5 Reasons Why Cryptocurrency Market Requires Capital Framework
The Defi industry needs a stable market structure and structural independence from the several existing transactional systems. It’s been intriguing and has brought to light what we in the financial services industry call MRAs, or issues requiring attention. An MRA is a practice that is incompatible with the concepts of good governance, internal controls, and risk management in the cryptocurrency market. These challenges, which must be addressed, have the potential to negatively damage the industry and increase the risk profile.
I have always focused on technology- and innovation-driven business models, which include the systems and interconnected components of blockchain-powered business networks, to reinvent the transaction systems that power numerous industries, including the financial services sector. Recent occurrences, which have shown significant mismanagement, poorly defined and misgoverned procedures, and general misrepresentation of the firm, have spurred a growing number of sceptics to voice their concerns in public. As a result, I want to adopt a comprehensive view of the sector to appreciate the elements that led to our present dilemma, assess the deficiencies, and provide ideas for how we may improve our weaknesses while growing our strengths.
Let’s begin by gaining knowledge of the market’s structure and its constituent elements. This will allow me to argue for a better-defined structure targeted at systemic justice, strong information flow for risk profiles, and a persuasive innovation story to revitalise the business and inspire trust.
A cryptocurrency capital market framework is required for the industry.https://t.co/s5NkXFosEh
— Mertium (@MertiumCrypto) July 4, 2022
Understanding the existing structure of the financial market
In essence, the structure of today’s modern financial markets is comprised of a network of market participants that interact to aid in the production of investment resources and the accumulation of capital. The responsibilities of these market participants include clearing and settlement, central accounting, liquidity provisioning, transaction clearing, and asset custody. Many of these organisations are not vertically integrated due to their roles, capital limitations, or rules. This removes the possibility of financial decisions being made in concert or unilaterally. Consequently, multiple markets may be responsible for regulating a range of products, but the fundamentals of finance will remain constant. For example, financial products such as stocks, bonds, futures, options, and currencies must be traded, cleared, and settled for operations such as collateralization, lending, and borrowing to occur.
For financial markets to operate, both the supply and demand for capital must exist. Currently, the transmission of information between these networked parties is managed using sequential batch relay systems. The unequal sharing of information that arises from this not only leads to opacity, but also inefficiency in terms of liquidity needs, fees associated with maintaining system confidence, and opportunity costs.
The existing market (un)structure — The history of the potential of cryptocurrencies
The Bitcoin (BTC) system was proposed as a prescriptive means of rethinking our financial system in response to the global financial crisis. It was conceived as a reimagined order to organise the global society and reduce dependence on a limited handful of hegemonic economies.
This system was introduced with the concepts of decentralisation to spread power and thrustless protocols to ensure that no one organisation controlled the monetary system. The basis for these ideas was the notion that decentralised systems are more secure than centralised ones. It was contingent on the participation of individuals in the establishment, acceptance, and recognition of a global currency, with the proviso that the laws of demand and supply be enforced in line with egalitarian ideals.
Bitcoin contributed to the creation of a few alternative financial systems that were aimed to solve the inefficiencies of the old system. Bitcoin was the first cryptocurrency to implement a straightforward method for the transfer of assets; Ethereum was the first cryptocurrency to implement programmability, enabling the addition of business rules and other complex financial primitives to otherwise simple rules for the transfer of value.
This resulted at the beginning of the reinvention of the internet, which was essential since the internet was never meant to be used for the transfer of value, but rather for the dissemination of knowledge. After then, more layers of innovation, such as scalability in provisioning and privacy (layer 2), were introduced, and the industry showed signs of a profitable future. Even if there were sceptics, the bitcoin business introduced innovation without apology and initiated a new wave of technology advancement to enable an ownership economy. This is consistent with Bitcoin’s promise of a participative and worldwide equitable economic system.
This history of the Internet
New use cases, applications, and solutions for numerous issues that came from a lack of trust, high prices, and the exploitative opacity of data and information that could only be monetised by a privileged few might spread rapidly across the ecosystem. Numerous intriguing initiatives grew to tackle issues as they arose, and their effectiveness in doing so was evident.
This revolution also began to attract new talent from a broad range of industries and to socialise a vast number of projects, many of which did neither adhere to the initially envisioned principles nor contribute to technological growth. They took use of the language and the enthusiasm of the community, but their structure consisted of a centralised layer that provided the same challenges and risks as the old system, with the bonus of a transaction system based on distributed ledger technology. However, they lacked the market structure and boundaries that the current system offers.
Creating a new framework for the crypto capital market and a credible innovation story
Historically, market advances in the crypto industry have been driven by businesses and the community at the grassroots level. The industry will ultimately undergo another pivot and transition and emerge with a stronger base after experiencing these dynamics. However, for this to occur, the sector must have a stable market structure and independence from the current transactional systems. Not only is it crucial for the sector to be able to coexist with current market structures, but it must also develop a vehicle that can span existing asset classes. To establish stronger and more resilient markets, I believe the following imperatives to be key MRAs.
Because the name “stablecoin” may refer to a variety of things and take on a variety of shapes, the industry as a whole should devote significant resources to redefining stablecoin or using a truly fungible asset as a medium of exchange. Stablecoins have enabled the conversion of conventional fiat money or fungible sovereign currency into digital assets, including crypto assets, and have provided the market with much-needed liquidity. Stablecoins have also facilitated a substantial amount of transactions in digital assets. In addition to inheriting the issues connected with fiat currency (in its capacity as a reserve), however, they have begun to offer linkages to traditional financial markets, where they will inherit the problems associated with those markets as well as the advantages they bring.
The complexity of value systems may often lead to problems in asset valuation and the risk matrix, making it difficult for a new asset class to grow and attain its full potential. This is in addition to the regulatory and compliance cost of money in an uncontrolled crypto financial system. In my perspective, the industry must begin to regard native crypto assets such as Bitcoin, Ether (ETH), and other widespread crypto assets or a currency basket as fungible assets that may function as a store of value, unit of account, and medium of exchange. These are the three major tasks for which a currency is intended.
Providing accurate cryptocurrency market statistics
Market data is an all-encompassing term for the financial information necessary for doing research, assessing, trading, and accounting for financial instruments of all asset classes on global markets. This data is necessary for market players to make educated judgments. Cryptography offers a whole new level of complexity by presenting as a work that must be accomplished around the clock, 365 days a year, with unprecedented data speed and accuracy. These characteristics – data velocity and volume — have created analytic challenges in data collection, aggregation, modelling, and insights. Consequently, data is information that is included in the price/value/risk equation, along with other macro factors such as inflation, money supply, and global events that impact commodities. In essence, this is what makes a market efficient or efficient in the pursuit of efficiency.
There are regulatory moats in place to prevent some persons from exploiting information gaps and participating in insider trading. Market data will bring the price (what you pay) and value of cryptocurrencies closer together (what you get). This should not just be a prerequisite for all new layer-1 projects, but also for all layer-1 projects that offer token financialization as a service.
The establishment of a self-regulatory body for cryptocurrencies
It is crucial to forming a self-regulatory organisation (SRO) that consists of the industry’s most significant actors and the most vital layer-1 protocols. To drive the businesson the correct path, this organisation should have the capacity to establish industry standards, norms for professional behaviour, and regulations.
In most situations, the success of SROs can be ascribed to their subject-matter expertise and their capacity to safeguard the interests of existing participants and the reputation of the industry as a whole by providing rules and guidelines to both parties. Through expanded education and appeals to a community’s support for a project, enforcement and violation may be facilitated. This strategy may be especially useful in the setting of comprehensive crypto market data that gives insights into transparent data and the linkage of industry-wide actions on connected projects and marketplaces. This will also aid the sector in educating itself, dealing with regulators and legislators, and establishing alliances.
The cryptocurrency industry must decouple to build a broad investment environment, a model for productive and resilient asset classes, transaction mechanisms, and an efficient market structure. Decoupling is essential for the bitcoin market. As we have seen with stablecoins, which inherit elements of global macro strategy and increased correlation, rethinking the industry’s ability to create value on its own merits and developing a new fundamental model that not only creates a convincing innovation narrative but also provides the markets with a new independent asset class with sound fundamentals are required steps. This is also compatible with the fundamental concept that inspired the creation of Bitcoin and other cryptocurrencies. Decoupling may also refer to reducing the numberof numberers used to achieve economic growth while simultaneously minimising environmental deterioration and ecological scarcity. In scientific terms, this is referred to as “decoupling.”
A modern financial market structure is essentially a network of interconnected market participants who contribute to the production of investment resources and the accumulation of capital. The industry requires both a solid market structure and a degree of systemic independence from the current transactional systems. In addition to being able to coexist with current market structures, the sector must also provide a vehicle that can bridge the gap to exist between asset classes.
Earlier, I discussed several MRAs that are required for the growth of stronger and more resilient markets. A variety of improvements may remedy the volatile and out-of-control character of the industry, including (but not limited to) the following: a) rethinking stablecoins and liquidity; b) robust crypto market data for efficient market functioning; c) creation of a crypto self-regulatory organisation and enforcement through community actions; and d) decoupling crypto, which is essentially rethinking the industry’s capacity to create value on its own merits and a new fundamental model.