An interpretation of Chinese philosopher Lao Tzu’s Tao Te Ching suggests, “A good traveler has no fixed plans and is not intent on arriving.” Similarly, on the path to developing meaningful innovations, the journey is the destination. Rather than narrowly focusing on a precise endpoint, it is crucial to suspend rigid expectations and adjust the course or adjust to the course as necessary.
Innovating can be characterized by three sequential steps: inspiration, ideation and implementation. As one of the first companies developing financial service solutions with blockchain technology, we believe “adaptation” is a crucial 4th step in the process and the juncture where we see blockchain’s true impact and utility for decades to come. In nature, only those organisms that respond nimbly to change will thrive.
Similarly, adaptation in innovating is critical to survival and evolution. Technology has increased the rate of change in societies to such a breakneck pace that only solutions which adapt to fluctuating dynamics can survive. The advent of blockchain technology and the innovations it has enabled are prime examples of how adaptation fosters further innovation.
The process of innovating is a multifaceted endeavor to launch novel solutions or introduce new ways of interacting with existing systems. Beginning with inspiration, entrepreneurs recognize an inadequacy and develop a desire to solve the target market’s problem. In doing so, they challenge the current standards and market practices, further reinforcing the need for a solution.
The next phase, product ideation, is characterized by surveying the target market to understand if the concept is technologically feasible, financially viable and demonstrates market fit. Implementation follows as innovators introduce a viable solution designed to improve the current industry practice or eliminate a point of friction for the target market.
The process does not end upon implementation. Adaptation is a critical succeeding stage in the ensuing months and years. Innovating is experimental and therefore filled with uncertainty. One cannot always predict the scope or direction of an idea, nor the resulting dynamics. New knowledge is often introduced via external influence or because of the innovation itself.
The subsequent response to this information may involve further innovation that helps adjust to the change. Alternatively, it may re-trigger the innovation cycle to implement new use cases in the new environment. Adaptive innovation transcends singular solutions; it is a fluid process that requires agility to adjust to changing conditions.
Throughout history, many innovations have pivoted from their original design or intent. For example, consider the computer. In its early days, it was often used to perform calculations for navigation, science, engineering and mathematics. Now, computers have evolved, advanced and are ubiquitous features of daily life in homes, businesses and institutions. Continuous validation and adaptation are critical components of ushering in solutions that will stand the test of time.
Regarding financial services, the first U.S. exchange traded fund (ETF) was introduced a few years after the 1987 stock market crash as a real-time vehicle to represent the broad equities market. ETFs presented a breakthrough way of structuring and trading financial service products that ameliorated past challenges and disrupted the investment landscape.
Compared to its predecessor, the mutual fund, ETFs were more versatile, offering index, commodity, inverse, industry, actively managed, foreign market, bond, investment style and debt ETFs. Once investors recognized how flexible the wrapper could be, it ultimately birthed an entire industry — the ETF landscape offers hundreds of variations and has over $10 trillion in assets under management (AUM) globally. Nearly three decades after the first ETF launched in the U.S., companies are still discovering new applications like collateral management.
The unanticipated outcomes of technological advancement can often outshine the original objective. For example, blockchain was created to establish a global, decentralized and immutable network to provide greater transparency, efficiency and speed. However, both the utilization and implementation of this technology have adapted, giving rise to applications such as decentralized finance (DeFi) and non-fungible tokens (NFTs) — developments we believe can create efficiencies in how the world operates.
Further, technology has not advanced at the same pace as financial markets have, highlighting some of the current issues — namely the dependence on intermediaries and protracted settlement times — that blockchain could help solve. Creating blockchain-based investment products can enable increased utility and that blockchain’s core features — a distributed ledger, programmability and peer-to-peer transference — can contribute to greater network protection, automation and accessibility.
We are still in the early days of blockchain integrations and innovations. Still, the technology has spawned an industry seeking to create solutions for many of today’s challenges related to identity, finance and payments. As we know, there is often a gap between where a project originates its minimal viable product and what the mature offering is. Similarly, how we perceive blockchain technology and its capabilities today is likely to be vastly different from how it is understood in the future.Thus, developing innovations with this revolutionary technology should be considered an adaptive, fluid process designed to support the evolution of financial services.
Arca Labs LLC does not provide investment advice and this communication is in no way a solicitation or an offer to sell securities or investment advisory services.
Jerald David is president of Arca Labs, Arca’s innovation division that creates and registers digital securities and tokenized funds.
This article was published through Cointelegraph Innovation Circle, a vetted organization of senior executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.
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