Modern financial services markets have developed over the course of the past few centuries. The origins of modern day banks is widely attributed to the affluent cities of Florence and Venice during the Renaissance, and soon spread across Europe throughout the Holy Roman Empire. Over the subsequent 600+ years, banks have created new tools for managing wealth, investments, and issuing debt. But the fundamental structure of centralized banking has remained undefeated.
It has seemingly only taken one decade to begin to disrupt this 600 year old paradigm of centralized banking. Since the launch of bitcoin, there has been a proliferation of investment and investment management alternatives in Blockchain. All across the world, people are working hard to turn the established system of centralized wealth management on its head through the introduction of many of its own creations into the decentralized world of Blockchain. One of the more recent and intriguing developments has been the establishment of a new Basket Trading protocol, developed by WandX.
WandX’s Basket Protocol for trading a group of ERC20 Tokens
A Basket trade is an order to buy or sell a grouping of securities simultaneously. Generally, these groupings contain at minimum 15 underlying securities. Basket trading is a crucial mechanism for institutional investors and investment funds who often seek to hold large quantities of securities with a certain proportion of those underlying securities or assets. Given the complexity of maintaining the desired proportions of securities, trades are often conducted in large volume so as to maintain fund allocations in line with fluctuations in the prices of those same securities. In traditional financial institutions, Basket trades are often used to buy stocks, commodities, and even currencies.
Why Bother?
Broadly Speaking, Basket trading yields three primary benefits:
WandX has successfully launched a protocol that allows users to create and trade baskets of ERC20 tokens through smart contracts. Baskets are customized bundles of ERC20 tokens, specified by the user. For example, as an owner of these tokens, I could create a Basket of 100 EOS, 1000 KIN and 100 LRC on a smart contract. With the creation of this Basket, I would now be the owner of the smart contract that contains these tokens.
Once created, I can then list the Basket for trade for an ask price, for example 2 ETH, which is posted on the already established smart contract. Once listed, another person or entity can assume ownership of this Token Basket by sending 2 ETH to that basket address. The Basket originator then receives the 2 ETH through the smart contract, while the person who sent the 2 ETH is the new owner of the basket. In this way, WandX has created a fully decentralized mechanism of creating trading ERC20 Token Baskets.
The Token baskets can be integrated into any exchange or wallet that allows sign in through a users’ private key, and subsequently executed by any wallet or exchange.
Let’s better define how this transaction might work today
Attempts to democratize investment and wealth management have been ongoing for years, but to limited success. With the entrenched banking and political systems in place, there is limited ability for the average individual to reap the benefits of the most promising investment opportunities. From the JOBS act of 2012 to platforms like angel list, there has been some encouraging development to that end, but there is a still a long way to go.
With the establishment of an easy to create basket trading protocol, individuals will soon be able to engage in more sophisticated investment management of their own cryptocurrency holdings.
In the short term, the WandX protocol is likely to be most widely used by fund managers; cryptocurrencies hedge funds such as CoinFund will be able to more easily trade and manage large portfolios of ERC20 tokens.
In the longer term, as cryptocurrency becomes a mechanism for extending debt, we may even see the creation of a market for securitized loans, not dissimilar from what exists in the current banking system. This will be an interesting trend to watch, as securitized debt vehicles will still only be as good as the underlying securities. While promising, the establishment of a blockchain based Basket trading system does not undo the inherent risks in complex layers of securitized debt.
