypto-based, globally integrated, liquid and shock-wise robust financial markets in infrastructure funds for the world’s cities – akin to the ‘muni’ markets in the U.S – as well as debt markets for the planet’s small and medium enterprises – akin to the debt markets for large corporates and global markets in household mortgages.
- We take a ‘New Institutional Crypto-Economics’ approach – which emphasises the need for techno-cultural-institutional co-evolution – to meeting the above challenges. This ‘NICE’ perspective is complemented by an emphasis on the ‘Applied Perennial Philosophy’ – focused on the cultural front – for [1] promoting the global ethical values that would be needed to create and sustain these markets as well as [2] to tackle the related challenges of ‘technology governance failures’.