Crypto out of the loop is a foregone conclusion, all financial stories will repeat

Blockchain and finance have a natural fit factor.

Blockchain and finance are a natural fit. Bitcoin started in the global financial crisis, blockchain has landed on a large scale in the DeFi space, and NFT has opened the door to the assetization of everything. All the stories in traditional finance are repeating in the crypto field.

I. The logic of financial development all over again
The core of finance is the conversion of utility and risk in different time and space, and financial institutions, markets, products and services all serve this purpose. All the past is a prologue, and the crypto market is reproduced one by one.

Traditional financial players all appear in the crypto arena

The crypto market provides products and services such as price discovery, settlement, lending, trading, capital management, finance, insurance, and derivatives through different smart contracts.

Lending includes AAVE, MakerDao, Compound, etc.; exchanges include Coinan, Coinbase, Uniswap, etc.; derivatives trading includes Synthetix and similar products; asset management platforms include WBTC, dForce, DeFi Saver and Zapper, etc.; revenue aggregators include yearn.finance, DFI.money, etc.; smart investment services such as Rari Capital, DAOventures, etc.; leveraged trading platforms such as dydx; insurance such as Nexus and Opyn; decentralized funds such as Cook Protocol. All kinds of financial instruments are emerging in the blockchain world one by one.

Crypto out of the loop is a foregone conclusion, all financial stories will repeat

Financial related services are also mapped in the crypto world. Credit and risk rating is an important part of financial asset pricing. Saffron Finance and BarnBridge, as risk grading protocols in the DeFi space, and smart contract auditors such as Slow Fog and Certik, have replaced traditional financial audits of the underlying financials with audits of the code, paving the way for large-scale adoption of DeFi.

The operating principles of crypto and traditional finance are not different, but innovative and incomparable

Security, liquidity and profitability are the three principles of traditional finance, and DeFi and NFT project innovation iterations are basically centered on these three directions.

Liquidity mining has driven DeFi’s dramatic expansion, attracting liquidity to the project on one hand, while the native tokens issued by the project itself have minted new liquidity for the market, greatly enriching the crypto asset market while increasing the project’s profitability.

DeFi’s smart contracts are used in different combinations to form financial Lego, to innovate financial products at multiples or even exponentially, and to attract large amounts of liquidity. The most important measure of the scale of DeFi’s project usage is the total locked-in volume (GVL), which is the sum of the total value of all ETH and various ERC-20 tokens locked in the project’s smart contracts. The GVL of all chains was only $400 million at the beginning of 2020, $17.3 billion at the end of 2020, and exceeded $100 billion on April 27, 2021.

While traditional finance facilitates the transfer of ownership, possession and income rights of physical assets through the issuance of non-standard products, including securitization, NFT (Non-Fungible Token) in the crypto space is similar in function and broader in scope. It is an indivisible, irreplaceable and unique Token that can digitize, trade and transfer almost any asset and increase its liquidity.

Crypto out of the loop is a foregone conclusion, all financial stories will repeat

In terms of security, DeFi projects are hedging the risk of credit deficiency with over guarantees and collateral, hedging the risk of attacks on the project with smart contract security audits, and providing risk protection against possible risk events for DeFi projects with insurance programs such as NXM and Nsure.

The emergence of crypto markets also requires a well-developed infrastructure

A mature financial market requires a well-developed infrastructure, including a well-developed market system, settlement system, pricing system with benchmark rates as the core, industry standards, hardware facilities, and financial services. The crypto market also corresponds to this.

The protocol, DAPP, DAO and Hodler form the market system; the underlying public chains such as Ether become the global value settlement layer; the price system formed by Bitcoin as the core asset and stablecoin as the pricing anchor; Ether ERC-20 as the main standard for DeFi tokens, ERC721 and ERC1155 as the main standard for NFT. Various types of powerful and user-friendly wallets have become the entrance for users to buy, sell and borrow like a convenient bank branch or ATM machine in reality; Boka, Cosmos, Layer2, etc. are forming the basic tools for transferring assets across chains and improving transaction efficiency. A complete crypto financial system has been formed and increasingly optimized.

II. Old story, new way of telling
Crypto finance is not only a repeater of real finance, but also a new way to tell the old story. What are the significant advantages of crypto compared with traditional finance?

Decentralization

DeFi can help individuals with asset management needs to enjoy all kinds of financial services without trusting any intermediaries; rely on the characteristics of blockchain to create trust, transforming trust in traditional transactions to credit institutions such as governments and banks into trust in code and smart contracts; no third-party intervention, all services are completely license-free, all transactions are tamper-evident, and privacy and transparency can be achieved The unification of privacy and transparency.

A completely open ecology with fast innovation

A day in the cryptocurrency world is a year on earth, and a day in DeFi is a year in the cryptocurrency world. Innovation in traditional finance requires multiple stages of initiation, testing, trial and error, and adjustment. All protocols are open source, and anyone can collaborate on them to build new financial products and accelerate financial innovation with network effects. Motivation can come from both problem identification by project developers and proposals from countless community members, and the process of initiating innovation to achieving project iteration is flat, avoiding a lot of traditional financial time and energy being spent internally in redundant processes.

Uniswap, for example, was publicly released and deployed to the Ethernet mainnet as its V0 version in November 2018, and V1 version in November 2018. v2 version was launched on the Ethernet mainnet in May 2020, and V3 is coming in 2021. The evolution of financial development over hundreds of years has been repeatedly condensed to just a few years or even a few months in the crypto field.

Crypto out of the loop is a foregone conclusion, all financial stories will repeat

Low asset barriers, high liquidity and extremely efficient liquidity

Traditional financial equity, debt and other different types of assets have strict firewalls between them, the crypto market is not the same. Stable coins can denominate any crypto asset and can circulate arbitrarily throughout the network. anchor coins such as WBTC realize the cross-chain liquidity of bitcoin and truly introduce bitcoin, the core crypto asset, into the DeFi ecology, becoming the anchor of value for the DeFi ecology. nft, on the other hand, can identify and transfer any asset with ownership rights.

DeFi removes this barrier and allows users to choose any combination of different DeFi products and financial protocols.

Traditional financial cross-border money flows have many links, are time-consuming and costly. Under the public ledger of blockchain, as long as there is a wallet address, funds can be instantly delivered to wallets anywhere as long as they have been confirmed by the whole network, and the cost of payment is only the gas fee required for network-wide confirmation.

Most crypto assets are the unification of financial underlying and governance interests

Tokens in DeFi and NFT are mostly governance tokens issued by each protocol and platform. These Tokens are not only the underlying of financial activities such as lending and finance, but also the holders can participate in the governance of the project with the Token, which has the properties of both debt and equity financial products.

III. Interaction in parallel worlds
The initial form of financial activities in the crypto domain is a parallel world of real finance. Services and products such as settlement, lending, trading, capital management, finance, derivatives, insurance, etc. are provided for price discovery and information exchange, with risks and benefits. The initial DeF i catered to the activities of lending, finance, and capital management in the crypto asset circle, separated from real finance by the sea, each closed in its own circle and unrelated to each other.

Yet this is not the whole story. Expansion is the nature of capital, and docking and out-of-circle are already in place and will dominate the next melody.

One of the drivers of docking comes from the outside, from the desire of traditional finance to enter the crypto market. With the strong demand for anti-inflation in the context of global liquidity deflation, large international financial institutions and enterprises have been betting on crypto assets, which has also created this round of “institutional bull” in the crypto market. Institutions such as Grayscale, MicroStratedy, Square and Tesla are buying crypto assets such as Bitcoin in large quantities, and the European Investment Bank has recently issued a €100 million bond on Ether, dovetailing traditional financial products with crypto assets and bringing traditional financial instruments into the crypto market and bringing in large amounts of capital.

Crypto out of the loop is a foregone conclusion, all financial stories will repeat

The crypto market itself is also eager and eager to break through the circle, no longer relying solely on the native assets of blockchain like BTC and ETH, but starting to introduce physical assets like gold, real estate, treasury bonds, etc. to dovetail with the reality of these multi-trillion dollar assets and seek to expand its scale.

Synthetix is a bridge between DeFi and traditional markets to accelerate the integration of DeFi with traditional financial markets, and Synthetix is a leading project on this track. Synthetix Currently Synthetix only replicates the price of the anchor and is not yet able to convert Synthetix assets one-for-one into physical objects.

There are also tools such as Mask Network that interface with Twitter and Facebook social media and can bring social media users into the crypto marketplace with one click. There are also Teller Finance, a project that brings traditional credit data into the DeFi ecosystem. The tentacles of the crypto market are beginning to enter all aspects of the traditional financial market.

Another heavyweight in the crypto market out of the ring is NFT, which exploded in the first quarter of 2021 with over $2 billion in market transactions, up more than 131 times year-over-year. : The First 5000 Days” sold for $69 million at Christie’s; an NBA star card from the NFT collection, a LeBron James card, sold for up to $100,000.

NFT is also exploring combining with DeFi to create new types of products, such as NFT + liquidity mining, NFT + lending, NFT + index-based funds, etc., introducing huge external assets to DeFi, and also improving asset liquidity and profitability.

Fourth, the road ahead, the sea of stars
The crypto-asset ship is just getting started.

As of May 2, 2021, the overall market capitalization of the crypto asset market is $2.2 trillion. According to Star Alliance’s estimation, 17% of the total population in the U.S. is involved in crypto-asset investment, and the figure in the U.K. is about 5%. The crypto market is still in the very early innovator stage. The road ahead is bright.

The voyage is driven by both a strong desire to evolve and a consensus building.

Problems in the crypto market can always be solved in rapid iterations of innovation, and then problems can arise and be solved again. Ether gas fees are too high, Layer2 has multiple protocols, and other public chain alternatives are rapidly emerging. Overcollateralization affects liquidity? Several projects have started to test the water against credit loans. Public chains are not scalable enough? A variety of consensus algorithms are improving the TPS of the network, and so on, and the whole network has a strong desire to evolve itself.

The consensus that Bitcoin can hedge against inflation is growing stronger, and Bitcoin has become not only an important target for institutional investors for global asset allocation, a tool for the general public to prevent asset shrinkage, but also one of the international reserve currencies of choice for some countries. As of the end of Q1 2021, Bitcoin had a market cap of $1.112 trillion, while gold, a traditional inflation hedge, had a market cap of $10.979 trillion, leaving a lot of room to grow.

At the same time, the post-00 digital native generation is extremely well identified with digital assets, and with their growth and growing demand for crypto assets, the crypto market has a stellar future.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/crypto-out-of-the-loop-is-a-foregone-conclusion-all-financial-stories-will-repeat/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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