Over the past year or so, some of my reporting has kept me coming back to two key themes—money and technology. On its face, that makes sense; this is WatersTechnology, a publication that covers data and technology as they relate to the capital markets. The way this outlet cares about money and technology is through the lens of helping end-users do their jobs better—showcasing innovative ways to trade, make deals, speed up slog and, hopefully, hold some vendors and institutions to account along the way.

But I’ve been thinking about these two key themes in a slightly different light of late—the way they can both equalize and gatekeep, the way that one cycles into the other on a never-ending loop, and how often things that start as democratic or collaborative efforts become the very walls they were designed to bring down.

While reporting my last story, which detailed how skyrocketing options volumes are creating new risks, I couldn’t help but notice a consistent theme with the story I had written before that, about the next iteration of the internet—Web3. And that reminded me of others: the advent of cryptocurrency and non-fungible tokens, Redditors’ upheaval of the stock market (and certain hedge funds) using GameStop, and unfettered misinformation accompanied by coordinated disinformation campaigns. Distilled, these stories represent the same thing—an attempt by average people to upset the status quo and shape it in a new image, for better or worse.

Jon Fowler, chief technology officer at new clearing startup, RQD, recently got candid with me about democratization and settling on a definition for it in the context of the capital markets. Born and raised in Kentucky, he grew up paying no mind to Wall Street and its workings. But “randomly,” as he puts it, he ended up in its trenches.

In Fowler’s view, when we talk about democratization in finance today, what we’re really talking about is not just access to the market itself, but also to the education that would allow someone to adequately participate in it. Advancement in both areas, however, hasn’t moved in lockstep.

“The problem is I think access has sped up faster than the educational component. If you look at Robinhood, for example, pretty much anybody can open up a Robinhood account very easily and start trading options, but they might not be very well equipped to do that just because they’re so complicated.”

Making a bad trade, either due to lack of education or bad judgment, carries vastly different consequences for different groups—the differentiator between those groups being the number of resources one has at their disposal. A professional trader stands to have a bad day—even a hellish day—at work; the retail trader stands to lose crucial savings or take on insurmountable personal debt.

In one recent, tragic case, twenty-year-old Alex Kearns, a college sophomore, killed himself in June 2020 after thinking he had a negative cash balance $730,165 on Robinhood. However, the balance didn’t reflect Kearns’s debt owed. It likely came from complex options trades, which can leave temporary balances while they settle over multiple days, Insider reported—something a professional knows. Educational resources might have saved him.

“Equality of access, I don’t think, is what we’re talking about here. I think we’re talking about equality of information and equality of understanding,” Fowler says.

Altruism and fringe benefits

A new, education-focused initiative was launched earlier this month by alt data leaders Thinknum, Eagle Alpha, Alternative Data Group, Similarweb, and CueMacro. The aptly named Alternative Data Academy aims to streamline alt data research for data buyers and democratize access to industry knowledge for the next generation of investment professionals, data scientists, business analysts and numerous others.

In addition to webinars, the academy plans to offer virtual and in-person courses and workshops that will explore alt data best practices and emerging uses cases. Two courses are up and running, and at least eight are slated to go live in the next two months, says Marta Lopata, Thinknum’s chief growth officer.

Lopata, an immigrant to the US who describes her background as humble, is personally invested in democratization efforts. True democratization must give leverage to those who did not have it before, she says.

“I really do believe that in finance now, there’s a lot of great talent out there that’s been left untapped.”

By the end of the year, about 40 courses are expected to make their way into the academy’s curriculum. Some will have a price tag, others will be free. Courses are open to all.

In part, the academy has altruistic intentions. One is to help the next generation of financial professionals land decent jobs in an era in which quantitative experience, such as alt data skills, are becoming table stakes. But more to its operators’ benefit, should the academy lure a critical number of students, it will help them and their partners identify who exactly will constitute that next generation of industry professionals, and potentially initiate a (business) relationship as early as possible.

A tale as old as time

Let’s look at your friendly, average industry consortium. A group of organizations, often competitors, band together to create an offering to compete with a ubiquitous vendor that has usually cornered the market in some way. The new offering will give that vendor’s clients—the organizations themselves—leverage by providing an off-ramp from a service on which they are dependent and beholden to the operator. When the new service proves itself, its founders cash out and sell it off. That new company, now privately owned, becomes the new object of the same scorn. Cue another consortium.

As my editor, Anthony Malakian, pointed out in one of his own columns, we saw this happen last year with the advent of Project Octopus—a consortium led by Citi and Bank of America with the goal of building a collateralized loan obligation trading solution in a bid to prevent existing fixed-income platforms from cornering the nascent electronic CLO market and charging what the banks see as high fees for trading and market data.

Specifically, the banks want to get ahead of the giants in fixed-income trading platform operation—MarketAxess and Tradeweb—which both started life as dealer-led consortiums, because of course they were.

While the consortium “flat circle” effect that my editor referenced isn’t the same kind of democratization we’re seeing in retail trading or through Web3 evangelism, it is of the same vein. Competition and more voices are good; (technological) concentration risk is bad. New offerings create choice, which is good; fewer or no choices mean there is little incentive to innovate or improve, which is bad. Look at me, I sound like a capitalist.

A healthy dose of cynicism

I’m actually more of a cynic, though, and I believe good, intentional (key word) democratization straddles a very fine line—a school of thought I also found in Ravi Jain, director of risk and derivatives at Sterling Trading Tech, whom I spoke to recently.

“In general, democratization of financial services is probably not a bad thing. To be able to get broader participation in financial markets is, in general, a good thing. That doesn’t mean bad things won’t happen along the way,” he says.

Before social media melted our brains, conversations about trading and stocks were more listless. They were confined to trading floors and telephones. If someone wanted to manipulate the market, then they’d better get on the phone or else meet in a parking garage like that scene in All the President’s Men. Brokers and regulators had discretion over whatever happened next.

These days, there are, technically, rules that are meant to keep traders in check; but thanks to sites such as Twitter, Facebook, Reddit, and YouTube, anyone can say nearly whatever they want in any domain of their choosing—and then it can spread like wildfire.

“That’s dangerous,” Jain says. “And I think regulation is going to have a tough time figuring out how they can regulate parts of the market that are influencing the market, and potentially putting retail traders at risk, without violating free speech rights.”

It seems as though there’s no shortage of things to be worried about these days—impending environmental collapse, the possibility of a second Cold War (or start of a third World War), the rising tide of populism and right-wing authoritarianism around the globe. It seems almost silly to say that democratization is something to be wary of. But like most things beyond my control, I am wary of it—mostly because I don’t trust that those already at the top will ever willingly make room for others to join them, at least not without some intricate, convoluted set of strings attached.

Twitter’s former CEO Jack Dorsey said something surprisingly honest about Web3, and I think, modern technology in general. For all its promise of community and decentralization, and all its potential to be a Great Equalizer, it probably won’t be—just as the first (and second) internet weren’t either. Instead, they were co-opted by a handful of multibillion-dollar companies, enslaved us to our screens, and now even the simplest Google search returns pages of dull, useless sponsored ads.

I’m not saying democratization and decentralization aren’t causes worth fighting for. They most definitely are. But I am saying it’s really hard to do, and particularly do well, without a vulture swooping in and buying the game before it can even be played. However, like most people without that many extra zeroes in their bank account, I’d love to see an underdog win.