If cryptocurrency capital markets have a chance to become an institutional reality, decentralization will be one of the key aspects, according to an industry insider.
Capital markets bring together the providers and needy of capital to initiate supposedly efficient transactions. Investments or savings are often channeled between providers of funds, such as banks, and those who need capital, such as companies, governments, and individuals.
Cryptocurrency financial services provider VegaX Holdings co-founder Sang Lee told Cointelegraph on Monday that traditional financial institutions have simply been left behind by the rapid pace of development in the cryptocurrency industry.
VegaX Holdings is creating a suite of financial services based on cryptocurrencies. Its VegaX decentralized finance (DeFi) platform allows for staking, while its Konstellation ecosystem is a Cosmos-based DeFi ecosystem.
Lee believes that decentralization is probably the most important thing that will help cryptocurrencies enter the capital markets. Decentralization implies the elimination of costly intermediaries in decision-making and in the execution of transactions.
Lee denounced the current state of centralized payment platforms, saying, “You can’t send a transfer over the weekend, which is appalling. And the number of times a stock changes hands when you buy it is appalling.” And he added:
“We’ve evolved enough to say we don’t need people as middlemen. It used to be necessary, but not anymore.”
Intermediaries tend to increase the number of fees and the time required to make an investment, potentially lowering returns. Removing them through decentralization may be a viable way to make markets more efficient and help investors earn higher returns.
Lee also believes that stablecoins will play an essential role in expanding cryptocurrency capital markets. For him, stablecoins have the greatest potential to outperform other digital assets and even fiat currency because most stablecoins, such as Tether (USDT) and Dai (DAI), are still denominated in US dollars.
He highlighted that stablecoins allow investors to have a universal unit of account with which to transact. More importantly, stablecoins are things that everyone will use as they add a sense of consistency, especially if the markets get foamy. Lee said:
“In an economy where things are getting murkier and harder to follow, a stablecoin helps balance things out.”
The second largest stablecoin in the world by market capitalization is Circle’s USD Coin (USDC) and has already started making an attempt to enter the capital markets with the backing of its new partner BlackRock.
Ultimately, Lee believes that the flow of money, people, and things will shift from the traditional financial world to the blockchain, and not the other way around. As he said:
“Cryptocurrencies will probably refuse to enter the traditional fold. Off-chain stuff will move to on-chain, but it won’t go the other way around.”
However, he believes that “the DeFi and cryptocurrency markets need to be much more efficient” to help the pace of adoption pick up as the technology improves. In his opinion, much of the inefficiency stems from “useless” platforms designed to help inexperienced users put funds into the crypto space. He added:
“People are avoiding the best-performing asset class in history because there’s no way to get to it. If the platforms were more usable for laymen, adoption would be much higher than it is now.”
This view echoes an analysis by Cointelegraph on April 12 that sees traditional financial resistance to the use of cryptocurrencies as an increasingly blatant exercise in futility.
Bringing things into the blockchain space and cryptocurrencies requires token bridges, which Vitalik Buterin raised concerns about in early January. They have also been the subject of several security breaches as early as 2022, resulting in almost a billion dollars in losses.
Despite this, Lee considers them an essential part of the infrastructure of the capital markets. He said that “we need bridges to build capital markets, but the problem is that most of the bridges are pseudo-centralized.”
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