Global markets have occasionally been touted as free and fair, but is that really the case? Well, to some extent ‘yes’ and ‘no’; it all depends on a stakeholder’s position and access to today’s financial ecosystems. As it stands, the traditional finance market is controlled by centralized institutions including banks, hedge funds and insurance firms. These are the guys who reap the most from the so called financial instruments.
While their role cannot be downplayed, history has shown that these Wall Street players mostly operate in the favour of their own interests. One can almost compare the model to that of traditional casinos where the house always wins. So, why does no one seem bothered by the monopoly in existing financial markets? The answer is simple, some of these institutions have grown so big to the extent of intimidating regulators.
Well, not for long, the advent of fourth industrial (4IR) technologies such as blockchain has brought a new perspective towards modern-day economies. Contrary to the centralized infrastructures which define traditional finance products, blockchain introduces a decentralized economy, allowing users to verify and authenticate on-chain information. This ultimately creates a trustless market environment that does not rely on third party intervention.
Blockchain; Is this the Future of Global Markets?
Blockchain technology became famous following the debut of Bitcoin back in 2009; at the time, most people hardly knew about the untapped potential in distributed ecosystems. A decade down the line, crypto is no longer a Bitcoin-only affair. This nascent market has significantly evolved, with notable developments in Decentralized Finance (DeFi) taking the centre stage in recent years.
Today, it is possible for one to access blockchain-oriented financial services such as lending and borrowing on DeFi protocols like Compound and Aave. The two are among the pioneer DeFi ecosystems to launch on Ethereum; both enjoy billions in total value locked (TVL) from retail and institutional investors looking to lend or borrow against their crypto assets. Interestingly, this type of infrastructure is now attracting even the die-hard traditional bankers.
Besides easy access to credit markets, blockchain technology is setting the stage for decentralized exchanges (DEXs). This means that investors can directly acquire exposure to assets without going through an OTC broker. Instead, the DEXs leverage pre-coded smart contracts to automate trades and other operations including, liquidation events through an automated market maker (AMM) model.
It is also noteworthy that this leading 4IR technology is making an impact in affiliated industries such as gambling. For a long time, the gambling market has been manipulated by the house given their access to the controlling systems. Blockchain-built betting protocols such as LunaFi are changing the narrative. This decentralized gambling platform features non-custodial betting dAPP ‘Lunabets’ where users can trustlessly verify the outcome of results.
Looking at these few examples, it is a no-brainer why there is so much hype around blockchain technology. This new innovation has the potential of revolutionizing and leveling the playing ground for financial market participants. According to a recent report by the World Economic Forum (WEF), DeFi provides a business expansion alternative to the struggling traditional finance structure,
“DeFi platforms provide an alternative system, not simply a plug-in to existing banks. Their decentralized nature means transaction onboarding and market-based risk assessments are much easier to scale across a business’ wider system because access to relevant information is not dependent on centralized processing or a prior relationship.”
Financial markets are ever-evolving, there are new products launching every other year. However, it is important that these ecosystems serve their intended purposes in a free and fair manner. While blockchain technology may not provide the answers to all the questions, it is certainly a game-changer. The future of global markets will likely be built on decentralized infrastructures; after all, it is the only way for the masses to liberate themselves against the ill practices committed by traditional financial institutions.