- Oct 25, 2018
Beyond Futures: Derivatives Can Help Solve 21st Century Global Problems
Welcome to the first installment of my blog Future Markets. Here you’ll find intelligent discussion about emerging and future industries and how we can use financial derivatives to both make money and help solve some of the world’s most pressing issues.
My name is Yonatan ben Shimon. I’m a crypto builder, investor and the CEO and co-founder of Matchpool, a social and community driven company that builds products using blockchain technology. With this blog, I hope to discuss how financial derivatives can help shape a better world and perhaps gain ideas, and business partners, for my next project in the field of emerging financial technology. I’m open to investing in entrepreneurs that are financial innovators and invite people in the field to share their ideas with me.
With introductions out of the way, let’s get started.
Natural resources are the building blocks for much of what we take for granted in life, whether we live in the developing world or in high financial centers like London, New York or Shanghai.
Whether it’s the wheat, soybeans and corn that go into much of the food we eat or the copper, steel and oil that help us build and run our machines, humankind remains tethered to the earth, whether we think about it or not.
To help ourselves produce, sell and consume materials, we’ve created financial markets and what are called derivatives. Essentially, derivatives are types of easily traded contracts that help producers hedge prices for their products or consumers cushion price shocks for the inputs they use.
Gold futures are an example of a derivative. These contracts that let you buy or sell gold at a set price and date in the future derive their value from an underlying commodity – gold. You can choose whether you want to actually take delivery of gold bars, or not. That enables speculators, who tend to not want to own the actual underlying asset, to use derivatives to see if they can make a buck when prices rise or fall.
In addition to decreasing the financial risk for producers and consumers of price shocks that can occur from, say, a crop shortage, derivatives also create an efficient and transparent way for investors, and the general public, to find out what the price is for a certain commodity. That can help cut down on scamming and create a level playing field for an industry, even if it’s very new, such as the cryptocurrency or legal cannabis markets.
Derivatives also make it much easier for governments to regulate industries and help keep consumers safe. Regulators can use the transparency derivatives provide as a way to help make ownership of new types of assets, such as data or stem cells, fair. With this in place, it can be much easier for business and government to create incentives that spur behaviour among the public that could help address pressing issues like climate change.
After many years of trading on established markets around the globe, technology is beginning to outstrip the market for existing derivatives. As we think about our future as a human species and the problems that are presenting themselves in an increasingly crowded planet, it’s time we thought about new derivatives to help meet some of our most pressing challenges.
Our current commodities and derivatives markets are descendants from when economies were more strongly based on agriculture or manufacturing. Now, although we are still reliant on those industries, we live in a world where there is increasingly rapid development in services and technology our ancestors couldn’t even dream about.
As we make strides in artificial intelligence and biotechnology, we’re increasingly reliant on big data. It’s likely that this data that companies collect on you and me will become a key asset class in the world, and we’ll need to answer questions about who owns it and how all of us – not just big companies – can benefit from it.
If we could create a derivatives market for data, that would go a long way toward democratizing and monetizing this asset in a way that could benefit a lot of people.
Other problems that derivatives could help tackle could be access to food and water, a larger population that is living longer, financial inequality, scarce resource depletion and the coming massive unemployment that could be brought about by technology.
But we’re getting ahead of ourselves. Stay tuned for the next installment where we’ll begin delving into the meat of these important issues.