Sang Lee feels that while advancements in blockchain technology have already left traditional banks in the dust, adoption has remained relatively low due to a number of variables.
If crypto capital markets are to become an institutional reality, one industry insider believes that decentralisation will be a critical factor.
Capital markets connect suppliers and people seeking capital to facilitate ostensibly efficient transactions. Often, investments or savings are channelled between fund providers such as banks and those in need of capital, such as enterprises, governments, and individuals.
Sang Lee, co-founder of crypto financial services provider VegaX Holdings, told today that established financial institutions have been left behind by the crypto industry’s rapid growth.
VegaX Holdings is developing a suite of financial services based on cryptocurrency. Staking is supported on its VegaX decentralised finance (DeFi) platform, while its Konstellation network is a Cosmos-based DeFi environment (ATOM).
Lee feels that decentralisation is likely the most critical factor in assisting crypto’s entry into capital markets. Decentralization entails the elimination of inefficient intermediaries in decision-making and transaction execution.
Lee lamented the present state of centralised payment platforms, stating, “You can’t transfer a wire over the weekend, which is abysmal.” And the frequency with which a stock changes hands when you purchase it is appalling.” He continued:
“We have advanced sufficiently to the point where we no longer require human intermediates. It was necessary previously, but is no longer.”
Intermediaries frequently raise the amount of fees paid and the time required to complete an investment, lowering potential returns. Eliminating them through decentralisation may be a realistic strategy for improving market efficiency and assisting investors in earning higher returns.
Lee also feels stablecoins will be critical in developing crypto’s capital markets. According to him, stablecoins have the greatest potential to outperform other digital assets and even fiat currency, owing to the fact that the majority of stablecoins, such as Tether (USDT) and Dai (DAI), remain denominated in US dollars.
He stressed the fact that stablecoins provide investors with a global unit of account for transacting. More significantly, stablecoins are something that everyone will use because they provide a sense of stability, which is especially crucial when markets become frothy. As Lee stated:
“As the economy becomes murkier and more difficult to track, a stablecoin helps level the playing field.”
The world’s second largest stablecoin in terms of market capitalization With the backing of new partner BlackRock, Circle’s USD Coin (USDC) has already began its bid to enter financial markets.
Lee believes that eventually, the movement of money, people, and things will go from the traditional financial world to the blockchain, not the other way around. As he phrased it,
“Crypto will mostly certainly refuse to join the incumbent camp. Things that happen off-chain will happen on-chain, but not in reverse.”
He argues, however, that “DeFi and crypto markets need to be significantly more efficient” in order to accelerate adoption as technology advances. According to him, a significant amount of inefficiency stems from “useless” websites aimed to assist unskilled consumers in transferring assets to crypto. He continued:
“People are shunning the best performing asset class in history due to the impossibility of accessing it. If platforms were more approachable to the general public, adoption would be significantly higher than it is presently.”
Token bridges are required to connect items to the blockchain and into crypto, something Vitalik Buterin expressed concern about in early January. Additionally, they have been the target of many security breaches in 2022, totaling nearly $1 billion in losses.
In any case, Lee regards them as a critical component of the capital markets infrastructure. “We need bridges to expand the capital markets,” he explained, “but the problem is that the majority of bridges are pseudo-centralized.”
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.