The Shifting Landscape of Consumer Trust: From Banking to FTX

Full disclosure, I used chatGPT to help articulate my thoughts

Preface:

The inspiration for this article comes from a tweet that caught my attention (https://twitter.com/quant_arb/status/1649252718718906369). It made me reflect on how our perception of and trust in products have evolved over time, as exemplified by recent events at Silicon Valley Bank and the rise of various Layer 1 (L1) blockchains. This article aims to explore the shift in consumer psychology from deep due diligence and skepticism to trusting products based on marketing, perception, and the idea that "it just works," while acknowledging the complexity of consumer behavior and the importance of personal experience, regulation, and oversight.

Introduction:

In the ever-evolving world of technology and finance, consumer trust has undergone a significant transformation. While it's true that many consumers still prioritize due diligence and skepticism when evaluating products and services, a growing number of individuals are increasingly trusting products based on their marketing, perception and the belief that they simply work.

The Trust Paradox in Banking:

A prime example of this shift can be observed in the banking industry. Most Americans have little understanding of how banks truly operate and manage their deposits. The recent events at Silicon Valley Bank serve as a stark reminder that deposits might not be as secure as consumers believe. Despite this, people continue to trust major banks, largely because they have faith that the system works, without delving into the risks involved. However, it's crucial to acknowledge the role of regulatory bodies and industry standards in shaping consumer trust in banks. These institutions provide a level of oversight that helps maintain confidence in the banking system even when individual banks face challenges.

Layer 1 Blockchains: A Question of Consensus:

The emergence of numerous L1 blockchains has brought the issue of consensus mechanisms and finality to the forefront. As the market has grown and adoption has increased, it seems that the importance of these mechanisms has diminished. Instead, features like modularity and high transaction speeds have taken center stage, overshadowing concerns about the safety and reliability of the underlying technology. Yet, it's essential to consider that consumers' trust in these blockchains may still be influenced by the reputation of the development team, the project's history, and the presence of regulatory compliance.

The FTX Exchange: Perception vs. Reality:

The story of the FTX Exchange further illustrates the shift in consumer trust. Despite its suboptimal technical stack, with a Python-based matching engine and a Rust frontend, FTX gained public perception as a great exchange. This was mainly because retail users experienced smooth transactions, responsive customer service, and institutional traders still found opportunities to make money. However, it's essential to recognize the role of personal experience in shaping consumer trust. Individual experiences, both positive and negative, can significantly influence a person's trust in a product or service, regardless of marketing or perception.

Conclusion:

As technology continues to advance and the world becomes more interconnected, it is crucial to understand the implications of this shift in consumer psychology. While it may be more convenient to trust products and services based on marketing and perception, it is essential not to lose sight of the importance of due diligence and understanding the risks involved. Moreover, the influence of personal experience, regulatory oversight, and the role of brand reputation should not be underestimated when examining consumer trust dynamics. As the landscape of trust continues to evolve, it is up to individuals to remain vigilant and make informed decisions about the products and services they choose to use, considering the multitude of factors at play.