Starbucks is renting me I’ve never had a cup of coffee in my life. Not one. In fact, the only time I ever go to Starbucks is to use their restroom or their wifi. Needless to say, I’m not a profitable customer for Starbucks, nor am I a valuable member of their “Community” in any way. Yet I’ve personally owned Starbucks (SBUX) stock for much of the past decade. In theory, my training as a financial analyst makes me capable of determining the value of a company like Starbucks even if I’m not a consumer of their products. And as an investment, you could argue this decision made sense (as has just about any stock purchase over the past decade). But a few important things stand out about this position in my portfolio: I receive absolutely no utility from owning this stock other than financial reward Starbucks receives absolutely no benefit from me owning their stock, as I’m not a customer or an evangelist My ownership stake is purely a 3rd party transaction. The Incentive Mismatch This mismatch of interests between shareholders and companies is not unique. Looking deeper across my personal equity portfolio, the majority of companies that I own are not products or companies I care about in any way, shape or form. I have no personal attachment or loyalty to most of them, I don’t follow them on social media or engage with other stakeholders, and I don’t do anything to influence the outcome of my financial stake. Conversely, and unfortunately, I don’t have a financial stake in ANY of the products, services or assets that I actually use on a daily/weekly basis, despite having a real passion for, and emotional attachment to, these products. These companies and services would absolutely benefit from me having a financial stake in their success, which would lead me to evangelize even further and utilize their services even more than I already do. Similarly, I would benefit financially and psychologically from owning a piece of the companies that I am actively helping to grow. Frequent flier miles and loyalty rewards come close to achieving this effect (I fly Delta as often as possible to earn miles, and I shop at Whole Foods & Amazon to get cashback on my credit card). But those programs only provide me with small personal savings, and my rewards are independent of the success of the company itself. Whereas an ownership stake would incentivize me to look beyond just my own use. Take a look at my actual schedule on Saturday this past weekend: My wife and I took our kids to breakfast at , one of our favorite local establishments (privately owned) Gulp We played at the public park (no ownership) We made the kids Nutella (privately owned) and Jelly sandwiches with Pirate Booty (B&G Foods) for lunch We packed both kids into my Volkswagon Passat (public stock available in the US only as an ADR) and listened to the “Hello Everybody” kids CD provided by (privately owned company that provides my daughter’s music class, which we also pay for) Music Together We took our kids to their favorite indoor rock-climbing place, (privately owned) Sender One Climbing We came home and watched a documentary on jungle animals (BBC documentary, privately financed) Planet Earth II We played Osmo on the Ipad (Osmo is ) VC Funded After the kids were asleep, I opened a bottle of with my wife, one of our favorite vintages (Privately owned) Erath Pinot Noir I happily spent money on a variety of products and services in order to enjoy a 13-hour day with my favorite people in the world, while doing our favorite activities. We gained immeasurable happiness with no financial reward. Simultaneously, on every corner surrounding our adventure, others were drinking coffee at Starbucks and potentially impacting my financial future. This is a complete economic failure of incentives. Tokenizing the World with Blockchain One of my favorite concepts born from the advent of is the idea of “ ”. For those not familiar, tokenization essentially creates fractional ownership of real assets that can trade freely on exchanges via tokens on the blockchain. Often, these tokens have code written into them called smart contracts that determine legal and monetary rights. blockchain technology Tokenizing the World There is a school of thought that all assets, services and businesses will eventually be tokenized. : Lower fees, fractional ownership, faster deal execution, free market exposure, larger investor bases, etc. This is not dissimilar to what we’ve already seen with ICOs. ICO Investors give companies money to build products that the investors themselves ultimately want to utilize, thereby potentially giving the investor both a financial reward (as increased demand for the service leads to an increase in the value of their token), and an emotional reward (the positive utility gained from using the technology). Companies are leveraging their communities of passionate users to also fund the growth of their company. The advantages are undeniable But perhaps most importantly, it aligns business owners with their customers. Looking back at this past Saturday, I would happily combine my emotional reward with that of a potential financial reward. Unfortunately, each of the products or services used throughout my day were either completely uninvestable by me, or required me to buy stock in larger conglomerates that don’t isolate the product/service that I actually care about. One day soon though, via tokenization, these companies will be able to sell ownership stakes directly to me, or I’ll be able to buy a stake on an exchange at any time after discovering their services. In fact, these companies may require that I own a stake (token) in order to even use their services. I’ll be able to create a portfolio that mimics my actual life, and become a member of different communities built specifically around a shared interest in these same companies. Until then, someone please alert me if people stop drinking coffee. For more information about investing in Arca or the Arca Funds, Accredited Investors and Qualified Institutional Buyers can access our Private Investor Portal by . CLICKING HERE Disclaimer: This commentary is provided as general information only and is in no way intended as investment advice, investment research, a research report or a recommendation. Any decision to invest or take any other action with respect to the securities discussed in this commentary may involve risks not discussed herein and such decisions should not be based solely on the information contained in this document. Statements in this communication may include forward-looking information and/or may be based on various assumptions. The forward-looking statements and other views or opinions expressed herein are made as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated and there is no guarantee that any particular outcome will come to pass. The statements made herein are subject to change at any time. Arca Funds disclaims any obligation to update or revise any statements or views expressed herein. In considering any performance information included in this commentary, it should be noted that past performance is not a guarantee of future results and there can be no assurance that future results will be realized. Some or all of the information provided herein may be or be based on statements of opinion. In addition, certain information provided herein may be based on third-party sources, which information, although believed to be accurate, has not been independently verified. Arca Funds and/or certain of its affiliates and/or clients hold and may, in the future, hold a financial interest in securities that are the same as or substantially similar to the securities discussed in this commentary. No claims are made as to the profitability of such financial interests, now, in the past or in the future and Arca Funds and/or its clients may sell such financial interests at any time. The information provided herein is not intended to be, nor should it be construed as an offer to sell or a solicitation of any offer to buy any securities. This commentary has not been reviewed or approved by any regulatory authority and has been prepared without regard to the individual financial circumstances or objectives of persons who may receive it. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

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Tokenize the World: Why do I own Starbucks stock if I don’t drink coffee?

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Tokenize the World: Why do I own Starbucks stock if I don’t drink coffee?

Too Long; Didn't Read

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Jeff Dorman, CFA

About Author

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