How Tokenized Securities complement lacking Trust

Trust, a buzzword continuously recurring in blockchain circles. A word that permeates everything from peer-to-peer interactions to the global financial and political systems. A meaning that is of significant value for the world to function, with real-world consequences emerging whenever trust is low or broken.
Blockchain advocates, however, like to argue that it is one of the technology's core features. How the necessity of trust is minimized through shared consensus, smart contract executions, and verifiable proofs.
But how important is this, what is the current state of trust in the world, and who may benefit the most from a trustless system? And how could the trustlessness in crypto help raise people out of poverty by opening up financial doors most inherent to developed and highly trusted societies?

Current Levels of Trust & Financial Exclusion

The world has become a less trusting place. A report by Deloitte shows that the share of the global population that believes “most people can be trusted” fell by roughly 20% over the last 15 years. Although it is important to note the variance of trust across the globe. One study suggests that in many countries, education and income are linked to greater trust in other people.
Seeing as trust is and historically has been the foundation of businesses, decreasing levels of trust may have serious consequences over time. A business, much like governments, thrives on the cumulative trust each of its stakeholders places in it. The absence of trust naturally brings about more friction and everything simply becomes much less convenient.

But first, let us define “trust”.

In Macroeconomics, we build and maintain trust by acting with competence and intent.
Competence is foundational as it refers to the ability to execute, follow through, and live up to promises. Intent refers to the motive behind actions, such as fairness, transparency, and impact. Both are needed to build or rebuild trust.
Just imagine an environment based on trust, but lacking thereof. Where the intent of your counterparty is questionable, and even worse their ability to follow through on agreements and perform.

Personal trust aside, just as important is trust in financial institutions. According to the Federal Deposit Insurance Corporation (FDIC), an estimated 5.4% of U.S. households (approximately 7.1 million) were “unbanked” in 2019, meaning that nobody from the household had a checking or savings account at a credit union or bank.
A similar study by the Federal Reserve for that year suggested an additional 16% as being underbanked, amounting to a grand total of 22% being either or.
Expanded on by the FDIC, 29% were citing a reason for not having enough money to meet minimum balance requirements, and 16.1% simply not trusting banks.

The former reason relates to the competencies of banks to accommodate lower-income demographics, and the latter refers to a lacking belief in the intent of banking institutions.
Important to keep in mind is that this is the US, one of the most advanced societies on the planet.
By looking into Latin America, the Inter-American Development Bank (IDB) reports that the lack of trust between community peers fluctuates as high as 40 – 63%. Similarly, high levels are suggested in various parts of the African continent and across the world.

Regardless of whether lacking trust translates over to governmental and financial institutions, or stems from it. A low degree of inter-personal trust is generally correlated with that of institutional and governmental failures. Both of which are a necessity for prosperity, both on an individual and societal level.
But maybe the last 10 years brought forward an idea that could decrease the dependency on trust and simultaneously bring about investment inclusivity and financial capital into areas with a lacking thereof.

Crypto Reduce the Dependency on Trust

Despite one’s trust in financial institutions, Blockchain technology provides a way to break nationwide barriers. To open up streamlined and alternative ways of raising funds for emerging start-ups worldwide. For smaller companies to go global in bringing in capital in a way that not only opens up new business structures but more importantly can attract investments outside of national institutions. Investments much like traditional fundraising directed toward the general public.
Key difference aside from the composable benefits of blockchain technology is… trust.

In traditional ways of selling securities to the public, you rely on 3rd parties that not only handle the transaction but also account for your balance of assets. Similar to the case of deposits, this is often managed by banks.
Regardless of one’s trust, which varies heavily across the world, many argue a certain degree of value in monetary self-sovereignty. Something that did not even cross most minds, was the idea of digital cash and how that would be different from a traditional bank deposit. How the subprime mortgage crisis and subsequent chocks all across the world, not least of which Greece and Cyprus, could directly affect the general public and its bank deposits.

Much like the idea and seemingly emerging practical benefits of digital cash, such benefits are also applicable to digital investable assets. That you yourself are responsible for managing your investments and thus gain the freedom to do whatever you see fit. Regardless of whether the reason is a lack of trust or the activities enabled by blockchain technology, such as securities-collateralized loans or seamless movement of assets across platforms.

Being in control of your own assets is not only indicative of low levels of trust but can help tremendously in societies with that problem. That anyone that can verify themselves can hold digital assets and Security Tokens and manage them completely without reliance on 3rd parties. Regardless of one’s belief of whether this 3rd party lacks competence or exhibits bad intent.

Conclusion

Security Tokens open up many doors for the financial system to co-evolve and find new values predicated on notions of individual freedom of choice. That a system much like cash and bank deposits can co-exist, both providing their own distinct advantages and use cases. That whilst having your assets and bank deposits in institutions provides many benefits of deposit insurance and convenience, self-custody brings you autonomy and flexibility. Not least of which for individuals without access to financial institutions, whatever reason it may be.

Published On: August 26, 2022Categories: Legal0 Comments

Subscribe to our Newsletter!

Share This Story!

Brickken Ambassador Program

The Brickken Ambassador Program “With Web 2, we were building communities on platforms. With Web 3, the [...]

Leave A Comment