Editor’s Note: This article was a collaboration between Ira Porter, writer for the University of Delaware’s Lerner College of Business and Economics, and Maddy Lauria, writer for UD’s College of Engineering.
Imagine a world where NFTs are more than an overpriced novelty and the TikTok filters that allow artificial intelligence to generate artsy and colorful backgrounds symbolizing someone’s name or birthday are actually key components of future online markets. It might sound hard to believe, but back in the 1990s, an online world of commerce seemed out of reach, too.
Exploring the future potential of high-tech applications such as these are at the heart of a forward-looking journal article co-authored by the University of Delaware’s Alfred Lerner College of Business and Economics Dean Bruce Weber and Associate Professor Andy Novocin with the College of Engineering’s Department of Electrical and Computer Engineering that was recently published in The Journal of Portfolio Management (JPM). The article, “Emerging Technologies and the Transformation of Exchange Trading Platforms,” explores what the future of “disruptive tech” may mean for all corners of business and industry, particularly in the financial realm. This is an example of the interdisciplinary research happening at UD in Fintech on the new technology that seeks to improve and automate the use and delivery of financial services.
Some key findings included the fact that technologies like blockchain and other web 3.0 developments will disrupt current exchanges and market service providers. Some functions in the financial markets could be replicated in decentralized finance applications and enable users to exchange currency and assets without exchange banks or government involvement. Also, once trust is established with customers of this new technology, Weber and Novocin forecast that these alternative financial market exchanges will become more mainstream.
“JPM is a definitive source of thought-leading analyses and practical techniques that many institutional investors turn to for insight on the financial markets. The JPM offers cutting-edge research on all major topics in investments, including asset allocation, performance measurement, market trends, portfolio optimization and risk management,” Weber said.
Weber and Novocin examined the current and future influence of technology on trading and the structure of markets. As new technologies emerged, driving market volumes up, the pair found that some failed. Tried and true methods, including dealer intermediation and telephone trading, have remained resilient and still thrive, researchers found. Weber and Novocin did predict that three overarching types of emerging technologies could create new market structures and disrupt current firms that offer market data and post-trade services. Those technologies include algorithmic trust technology, formative artificial intelligence and autonomous decentralized organizations and their associated webs of small contracts to perform financial market functions.
Essentially, the researchers explored potential advances in online relationships — but not the kind of relationships formed on social media platforms. For example, title transfers require multiple levels of “algorithmic trust,” or digital confirmation that someone is who they say they are. While NFTs seem like a “snake oil kind of thing right now,” Novocin explained, the concept behind them — the “non-fungible,” or unique, part of the technology (the “NF” of NFTs) — could pave the way to an automatic process that would eliminate the need for manual title searches conducted by paralegals.
“They’re not just wacky pieces of art — that’s just the first application,” Novocin said of NFTs, as one example. While Weber focuses his work on trading and markets, Novocin is well-versed in the cryptography and ethical hacking that gets at the guts of how such technologies do and can work.
“Together, we’re trying to help people cut through what’s real and what’s not real,” he said. “This was about looking at, out of these technologies that can be foundational to future society, what are the possible impacts on market structures?”
For now, the ideas laid out in their research are largely speculative, but conceivable if all of the wide array of tools described click together in the right way, Novocin said.
“He’s been an ideal collaborator and we optimized the limited time we have to do joint work on a widely-used trading simulation,” Weber said of Novocin’s work.
Weber was a speaker at the 2022 Global Payments Conference. He is a member of the Advisory Council of the SWIFT Institute. Novocin is the director of the Vertically Integrated Projects and Cyber Scholars programs at UD, and coach of the University’s nationally-ranked Capture the Flag ethical hacking team.