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Decentralization "absolute must" when developing crypto capital markets

 


If crypto capital markets are given a chance to become institutionally mainstream, one of the key aspects, according to an industry insider, will be decentralization.


Capital markets bring people who have capital and people who need capital together to facilitate efficient transactions. Investing or saving is often moved back and forth between lenders, such as banks, and those who need capital, such as corporations, governments, and individuals.


Co-founder of crypto-financial services firm VegaX Holdings Sang Lee told Cointelegraph on Monday that incumbent financial institutions have been left behind by the rapid developments in the crypto industry.


VegaX Holdings develops a range of crypto-based financial services. The VegaX (DeFi) decentralized finance platform enables staking and the Konstellation ecosystem is a Cosmos-based DeFi ecosystem.


Lee believes decentralization is probably the most important aspect of bringing cryptocurrencies to capital markets. Decentralization means eliminating the need for expensive intermediaries in making decisions and executing transactions.


Lee also criticized centralized payment platforms: "You can't make a transfer on the weekend, it's horrible. And the number of times a stock changes hands when you buy it is horrible." He added:


"We've evolved enough to say that we don't need people to act as intermediaries. That used to be necessary, but not anymore."

Brokers are increasingly asking for fees and it takes longer and longer to make an investment. As a result, they potentially also reduce the possible yields. Decentralization makes these redundant and markets more efficient, while investors earn higher returns.


Lee also believes that stablecoins will play an important role in cryptocurrency's entry into capital markets. He believes stablecoins have the greatest potential to overtake other digital assets and even fiat currencies since most stablecoins like Tether ( USDT ) and Dai ( DAI ) are still denominated in US dollars.


He stressed that with stablecoins, investors can have a universal unit of account to transact with. More importantly, stablecoins are used by everyone as they provide a sense of permanence, especially when markets become unsettled. Lee explained:


"In an economy where things are becoming more and more opaque and difficult to understand, a stablecoin helps to balance this imbalance."

The second largest stablecoin in the world by market cap is Circle’s USD Coin ( USDC ). With the support of his new partner BlackRock , he has already tried to get into the capital markets.


Lee believes that eventually the flow of money, people and things will move from traditional finance to blockchain and not the other way around. He commented on this:


“Cryptocurrencies will likely refuse to defect to the incumbents. Anything that is off-chain will come on-chain. Not the other way around.”

However, he also believes that “the DeFi and crypto markets need to be a lot more efficient” for adoption to increase as technology improves. In his view, a large part of the inefficiency is due to the "unusable" platforms designed to help inexperienced users invest money in cryptocurrencies. He added:


"People are avoiding the best asset class in history because they can't get there. If platforms were more geared towards beginners, adoption would be much higher than it is now."


Getting things onto the blockchain and into crypto requires token bridges. Vitalik Buterin was critical of this at the beginning of January . In 2022, hackers would target them . This resulted in a loss of 1 billion US dollars.


Nevertheless, Lee sees them as an essential part of the capital market infrastructure. He concluded: "We need bridges to expand capital markets, but the problem is that most bridges are pseudo-centralized."

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