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notes/fintech-incrementalism-and-responsible-innovation.md
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title: Fintech Incrementalism and Responsible Innovation
created: 2022-04-04
date: 2022-04-04
description: "In episode #5 of our ongoing deep dive into web3 and crypto, Rufus Pollock and Stephen Diehl explore the claim that blockchain can be a vehicle for increase in financialization through the development of more complex, blockchain based financial products."
description: "In episode #5 of our ongoing deep dive into web3 and crypto, Rufus Pollock and Stephen Diehl explore the claim that blockchain can be a vehicle for increase in financialization through the development of more complex, blockchain-based financial products."
youtube: https://www.youtube.com/watch?v=7rLQoTtwRSU&t=4s
podcast: https://anchor.fm/life-itself/episodes/Fintech-Incrementalism-and-Responsible-Innovation-e1gn02u
featured: false
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In this episode, Rufus and Stephen explore an argument for blockchain and crypto that they term “fintech incrementalism”.
This position assumes the capitalist notion that greater [financialization](../claims/is-hyperfinancialization.md) is an engine for progress, and claims that blockchain can be a vehicle for this increase in financialization through the development of more complex, [blockchain](../concepts/blockchain.md) based [financial products](../concepts/financial-asset.md) – and the added market efficiency which will result. This ranges from better payment rails i.e. a better visa, stripe etc, to more efficient clearings systems, to full-scale innovation in financial engineering.
This position assumes the capitalist notion that greater [financialization](../claims/is-hyperfinancialization.md) is an engine for progress, and claims that blockchain can be a vehicle for this increase in financialization through the development of more complex, [blockchain](../concepts/blockchain.md)-based [financial products](../concepts/financial-asset.md) – and the added market efficiency which will result. This ranges from better payment rails i.e. a better Visa, Stripe etc, to more efficient clearing systems, to full-scale innovation in financial engineering.
The political imaginaries of this position are more efficient markets and more bespoke and customized financial products to buy. [Capitalism](../concepts/capitalism.md) is net positive in the world, and a fairer, more efficient and transparent economy benefits everyone.
The political imaginaries of this position are: more efficient markets and more bespoke and customized financial products to buy. [Capitalism](../concepts/capitalism.md) is net positive in the world, and a fairer, more efficient and transparent economy benefits everyone.
Rufus and Stephen 'steel man' the “fintech incrementalism” position, identifying 7 key claims, before then conducting an analysis of the position.
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* Fintech innovation and quantitative finance has a good track record of progress in the last few decades.
* New York Fed’s open source models of the US economy
* GitHub - [FRBNY-DSGE/DSGE.jl: Solve and estimate Dynamic Stochastic General Equilibrium models (including the New York Fed DSGE)](https://github.com/FRBNY-DSGE/DSGE.jl)
* Low cost index funds
* Low-cost index funds
* [Mechanism design](https://www.investopedia.com/terms/m/mechanism-design-theory.asp#:~:text=Mechanism%20design%20is%20a%20branch,self%2Dinterest%20and%20incomplete%20information.), [auction theory](https://en.wikipedia.org/wiki/Auction_theory)
* [Myerson–Satterthwaite theorem](https://en.wikipedia.org/wiki/Myerson%E2%80%93Satterthwaite_theorem)
* [Black-Scholes-Merton model](https://www.investopedia.com/terms/b/blackscholes.asp)
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* **Claim 1:** Everything is moving towards real-time and international finance. Crypto is the evolution of this trend. We want to move the entire economy into a hyperfinanicalized 24/7 real-time always-trading market with even more complexity and lower friction than what we have presently.
* Building a [T+0 settlement](https://www.investopedia.com/ask/answers/what-do-t1-t2-and-t3-mean/) system for equities is a great idea. Real-time settlements would be a boon for the liquidity of US capital markets.
* Real time payments are a resounding success in Europe and Asia.
* Real-time payments are a resounding success in Europe and Asia.
* We’ve solved volatility problems of asset classes in the past. We’ll do it again. It just requires more math and more sophisticated models.
* **Claim 2:** Banks are outdated and slow to innovate: core banking software is mostly from the 1980s; state of bitrot in financial infrastructure is vast; American infrastructure is massively outdated. Crypto is the means to fix all this.
* **Claim 2:** Banks are outdated and slow to innovate: core banking software is mostly from the 1980s; state of bit rot in financial infrastructure is vast; American infrastructure is massively outdated. Crypto is the means to fix all this.
* **Subclaim 2a)** Private money and [Central Bank Digital Currencies](../concepts/cbdc.md) will compete for market share and will coexist. This will be the future of finance.
* The Federal Reserve, and the European Central Bank will keep all of their balance sheets and swap lines on a global distributed ledger providing greater market transparency and efficiency of sovereign flows.
* Retail accounts will all be held directly at the [central bank](../concepts/central-banks.md)
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* If we can create completely synthetic hedges for a wide range of real-world phenomenal factors then it doesn’t really matter how we do it.
* **Claim 6:** There are a few **[asset classes](asset) that are almost exclusively narrative-driven** rather than mathematics or cashflow-driven.
* “If gold appears to be a hedge for anything, it’s the fear of inflation, or the fear of financial instability as proxied by changes in government deficits.”
* **The demand curve for [gold](../concepts/gold.md) is, at least partially,generated by emotion and politics.** This is squishy but quantifiable.
* **The demand curve for [gold](../concepts/gold.md) is, at least partially, generated by emotion and politics.** This is squishy but quantifiable.
* With crypto tokens we can create new synthetic assets whose demand curves are artificially generated by different [psychological forces](../concepts/narrative-economics.md)
* Gold is a proxy asset for investing in the “[libertarian](../concepts/libertarianism.md) project”. With crypto can we create a proxy asset for investing in the “[anarchist](../concepts/anarchocapitalism.md) project” or the “[Marxism](../concepts/marxism.md) project”?
* **Claim 7:** “The next step in the evolutionary tree of homo economicus, in which all aspects of our humanity sublimates into the free market.”