Decentralized Technology Will Boost Web Inclusive Economy

The world of finance and investment has always been seen as the domain of elites – a place where the rich have different rules than everyone else. But a new wave of decentralized technologies is changing that, creating a more inclusive economy where everyone can participate.

For example, the best-performing funds require a minimum investment of typically hundreds of thousands – or even millions – of dollars. This has made it difficult for ordinary investors to get their share of the action.

To understand one of Web3’s greatest promises, we must first understand how the Internet’s economy has changed and how democratic investing has become one of the frameworks that have made DeFi a viable investment opportunity for the common people.

Pre-Web3: The Economics of Mr. Market

mr. Market – the allegorical figure that represents the collective mood swings of the stock market – has been around for centuries. This is an idea popularized by Warren Buffett’s legendary investor and mentor, Benjamin Graham.

In his original form, Mr. Market a man who would show up at your door every day and offer to buy or sell your stock for a price that matched his current mood. If he was optimistic, he could offer you $100 for a stock you bought for $80 the day before. If he was pessimistic, he could offer you $80 for that same stock.

The main point is that his bid price had nothing to do with the underlying value of the company – it was based entirely on his own emotions. Graham used this idea to illustrate that the stock market is driven by irrational exuberance and fear rather than fundamentals.

This may sound like a simple idea, but it has been lost on many investors over the years. In times of market turmoil, it’s easy to get caught up in the emotion of the moment and make decisions that aren’t based on rational thinking.

The financial crisis of 2007 and 2008 is a perfect example of this. Many investors sold their shares at the lower end of the market for fear, only to see them recover shortly afterwards. If they had lasted a little longer, they would have made a lot of money.

Of course, it’s not always easy to keep calm when the market is in free fall. That’s why it’s important to have a framework for making investment decisions that takes emotions out of the equation.

The Elite Hierarchies of Today’s Capital Markets

The early days of Mr. Market may have propagated a relatively simple idea: give capital to a company and that company will share its wealth with you. Those days, grim as it may seem, have taken a turn for the worse.

Today’s capital markets no longer work as intended. They have been acquired by a new breed of investor, one Graham could never have imagined in his wildest dreams. These are the hedge funds, private equity firms and venture capitalists that have changed the way companies are financed. And they come up with a whole new set of rules.

The first rule is that: you must have a lot of money to get into the game. Best performing funds require minimal investments with lots of zeros – which regular investors just don’t have.

The second rule is that you must be willing to take more risk. These companies are not interested in financing companies that continue to struggle and earn modest returns. They want companies that have the potential to make them rich – even if that means there’s a good chance they’ll lose everything.

The third and most destructive rule — you need to be able to: access to the right information and fast access. This means you have a network of sources that can provide you with the latest market information. It also means you can quickly analyze that information and make decisions accordingly.

This last rule has had the most damaging effect on the capital markets. It has led to a situation where a select few individuals have an unfair advantage over everyone else. They are the ones who always seem to know what’s going to happen, while the rest of us remain in the dark.

This is not how the capital markets should work. They should be a level playing field where everyone has a fair chance of success. But that is not the reality we live in today.

How Web3 Enabled Democratized Investing

Now that you understand how the current system works, it’s time to learn more about the solution: Web3.

In our previous articles, we’ve discussed how Web3 works and what it means for the future of the Internet. In short, Web3 is a new way of surfing the internet based on decentralization, transparency and security.

These three principles are also at the heart of what makes Web3 the perfect solution for the broken capital markets. Let’s take a look at how each can be used to enable a more democratic form of investing.

Prevent External Deal Making

The first problem with the current system is that it gives an unfair advantage to those who have access to the right information. With Web3 and Web3 economy, this will no longer be a problem. The reason is that all data necessary for making investment decisions is stored on a public blockchain. This means that everyone has equal access to the same information.

There will be no more need for exclusive insider networks. Where today’s big players can use their network to gain an edge, everyone will now be able to compete on a level playing field.

Making investing together possible

The second problem with the current system is that it targets those who want to take excessive risks. This often leads to poor investment decisions that can destroy businesses and ruin lives.

With Web3 comes a new type of investment vehicle known as a Decentralized Autonomous Organization (DAO). This is a decentralized, transparent and secure way of investing based on the collective intelligence of its members.

DAOs allow investors to pool their resources and make decisions together. This minimizes the risk of a single individual making a bad investment that could ruin the entire group.

Creating incentives for long-term investments

The third problem with the current system is that short-term thinking rewards. Companies are pressured to generate returns quickly, even if that means sacrificing long-term growth. With the economy of Web3, this will no longer be the case. The reason is that tokens will be used to align investor interests with the long-term success of the company.

Investors can keep their tokens and receive a share of the profits generated by the company as evidenced by the development of the token value. This will be a strong incentive for them to only invest in companies with a solid long-term strategy.

Innovative income generation for those without liquidity

Different DeFi protocols allow the lending and borrowing of digital assets in a completely decentralized manner. This opens up new opportunities for those who do not have the liquidity to participate in traditional investing.

These protocols allow individuals to use their digital assets as collateral to take out loans. They can then use these loans to invest in a variety of assets, including stocks, bonds, and real estate.

Games to earnfor example, have enabled investors to lend their NFTs to players in exchange for a share of their future profits. This provides individuals with the liquidity they need to participate in the markets without having to sell their assets.

The Bottom Line on Web3’s Inclusive Economy

Web3 has the potential to democratize investing and level the playing field for all participants. By enabling collaborative investing, creating incentives for long-term thinking, and providing innovative monetization opportunities, Web3 can create a more inclusive form of capitalism that works for everyone.

Now that we’ve touched on Web3’s economics briefly, in the next installment of the series, we’ll take a deep dive into exactly how Web3’s economics works, including the role of tokens, DAOs, and DeFi protocols. Stay tuned!

Daniel Saito is CEO and co-founder of StrongNode.