February 21, 2016

Thesis: Trust and the Future


Collectively, we have lost trust in progress. 

When the world’s elite and political leaders gathered at the Davos Conference this year, the theme was ‘Wealth Inequalities and the Collapse of Trust.’  It has become apparent to everyone, even those in the ivory towers who govern our world, that the word ‘progress’ in our world no longer means much to the majority:

In the past, greater productivity led to the creation of new and better jobs; today, economists worry about the polarization of labour markets into a few winners and many losers. This is bad news for a planet with soon 9 billion people, limited resources and fragile ecosystems. World Economic Forum

If we don’t trust progress, or the leaders of the institutions that define what progress is, who and what can we trust?

The answer is each other. 

Since the early ‘80s, when inflation rates were at over 20% in the midst of a deep global recession, interest rates have come down from above 15% in the developed world to the zero/sub-zero range today. During that time period, we moved from a societal model based on community and trust to a model based on the individual and power. Consequently, we have placed our trust in the places that gave us more power – banks, governments and global institutions and used cheap credit to fulfill individual aspirations.

Global Interest Rates

Progress has become about buying more, and the liberalization of financial markets has enabled us to achieve that with increasingly less capital of our own. In a society where we were measured by the assets we accumulate and the goods we consumed, people simply wanted more. First, it was a house, then a car, then a vacation property, and the list goes on. The (Too Big To Fail) banks were more than happy to provide an endless array of credit products that effectively broke all these ‘assets’ down into one monthly payment for the ‘owner.’ Because banks were able to securitize the debt and move the riskiest assets somewhere off-balance-sheet, their singular focus became volume, leading to even more ‘innovation’ in credit products. Meanwhile, savers were gutted and investors were forced to pile into anything that generated a return, leading to a boom in speculative assets that made the mere idea of productive/collective activities seem uneconomical when all you needed to make money was access to a line of credit and the ability to purchase assets.

Generation by generation, this paradigm has slowly eroded the collective structures that ushered unprecedented levels of prosperity into our society in the post-war era. Power became more centralized than ever, the richest were able to accumulate a greater percentage of the assets than at any period in history, and the voices of dissent dissipated as the Silent Majority decided it was better to ride into the sunset in a new home and a nice car.

Then in 2008, when the global financial markets nearly hemorrhaged, the dream of forever prosperity and free money suddenly collapsed. And yet rather than realizing this and reversing course after the ‘08 Crisis, politicians, banks and global institutions doubled down and orchestrated the greatest financial experiment in history (quantitative easing), one that reinflated asset prices back to record highs while bringing interest rates to record lows.

But this time, it hasn’t worked. Just like the Wizard of Oz, all it took was a walk down the yellow-brick road (austerity) to see that the Wizard is just an ordinary old man pulling a bunch of (credit) levers. The (Wall Street) dream is over. As a result, the will for new ways of living, working and engaging has spawned new industries, paradigms and philosophies. On the back of the Digital Revolution, new innovations have started to spring up to put the power back in the hands of the people and rebuild community-based corporate models and governance structures.  We are at the forefront of a rupture and repair process that will bring in one of the greatest revolutions in human history.

Decentralization and Disintermediation

We need to start to rebuild trust between people. For this reason, the fundamental shift we are seeing is to decentralize (power), build disintermediated (not reliant on a third party or agent) commercial ecosystems and create networks (future markets) where trust becomes currency.

This revolution got started with the birth of Bitcoin, which was launched in the throngs of the credit crisis in 2008 under the pseudonym ‘Satoshi Nakomoto.’ Its inception has laid a path for a trustless (not reliant on a third party) and decentralized way of transacting between two parties. Fundamentally, it allows an individual in one part of the world to transfer value (bitcoin’s value relative to the value of the local currency) to someone in another part of the world without any central party approving or validating the transaction. The innovation behind bitcoin, the blockchain, ensures that all transactions are logged and stored, based on a consensus model, in order to provide an irrefutable record of who owns what and when each transaction happened. Therefore, there is no way for any one person or party to step in and edit the history of events or corrupt the system.


For the people of Cyprus, Bitcoin turned from something sci-fi into a legitimate lifesaver in the spring of 2013. During the Cyprus bank bail-in, Bitcoin spiked from $47 on March 16, 2013 to $88 on March 28, 2013, then skyrocketed to over $1,000 nine months later. That’s because as a result of the bail-in, the average Cypriot with over €100,000 in their bank account lost about 60% of their savings.  At this point, the fracture in trust in a tiny nation became so great that people no longer knew how much money they had and where they could keep it safe. And people everywhere began to realize that if a bank bail-in happened in their homeland, they needed an escape hatch that only blockchain-based technology could provide.

This decentralized and disintermediated system of peer-to-peer value transfer inspired a wave of innovation around the world that is being built on the back of the blockchain.

Now, there are hundreds of cryptocurrency and blockchain experiments in the works that will rebuild the systems of value transfer in our society and usher in a new era of commerce.  At the heart of these projects is the desire to create models where money can move at instant velocity and be used to incentivize behaviors that lead to a greater good.  When a more altruistic attitude is at the core of a commercial ecosystem, trust actually becomes a currency that has tangible benefits.  Blockchain technology is at the core of the decentralization shift because it will not only revolutionize the unit of value transfer (currency) but the structures that surround such transfers, including banks, corporations and governments.  With these new structures in place and a decentralized global architecture, commerce will emanate from a place of trust between two parties and the role of central players as the stimulators of global commerce will be left for the history books.

Youth and Progress

Companies who are at the forefront of redefining what progress is have set their sites on the younger Generations because they have different a vision of what they want in their lives and are empowered by a new set of digital tools to achieve it.


For example, having gone through the 2008 Credit Crisis at such a young age, many members of the young generation don’t trust financial markets and would never go invest in the traditional stock market. Furthermore, many of them don’t have any real wealth to begin with:

Parker threw out some statistics about these young folks: They have between $1 trillion and $2 trillion in assets; 63% of 20- to 25-year-olds are employed, with 31% living at home and another 35% actually owning a home; and seven out of 10 of them have student debt of roughly $30,000 with the average income of this generation standing at about $34,000, “so they have a lot to do to pay off that debt.”    From ThinkAdvisor

But they are set to inherit $7 Trillion in the next five years (in the US), which is why WealthFront, an automated RoboAdvisor based out of San Francisco, saw an opportunity to create a new type of investment vehicle targeted directly to Millennials. The company raised over $100 Million dollars in two rounds, and as of recently had $2.9 Billion AUM primarily driven by Millennials When asked why they did it at this scale, their answer was:

We believe there is a once-in-a-generation opportunity to build a company from the ground up to focus on the millennial investor. Our investors share that vision.” Wealthfront Blog

It remains to be seen how exactly Millennials will invest in the future and whether or not it will be with Wealthfront. But one thing is for sure, investing will look nothing like it does today in the future.  Millennials simply won’t expect to put money into a black box and see a statement with returns delivered to their inbox every month. At the same time, they will still be eager to invest and earn returns on companies that matter so an array of new models will need to be invented to meet that future demand. More than anything, progress in an investing context for members of Generation Y or Z will be radically different than it was for the Boomers.  

Another company betting big on a new future is Tilt, a Silicon-Valley startup that is focused on being the tool  for fundraising in the future. They believe they can pioneer a new model of capital-formation for both individuals and entities. What makes them unique is that their strategy is focused on University students, which has made them the fastest-growing crowdfunding platform in terms of mobile downloads.  They have raised $67 Million USD to date, led by CEO James Beshara whose career began in Microfinance. Beshara’s vision is based on a view of the future that is radically different than today:

“His big gamble is the prediction that 10 years from now, 1 billion people will be using crowdfunding—including big corporations. “It’ll be mobile, it’ll be in micro-bites,” he says. “And they won’t be using the options that exist now.” Tilt & the Future of Crowdfunding

While students will use Tilt to raise money for frat parties, charity fundraisers and group vacations in University, their ambitions will become grander upon graduation. And with the ability to Tilt their future on their mobile phone, the bet is that they will use it to start a company, raise money for social cause or go on mission to a faraway part of the world. Progress for these individuals will be defined by what they do and not what they own, which means that a tool like Tilt will give them the power to follow their dreams rather than giving up upon graduation and joining the asset-acquisition ladder.

The #NewEraBiz

The future is not generation specific, as each generation is dealing with its own set of challenges that need to be rectified. But companies of the future understand that they need to load up the war chest and bet big on something that defies convention and has real power to reshape the world as we know it. That means giving people the means to make progress in a way that is meaningful to them and build trust in others via networks and new organizational structures.


If the past was about giving people cheap credit in order to buy the assets and goods that they wanted, because that’s how progress was defined, then the future will be about people earning access to assets and exchanging goods in trust-based commercial ecosystems. If our world today is defined by rising inequality and exclusivity, then the future will be about creating corporate and societal structures that promote the equalization of opportunity and inclusiveness.

At Lumos, our Thesis on Trust and the Future is built around the idea that there are three core elements to rebuilding our collective trust in progress:

  1. Rebuild the social infrastructure within communities to enable people to trust each other

  2. Build new models of transacting and exchanging so that trust becomes a currency

  3. Make progress a bespoke metric for each individual rather than a focus on possessions