We are seeing a lot of carnage arising out of the bear market. Many firms are going belly up as the ramifications of falling prices are creating defaults. The unwinding taking place is putting companies in an illiquid situation, something that is echoing throughout the industry.
According to Finbold, 25 exchanges went under in 30 days.
It is evident that centralized entities in the cryptocurrency industry are in jeopardy. Now we are seeing the result of this.
We often discussed the idea of decentralization. It is becoming evident how it is required for resiliency.
Decentralized Finance (DeFi) has the ability to operate in a way that is immune from such moves. When we have money that is dedicated to this purpose, the risk of default drops greatly.
It is also something that is desperately needed.
Thus far, we saw cryptocurrency becoming a mock up for the existing financial system. Venture Capital firms went in and funded things the same as they always did. We also saw entities acting as custodians for people's money. Once again, no different from what we saw in the past.
This is not what creating an alternate system is all about.
For all the growth of cryptocurrency, in the end very little was done in the most important area. When it comes to financial matters, infrastructure, depth, liquidity, and sophistication are some of the most important factors. Here is where we saw a major shortcoming.
Wall Street tends not to change, hence approaching this in a predictable manner. We already see a number of banks filing to become custodians for cryptocurrency. The established system operates on the belief that because the government is overseeing things, it is safe. Of course, the Great Financial Crisis along with other instances shows this is not the case.
At the core of cryptocurrency is the ability to reach consensus without the use of third parties. Our present system uses financial institutions to provide that. Cryptocurrency puts this in the hands of the code.
Future development has to be built on this premise.
Cryptocurrency can make a major difference in people's lives. We are already seeing that with the Hive Borehole Project. Here we have real world impact achieved through the community tied to a blockchain.
The power of Wall Street is that it brings big money to the table. That is why we find many of them floating around Ethereum. That became the money chain and getting things funded there is where one has the greatest chance. Of course, usability comes into question, something that many are not evidently concerned about.
Money is power in our system. This does not appear to be changing anytime soon.
For this reason, those in cryptocurrency have to wrestle the power away from the establishment. A lot of this will come from having money. This means funding and investing ourselves in projects that end up excelling and having major impacts. We cannot allow Wall Street to keep garnering all the rewards.
This is how the power structure is altered. We see an integration of money, politics, and bureaucracy that arose over the last few centuries. It is to the point where they are all parts of the same body.
For us, it starts with building a new financial system on top of cryptocurrency.
One of the biggest challenges is to have enough liquidity to challenge the existing system. This will require trillions of dollars. Here is where liquidity pools enter the picture.
To start, they have no KYC requirements. This is something that all centralized entities will encounter. Countries are not going to allow them to operate within their jurisdiction if they fail to adhere to this.
The second advantage to this is the elimination of custody. Unlike a bank, a liquidity pool always has the funds available. There is no need to trust the bank in this instance. Certainly, one has to ensure the platform is not going to rug pull so it is not completely without risk. However, over time, we will learn which projects are legitimate as compared to which are not.
When one enters a LP, he or she can remove the funds at anytime. There is no chance of a bank run since each person's stake is evident and free for retrieval.
Liquidity Pools are vital for intermediation. With DeFi, this falls to individuals. LPs are what enable people to get the right assets before directing them to the proper location.
Of course, for this to be fully functioning, a great deal more depth is required.
One of the major challenges with the present monetary and financial system is the fact that the money creators are also responsible for intermediation. Since they are for profit organizations, they perform these services with that goal in mind.
This is one of the major causes of wealth inequality across the world. Banks will create and direct money to where it is most profitable. This is in contrast to where it is most needed.
Again, we see how the Hive Borehole Project exemplifies this. Resources were directed to where they were needed. Profit does not enter the equation.
Another issue with both services tied together is banks will intermediate when it is most profitable. It should be clear to everyone that banks reduce lending when times get difficult. Economic headwinds means to things slow. Hence, just when the economy needs more money, less is available.
Decentralized Finance changes all this. Through the use of blockchain, with its distributed ledger technology, money creation is spread throughout the world. We now see around 20,000 different cryptocurrencies of varying degrees. Most serve no purpose and have even less value. However, in addition to Bitcoin, there are dozens of projects with development that will be a major part of the new financial system which is being constructed.
Over the past few hundred years, we saw major changes to our monetary and financial system. Blockchain and cryptocurrency are going to provide the next leg in the evolution.
At the core of this is decentralization. Our present system is centralized to the point where it is no longer functional for the majority of the global population. It is now time to lay the foundation for something else.
The bear market is just a hiccup along this path. Much of what we see being washed out was nothing more than a reiteration of what went before.
Before us is the potential to create an entirely new financial and monetary system. This does not mean putting a bit of window dressing on the same old house.
Money is changing and, thus, the same needs to take place for the financial system. The focus has to be on true decentralization, not some variation on it.
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