Authors: Frank Pretorius, Liqueo Senior Consultant & Blockchain Strategist
Scrolling through my diverse and ever-growing LinkedIn news feed, something amusing struck me about the language being used. Although the posts were written in what we might consider modern English, the folks on the opposite ends of my news feed are separated by a nuanced usage of industry-specific terminology. I paused to think about how jargon has evolved and how a new evolution in terminology is already shaping our modern world. This took my mind back to where I first encountered industry-specific jargon.
It was as a kid of 12 that my true journey into the world of terminology began. DOS (Disk Operating System) had been unleashed on the world and I, like everyone at the time, had to be able to run DOS commands in order to perform the most basic PC functions. Thanks to DOS and the advent of the home computing boom, I remember learning about RAM, ROM, and Motherboards. Later, with the emergence of MS Windows and the arrival home internet services, I had to understand new acronyms and abbreviations and the concepts tied to them: SCART, Port, Serial BUS, TCP/IP, HTTPS, WWW, APIs, GUIs and then bits, bytes, kilobytes, and megabytes. Never in a million years did I think that terabytes of data storage would fit on the end of my keychain. Nor that storage terminology would extend to something called a cloud (and a cloud being capable of holding petabytes and exabytes of our personal and business information).
In reality, aside from describing specific features and functionality, what terminology does is to create a culture – some may say a counter-culture. Within that culture are further subcultures where the terminology itself is the gatekeeper to exclusive clubs (which in turn fosters a sense of superiority over the uninitiated and uninformed).
This terminology-dialect phenomenon was borne out even further during the 80’s and 90’s in finance. Through rapid access to data, speedier processing capabilities and new ways of pricing, banks and investment houses started putting together products that laypeople could not easily understand using their own community terminology. These terms included ETFs (Exchange Traded Funds), ADRs (American Depositary Receipts), OEICS, (Open Ended Investment Companies) and CDS (Credit Default Swaps). Two that really made the headlines in 2008 were MBS and CDOs (Mortgage-Backed Securities and Collateralised Debt obligations respectively).
The trend is the same in virtually every industry across the board - be it medicine or energy, battery research or military logistics. Terminology is what separates those on the inside track from the public outside, thus creating industry-centric specialities.
Every day a new acronym or abbreviation makes its way into our collective language - at such a pace that trying to keep track of them can be an all-consuming task.
The latest progression of technology vernacular seems increasingly centred around the next generation of web development - the so-called Web 3.0 protocols and associated applications. Web 3.0 is in itself a freshly-coined phrase used to distinguish the phylogeny between Web 1.0, Web 2.0, and the evolution currently unfolding. Where Web 1.0 is used to describe the early version of the internet, with static pages and read-only capability, Web 2.0 or the Social Web took us a step further with users being able to interact with each other and with sites (think Wikipedia, Facebook, Instagram).
Web 3.0 takes interactivity to the next level - allowing for immersive experiences where the user is in control. With Blockchain as a foundational technology behind Web 3.0, unique management and application of data is being driven through developments such as artificial intelligence and machine learning. New experiences through the Metaverse are unfolding, new ways of shopping, working and investing are already being deployed – and, along with it, new terminology is on the rise. Lingo currently proliferating across my newsfeed includes DAO (Decentralised Autonomous Organisation), ICO (Initial Coin Offering), DEX (Decentralised Exchange), Cryptocurrency (a digital or virtual currency that is secured by cryptography), CBDC (Central Bank Digital Currency), DeFi (Decentralised Finance), NFT (Non-fungible token) and Tokenisation.
Whilst tomes could be written on each term and its utility, DeFi and Tokenisation seem to be the ones popping up with increasing frequency. Decentralised Finance is simply a category of financial services, such as borrowing or lending, that operates via applications hosted on decentralised public blockchain networks - and which typically do not involve traditional intermediaries such as banks and clearing houses. They are usually peer-to-peer transactions run via smart contracts.
By now most people will have heard about Tokenisation and NFTs – thanks to so many headlines filled with stories of serious money being made through the minting and sale of NFT artworks.
An NFT is defined as a digital token that represents ownership of a unique item, such as digital-only artwork, music, or game. But that doesn’t cover the whole spectrum of possibilities covered by tokenisation. In easy-to-understand terms, tokenisation is the process of converting any rights or assets into a digital token (NFT) that can then be used, owned and transferred by the holder through a blockchain, without the need for a third-party intermediary. Tokenization has the potential to mitigate and even completely remove the complexities, inefficiencies and costs associated with the current post-trade processes. For example, trades executed between financial institutions and traders securely linked through blockchain could potentially eliminate – or at least shorten - the clearing process. This would release collateral quicker and reduce - or even remove - clearing costs entirely. It seems that the days of the Central Clearing Counterparty may be numbered.
Tokenisation of equity would allow for direct ownership, increasing transparency in the trading process. This is due to the immutability in transaction recordkeeping which has the potential to significantly improve the AML and KYC administration currently required. Additionally, through the deployment of smart contracts, dividend payments can be automated and voting and representation rights simplified.
The impacts of web 3.0 tokenisation and other associated dynamics will be felt across the financial services world. Customers will benefit from easier and cheaper access to assets and investment vehicles which were largely illiquid or inaccessible before. Investors will see greater opportunities available at a lower cost of entry. Fractional trading will allow investment firms to broaden their offering and generate new streams of income. Significant CAPEX investment will be required by present-day incumbents to link with and integrate blockchain applications with their legacy IT systems.
Thanks to increased transparency, immutability in transactions and speed of execution through process automation (such as smart contracts), players will need to rethink their internal processes and staffing structures in order to capture efficiency gains. Reconciliations will be automated due to the immutability and transparency of the transactions.
These are just some examples of the possibilities. Each firm is unique and will require a bespoke approach as to how it adapts to and adopts the changing ecosystem.
There are several things that firms can be doing now to avoid an existential crisis or being left behind as this new wave of economic and financial transformation gains speed and momentum:
Finally, it’s vital to educate yourself on the terminology being used, understand its context and, more importantly, understand its impact and applications of the concepts it represents.
The Italian filmmaker Frederico Fellini perhaps said it best:
"A different language is a different vision of life."
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Here at Liqueo, we provide organisations with the skills to implement programmes successfully through our flexible workforce model, tailoring solutions for our clients’ strategic goals. We deliver an exceptional service to every client via a dynamic and agile framework. If you are interested in learning more about web jargon and how it can impact the financial services, you can contact us.
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