Welcome to Finance in 2040

How to outperform the future? Take a moment, sit back and picture the “Web3” age and the dawn of a new global financial era. In this article, I will outline my vision of the future of finance and blockchain technology in approximately 15–20 years’ time. My ideas will not happen overnight; this will be an evolutionary process, but a remarkable one. It is neither black or white and there will be many nuances and angles.

These are my key points to get ahead of this inevitable and exciting reality:

Hyper tokenization of everything and the rise of security tokens

All assets — stocks, bonds, real estate, etc. — will be tokenized. Anything with a cash flow will be tokenized. Companies, governments and non-profit organizations will all have tokens as a tool for attracting support & distributing values.

But why will things that work perfectly without a token be tokenized? The answer is simple: in the future, liquidity will be found in public blockchains. Just as in the Web2 age when everyone had to go to social media, even people that hated it, in order to access the information and to get known, in the Web3 age if any individual or organization wants to acquire capital and investment it will have to be through the blockchain. When the internet got adopted everyone needed to have a social account in order to be somebody. The same will happen for blockchains and other public ledgers where monetary liquidities will be.

This hyper tokenization will go through stages. One of the first things that has been brought into the blockchain has been the world of gaming. Video games existed long before any kind of blockchain was created. There is nothing new to be able to buy in-game products in what today is an NFT for blockchain-based games. The big difference between a game being on the blockchain or not is that each in-game product you acquire represents digital property — able to sell it on a secondary market — and the game has access to the liquidity of the blockchain, thus creating what is known today as GameFi or Play to Earn. All of this thanks to tokenization. Therewith I mean that it is proven that the world can be tokenized little by little through various stages.

In my opinion, institutional assets are the ones that will bring the most capitalization to the blockchain, but also they will be the last ones to be tokenized, especially in the real estate sector, which is a heavily regulated space. Nowadays it is very easy to create a non-fungible token (NFT) of a house and everybody can do it, but what does it really mean? As of today, this token has no legal protection within the country’s legal system where the house is based. This means that no matter how much you hold the NFT, outside the blockchain there will still be legal papers which designate the ownership of the house. This can be a bit confusing, but what is for sure is that this NFT does not give you the right of ownership of an asset outside the blockchain considering the legal aspects. This will change? Absolutely, but all of these issues will take their time to get resolved, therefore I say that real estate among other institutional assets are going to be one of the last sectors to be tokenized as legislation is a very slow moving variable. What is certainly clear are the benefits of this tokenization: Lower barrier entries to access these cash flows by the retail investors and the introduction of more liquidity for these assets.

Bitcoin as a failure for value measurement and exchange currency

There will be a domination of “Super Currencies” that will take the role to measure values and serve as the common side of liquidity pairs to enable conversion among different assets. In my opinion, the USD and its different stablecoin forms (USDT, USDC and various algorithmic USD stablecoins) will become these super currencies.

The first reason is because of the high volatility inside the crypto space, a stable coin is needed in order to measure value for exchanging tokens. USD is the strongest FIAT currency of the world and it is serving the purpose right now. The second reason is that nowadays there are more than 10,000 tokens inside the various blockchains and I expect this number to increase significantly as the years go by. For these tokens to be liquid you must at least create a pair for it. Of course, one can already see that creating more than 10,000 pairs with Bitcoin is impossible, simply because Bitcoin’s supply is limited to 21M BTC. So the solution is to create these pairs with a super currency that has an unlimited supply, the USD stablecoin. This super currency will be used as an intermediary asset to trade across different assets. In fact, it is already used as that.

We also have that Bitcoin has become a storage of value. The initial idea of creating Bitcoin as an exchange currency has completely failed, becoming more like digital gold and shelter from inflation. To be a medium of exchange you need the asset to have a stable price and not be as volatile as Bitcoin. Some people say that the price of Bitcoin is volatile because it is a young asset and will stabilize in the future, but I strongly disagree. At best Bitcoin will lower its volatility to the same level of volatility as a large stock, but that is still not enough for value measurement, as it still will not have a stable price. The fact that the Bitcoin will not have a stable price is because there will be no underlying economy behind it. The USD has a stable value because there is a steady demand for the currency coming from an economy with real activity. The annual amount of transactions in these economies is very predictable, increasing by 1–3% annually along with GDP. This is the fundamental demand that supports the value of the USD.

How about Lightning Network to use Bitcoin as transactions? I still think that the transaction function can be done much better by a stablecoin on any blockchain — especially the new blockchains that are emerging — faster and less expensive. Actually, what many Bitcoin payment applications do, they simply convert your token into Bitcoin, send it to the recipient and finally change that Bitcoin back to whatever token the recipient wants. This is nonsense as you incur the risk of volatility when exchanging, especially if you make large transactions, and the cost of this slippage ends up being paid by the user. Obviously the cost is lower than a traditional money remittance house such as the typical Western Union, but if you compare it to a stablecoin transaction, there is no way Bitcoin can compete against a zero cost transaction.

State blockchains and its fiscal policies

The future of countries’ currencies lies in bringing out their CBDCs (Central Bank Digital Currencies) within their own blockchains that will act just as another community token. These are not going to be found on public blockchains like the Ethereum of the time for example. Why? For the simple reason that governments will want to control every single detail of their currency and its ecosystem. These CBDCs will be used to pay public sector employees and to obtain taxes. The popularity of these national tokens will depend on how well the country’s economy is. To give you an idea, compare it to a public blockchain when it raises the total value locked (TVL) the native currency of the blockchain appreciates in price. With CBDCs it will be the same, when the TVL increases — which would be the capital inflow of the country — the national currency will appreciate and vice versa.

I also believe that governments are going to get it wrong in the way they approach these CBDCs. I mean, governments will not be able to compete against stablecoins as their CBDCs will not be used as an intermediary asset for acquiring other digital assets. At least, they should make them interoperable with other blockchains in order to have demand and exchange them with other tokens. The competitors to national currencies in the Web3 age are going to be stablecoins rather than Bitcoin, and this is what governments are unable to see.

For monetary and fiscal policies, it will be practically impossible to collect taxes through public blockchains. I visualize this tax collection will be through CBDCs and government private blockchains where the wallets will certainly be identified with an identity number and a face behind, being impossible to alter tax collection and the use of black money. Today many countries are not prepared for this scenario.

Public blockchains and their various wallets will remain anonymous and transparent, respecting the essence of their creation, and even if someone wants to put a face behind a crypto wallet, the reality is that crypto wallets are nationless. If someone has an Ethereum wallet, it makes no sense to say that the Ethereum wallet is in the United States or the Ethereum wallet is in the European Union, as the ETHs of that person are not under the laws of any government. The blockchain technology has created this new world where there are no national borders financially speaking.

Multinational DApps become powerful players in global economy

Large public blockchains and distributed ledger ecosystems will become important players in the global economy like the large nation states today. Having said that, one would now have to look at the major companies in these new blockchain states and here is where the big DApps come in. Large cross-chain DApps will be the new multinational companies that will benefit from the power of blockchain nations. Where they decide to invest will determine the economic fortunes of many digital ecosystems, similar to the role of the foreign direct investment (FDI) today by multinationals in physical economies.

I would also like to comment that no matter how many thousands of tokens there are, in my opinion, there will be a few projects that will take over the market and many that will not. We can take for example the era before the internet. When the internet was just starting to be implemented, most people thought that products that previously had little visibility in the pre-internet era would gain visibility thanks to the internet. This was false. Today 80% of the population only buys 20% of the products available on the internet. To prove it, just open Amazon or Netflix and see what people consume. In the Web3 age, this is going to be even more drastic in my opinion, 90% of the population will use 10% of the available DApps.

Another thing that will change is the organizations of companies, especially with the introduction of these big multinational blockchain applications. In this respect, I don’t think that the future of company structure will be centralized or decentralized, it will be a hybrid organization. As far as a 100% centralized model is concerned, it has already been observed that this type of organization cannot offer the greatest of benefits to the community. Look, for example, at the typical traditional bank and see how slow the processes run and how poor the customer service is. In terms of a 100% decentralized model, a company governed by a community is like saying it is not governed. To be honest, there is a lot of nonsense with this ideology of decentralized maximalism and if we are going to be fair, who cares and uses the governance of a token? For a project to succeed, it has to be led by leaders who together with the working team of that company and in conjunction with the proposals of the community will create a hybrid model that will represent the future of these new multinationals.

Rebuilding of the middle class

To end, we are moving towards an era where what is known as a job in the 20th century will cease to exist. Increasingly, working hours will decrease in many industrial sectors and the number of employees will be reduced thanks to robotisation. There will be no work for all. This makes me think that people in general will have more free time to devote to themselves, so I do see a large part of the middle class becoming — almost necessary — investors. For people who do not wish to become an investor and are unable to find a job or set up a business, they will have to settle for a monthly allowance that governments will be forced to distribute due to this lack of work. I understand that this pay will be obtained from the taxes paid by the robots, among others. Most governments today are not up to the challenge and many will go under. Won’t be surprised if we see faster turnover of governments and entire reconfiguration of some nations in the coming decades.

The Web3 age will also participate in building a new middle class. At the end of the 20th century, globalization created a totally different equilibrium compared to the industrial era. Every company was forced to scout the globe to find the cheapest labor or lose out to the competition. Consumers of values are no longer makers of values, the opposite of the industrial era. As a result, the middle class in the developed world has been — and still is — on the decline. Web3 will help create a new middle class of the digital age in a more decentralized fashion compared to a century ago. This time not between rich and poor like during the 20th century’s globalization, but between those who thrive in this borderless world — digital-native — and those who don’t — digital-illiterate — .

Because everything of value will become tokenized and labor hours will continually go down, it’ll make sense that all of us spend more time taking care of our capital income just like we spend time at work to earn our labor income. Screening and evaluating one’s portfolios will become an essential day-to-day task just like washing dishes. I don’t see delegating investment decisions to asset management companies in the same way that I don’t see most people delegate their wage-earning jobs to someone else. If it’s an important source of income, it becomes an essential activity. “How to Invest” will become a basic life skill that needs to be acquired and perfected in most people’s lives.

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