Author: Alex Tapscott, CoinDesk; Translation: Baishui, Golden Finance

In less than twenty years, the assets managed by exchange-traded funds (ETFs) have surged from $1 trillion to over $10 trillion today. Bank of America predicts that the ETF market will reach $50 trillion by 2030. Investors are attracted to ETFs because they offer diversification of mutual funds through the liquidity of stocks, typically at lower costs.

But this itself cannot explain their success.

The core of ETF is a financial technology that democratizes asset classes and strategies that were once difficult for most investors to access. This includes everything from municipal bonds to foreign stocks, stock options to private loans. By reducing entry barriers and enhancing flexibility, ETFs fundamentally change the way people invest.

The success of ETF should not surprise us. Historical financial innovations have followed similar trajectories - improving access, reducing friction, and expanding choices, which in turn can create entirely new markets. Mutual funds (1924) allowed investors to pool funds and invest in a portfolio of securities. The first charge card Diners Club card (1950) allowed consumers to pay for goods without carrying cash, creating a huge market for consumer credit in the process. Discount brokers (1975) opened up stock trading to ordinary investors, while online banks and brokers (1990s) made it more convenient and easier for people with limited mobility or living in remote areas to access banking services.

These technologies all started small and will take some time to penetrate their respective markets.

ETF was initially seen as a niche product, possibly suitable for a small number of DIY investors, but not suitable for advisors, traders, institutions, high-net-worth individuals, or other major Wall Street participants.

While ETFs did indeed start with index funds, most ETF launches today are focused on active strategies. According to BlackRock's data, active ETFs accounted for 76% of all US-listed ETF launches in 2023 and 21% of global ETF inflows in the same year. The company projects that managed assets in active ETFs will skyrocket to $4 trillion by 2030, more than four times the current $900 billion.

The success of the ETF market is an example of Clay Christensen's innovator's dilemma. When new technologies emerge, existing enterprises in the market (in this case, traditional asset management companies, banks, and brokerage firms) often slowly accept it, giving disruptive innovators a critical advantage. Christensen says their position is understandable. In the investment world, small DIY investors were initially the least interested type of customer. They don't have a lot of money to invest and are stingy with fees, so they're easy to dismiss.

This view is short-sighted. It is precisely because of ETF (and online brokerage) and other technological innovations that existing companies have mistakenly judged the rise potential of the DIY niche market. They mistakenly believe that ETFs may have wide appeal.

Kristensen said it is impossible to analyze a non-existent market. ETF has created a previously unprecedented $10 trillion market. Emerging markets have eroded old markets.

Like ETFs, Tokens have the potential to further drive financial democratization.

When it comes to Tokens, myths and misinformation abound. Typically, all Tokens are classified as “Cryptocurrencies,” just like “Cryptocurrencies.” This is unfortunate, as the term “Cryptocurrency” is used improperly. In fact, many (if not most) Tokens do not attempt to be a traditional currency, i.e. a medium of exchange, store of value, and unit of account. Instead, Tokens are best viewed as simple containers of value. Imagine a standard shipping container that can hold everything from computers to car parts, potatoes to plum preserves, and everything in between.

These Programmability containers can represent anything of value—stocks, bonds, artwork, intellectual property—just like a website can be "programmed" to contain any type of online information, such as a storefront, social media site, or government landing page. Tokens can be used by anyone with an internet connection anywhere in the world, and it eliminates the need for many traditional intermediaries. Embedded technologies such as Smart Contract can reduce friction and fees by automating functions that were once handled by brokers, exchanges, and transfer agents.

So far, the first killer app of Token is the US dollar. Tokenized US dollars, namely stablecoins, allow users to transfer and store the value of the US dollar, and then deploy these dollars to various Financial Services, such as trading securities, depositing them into lending platforms to obtain loans, or using them for investment in a new start-up. Today, the circulating supply of stablecoins exceeds 150 billion US dollars, processing trillions of dollars in payments annually. Billions of people can now easily own US dollars. This is a breakthrough.

**Just like ETFs, Tokens have the potential to create new markets (billions of people are not investing in the financial markets) and make financial products more accessible and customizable (Tokens are infinitely Programmability). As banks and competitors strive to adapt to this new technology, early adopters will be positioned as global leaders. Existing enterprises have no choice but to follow those who are driving the financial frontier or collaborate with them.

Just as Wall Street giants BlackRock, Vanguard, State Street, etc. have grown into giants with the support of ETFs, the next generation of financial giants will also emerge from the Token revolution. But who are they? There are competitors, but it still feels like anyone's game.