In the entrails of beasts
It is usually safe to assume that if someone starts talking about "democratizing finance" (or even more dubiously, "democratizing money" or "decentralizing finance"), they are preparing a scam of some kind. Finance is anti-democratic by nature; it's not about equitable distribution of political power but the exploitative distribution of resources for private gain. And money is at its core little more than inequality's scorecard, a means for documenting and carrying inequality forward. (The blockchain is a fantasy about making such inequalities truly indelible; this gives rise to an accelerationist counter-fantasy of being able to erase all the advantages that have accrued to the wealthy in one conveniently centralized location.)
Democratizing finance means empowering financiers further. There are no grounds in finance for equal opportunity; instead leverage is accumulated and deployed at every possible instance, and innovation (even ostensibly "democratic" innovation) is aimed at finding ways and new situations where that leverage can be applied or made more effective. It's a system meant to ensure that the rich are best situated to manage risk and thereby get richer.
This post by Ranjan Roy on how the finance app Robinhood began offering "retail investors" a way to buy into IPOs helps illustrate this. Generally, only insiders and various institutional investors have the opportunity to buy into the initial slate of stock being issued by a newly public company, and they would benefit the most from the stock price rising as outsiders sought to buy in too. As part of its effort to draw in more "everyday investors" into its ecosystem, Robinhood devised a plan by which, as Roy explains, "companies would allocate some portion of the equity to be raised to Robinhood users. Those users would be able to reserve their own shares to be purchased at the IPO price. They wouldn’t be left out of the inevitable gains."
In practice, this meant that Robinhood would push-promote the IPOs it was affiliated with through email alerts and other notifications to its customer base, which was led to believe that these were exclusive investment opportunities. But if anyone who uses Robinhood qualifies, then they are not exclusive at all. And if these IPOs are only good speculative opportunities for insiders, you are always already on the outside when you get the email. As Roy advises in an earlier post, "I've learned that a general rule is anytime anyone tells you about an investment, you shouldn't listen." If you're reading this, it's too late.
Roy points out that Robinhood was using its status as an app to get around restrictions on advertising IPOs, sending out marketing disguised as informational push notifications. As Roy puts it, "Robinhood is explicitly avoiding any recommendation, but implicitly has curated this offering." This created a huge pool of demand for offerings in limited supply, which inflated their prices well beyond what the underlying fundamentals could support — what they used call "irrational exuberance" back in the 1990s.
Invariably, as Roy documents, all the companies that cut Robinhood users in on their IPOs have seen their stocks crater. "It doesn’t matter whether you’re a Brazilian fintech, a fancy salad chain, a cloud backup company, a German solar company, a fantastic expense management SaaS..., something-something-blockchain, coconut water, a biotech claiming to cure chronic disease, a fraud detection company, an Australian energy company, a COVID-19 testing maker, a wallet for nerds, or whatever else," Roy writes. "Every single company comes out incredibly strong or has a spike early on, and then it slowly dies." The retail investors who obey the push notifications become the bag holders for the more savvy investors who see their arrival and know to move on. (This is how Robinhood makes its money: showing experienced market makers where the easy marks are.)
This seems like a pattern not just for "democratized IPOs" but for the whole host of associated scams that involve using social media's affordances to inflate bubbles (crypto/Web3 being the apotheosis of this). The platforms have the scale to generate suckers made to order for whatever scam someone is running, which can mischaracterized as a form of financial inclusion until the bubble bursts. The scams proliferate until all the vulnerable people are lured into one, in one form or another. Roy calls this "Silicon Valley-ification," in which the language of freedom is used to mask the business model of engagement, which leads directly to the end game of exploitation at scale. Or to use a different framework, platforms can drive out information and replace it with increasing levels of hype, usefully characterized in this post by Johannes Klingebiel:
Hype is an interesting thing. It‘s rightfully often spurred as misleading bullshit or ignorant boosterism but it also has its uses. In short: when it comes to creating a new technology you need to sell a vision to attract the resources you need (people, investment, etc.) ... One important component of hype is thus a set of promises of what the technology can achieve in the future for you dear reader. These might range from solving a particularly annoying problem to creating new markets, making you heaps of money, or even revolutionizing a whole field and changing society as a whole. Hype thus moves on a scale from overpromising to overselling, and even irrational exuberance.
Hype often comes on the scene as a kind of "democratization" — everyone is invited to act now. Its being targeted at a wide audience seems to suggest that everyone in the audience is supposed to benefit, that the whole thing will be win-win. But in Klingebiel's taxonomy, as hype escalates, it must make recourse to "othering": demonizing the nonbelievers as losers in a pre-emptive move of projection. When the bubble bursts, this assures that the wrong people will be blamed. Ultimately there is no "democratizing finance" to fix inequality; there is only wealth redistribution.