Decentralization “absolutely essential” in building crypto capital markets


If crypto capital markets have any chance of becoming an institutional reality, one of the key aspects will be decentralization, according to an industry insider.

Capital markets bring providers and capital seekers together to initiate supposedly efficient transactions. Investments or savings are often routed between providers of funds, such as banks, and those in need of capital, such as corporations, governments, and individuals.

Crypto financial services firm VegaX Holdings co-founder Sang Lee told Cointelegraph today that the rapid pace of development in the crypto industry has simply left established financial institutions behind.

VegaX Holdings is building a suite of crypto-based financial services. The decentralized finance platform VegaX (DeFi) enables staking, while the constellation ecosystem is a DeFi ecosystem based on Cosmos (ATOM).

Lee believes that decentralization is probably the most important thing that will help crypto enter capital markets. Decentralization removes costly intermediaries in decision-making and transaction execution.

Lee criticized the current state of centralized payment platforms, saying: “You can’t send remittances on weekends, which is terrible. And the number of times a stock changes hands when you buy it is horrific.” He added:

“We’ve evolved enough to say we don’t need human mediators. It used to be necessary, now it’s not.”

Intermediaries tend to increase the fees and time spent on an investment, thereby reducing potential returns. Getting rid of them through decentralization can be a viable way to make markets more efficient and help investors generate higher returns.

Lee also believes that stablecoins will play an essential role in expanding capital markets in crypto. For him, stablecoins have the greatest potential to leapfrog other digital assets and even fiat currencies, since most stablecoins like Tether (USDT) and Dai (DAI) are still denominated in US dollars.

He emphasized that stablecoins allow investors to have a universal unit of account to do business with. More importantly, stablecoins are things that everyone will use as they bring a sense of permanence, especially when markets are foaming. Lee said:

“In an economy where things are murkier and harder to track, a stablecoin helps balance things out.”

The world’s second-largest stablecoin by market cap, Circle’s USD Coin (USDC), has already started bidding to enter the capital markets with the backing of new partner BlackRock.

Ultimately, Lee believes that the flow of money, people, and things will flow from traditional finance to blockchain, not the other way around. As he put it

“Crypto will likely refuse to be included in the mainstream group. Things outside the chain will move inside the chain, but it won’t go the other way around.”

However, he believes that “DeFi and crypto markets need to be much more efficient” to increase the adoption rate as technology improves. In his view, much of the inefficiency comes from the “unusable” platforms designed to help inexperienced users bring funds into crypto. He added:

“People are avoiding the best-performing asset class in history because there’s no getting there. If platforms were more usable for non-professionals, adoption would be much higher than it is now.”

That sentiment echoes an April 12 analysis by Cointelegraph, which sees traditional financial opposition to the use of crypto as an increasingly apparent exercise in futility.

Getting things onto the blockchain and into crypto requires token bridges, which Vitalik Buterin raised concerns about in early January. They were also the target of multiple security breaches back in 2022, totaling almost $1 billion in losses.

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Regardless, Lee sees them as an essential part of the capital markets infrastructure. He said: “We need bridges to build capital markets, but the problem is that most bridges are pseudo-centralized.”