The crypto industry needs a crypto capital market structure


The past few weeks have been interesting and have come to the fore what we in the financial services industry call Matters of Attention, or MRAs. The MRA describes a practice that deviates from sound governance, internal controls, and risk management principles. These matters that require attention have the potential to negatively affect the industry and increase risks.

It has always focused on technology and innovation-led business models – the interconnected systems and elements of blockchain-powered business networks – to redefine the transaction systems that underpin many industries, including financial services. An increasing number of naysayers have become vocal about recent events, which have exposed widespread mismanagement, ill-defined and misjudged regulations, and a general misrepresentation of the industry. As a result, I want to take a systematic view of the industry to understand what led to this point, dissect the failures, and be prescriptive on how to learn from the failures and build on the successes.

Let’s first understand the market structure and what it means. This will help highlight the inefficiencies in the current crypto market structure and allow me to demonstrate a better defined structure aimed at systemic fairness, robust information flow for risk profiles, and a compelling innovation narrative to revive the industry and instill confidence.

Understand the current structure of the financial market
The structure of the modern financial market is basically a series of interconnected market participants who help in the accumulation of capital and the formation of investment resources. These market participants have specific functions, such as asset custody, central bookkeeping, liquidity provision, clearing, and settlement. Because of function, capital constraints, or regulation, many of these entities are not vertically integrated, preventing collusion or unilateral investment decisions. Therefore, different products may be governed by different markets, but the underlying financial fundamentals remain universal. For example, products such as stocks, bonds, futures, options, and currencies all need to be traded, cleared and settled, and other functions such as collateral, lending and borrowing follow.

Financial markets work only when there is a supply and demand for capital, and this is important. Today, information between these connected participants is a function of aggregated sequential relay systems, and this asymmetric dissemination of information leads not only to obfuscation but also inefficiencies in terms of liquidity requirements and system trust costs in the form of fees and opportunity costs.

Blockchain technology and distributed ledger systems aim to solve time and trust issues with the properties of immutability and asymmetric dissemination of consistent information, giving way to trust and instant transaction processing. So where did this error occur? And why is the problem we were trying to solve becoming more complex and pervasive in the crypto capital markets?

Related Topics: Understanding the Systematic Shift From Digitalization to Coding Financial Services

The current state of the market structure (un) – the history of the promise of cryptocurrencies
The Bitcoin (BTC) system has been proposed as an experiment born out of the global financial crisis as a guiding approach to rethinking our financial system, a reimagined system to organize global society and reduce dependence on a few large dominant economies.

This system was proposed with principles of decentralization of power distribution and unreliable protocols to ensure that no single entity has absolute control over the monetary system. It relied on participation in the global creation, acceptance and recognition of currency, where the rules of supply and demand apply the principles of equality.

Related: New Introduction to Bitcoin: A 9-Minute Read That Can Change Your Life

Bitcoin has helped envision a few financial systems to address the shortcomings of the current system discussed earlier. Ethereum introduced the simple asset transfer programmability that Bitcoin did, adding business rules and other complex financial fundamentals to apply to simple rules for transferring value.

This began to reinvent the Internet, which was never designed to convey value but only information. Later, advanced layers of innovation were added, such as providing scalability and privacy (layer 2), and the industry was fluttering along with the promise of a bright future. While we had the naysayers, the crypto industry brought in innovation without any apology and began shaping a new wave of technological development to enable a proprietary economy – very much in line with the global sharing economic system that Bitcoin promised.

Many interesting projects have developed to solve problems as they arise, and we can see a lot of innovative energy spreading across the ecosystem with new use cases,



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