Lưu trữ cho từ khóa: Finance

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Maximizing returns in a volatile market: The role of Bitcoin yields | Opinion

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One of Bitcoin’s (BTC) most attractive features is its volatility, which is also its most daunting aspect. Managing this volatility is key, and native Bitcoin yields can help achieve this. These yields allow investors to build up their portfolios while protecting them from the worst of market movements.

But volatility is by no means a flaw; it’s a feature of decentralized and permissionless crypto markets. After all, Bitcoin’s high volatility leads to high returns. However, it can’t be denied that this volatility loses its charm when prices are not consistently rising (or falling) but instead fluctuate frequently in both directions.

Volatility, in fact, has also been identified as a critical barrier that keeps institutional investors from allocating to Bitcoin, as revealed by a Fidelity survey. Large swings in price, in either direction, render an asset highly volatile and thus riskier. This is because volatility makes prices less predictable. 

So, on the one hand, we have periods between broader bull and bear trends, like we are experiencing right now, that make volatility unbearable. On the other hand, as Bitcoin matures, its volatility is shrinking each cycle. The approval of spot Bitcoin exchange-traded funds has the asset’s volatility hitting its 2024 peak at 40%, far lower than 2021’s 106% record highs. While it’s too early to say if this is the new normal, the lower volatility means we won’t be seeing a high percentage of gains going forward.

It is time for Bitcoin yields

In a highly volatile market like crypto, Bitcoin yield gives the opportunity to earn consistent and stable returns, hedging some of the price volatility. This steady stream of passive income can be earned without needing to sell BTC. In this way, a BTC holder can finally put their asset, which has been sitting idle for years, to good use.

Having access to yield-generating opportunities further promotes broader acceptance and use of Bitcoin, especially among institutional investors who are always looking for yield strategies. 

Even short-term holders may get inclined to HODL their BTC for a longer time period if they have an opportunity to increase their investment over time as they get to benefit from both price increases and a constant supply of income. This, in turn, can reduce market selling pressure, and as demand increases for yield-generating assets, it can further help the asset enjoy a more positive price performance. 

There’s clearly a strong case for Bitcoin yield but where is this yield exactly coming from? 

The growth of DeFi on Bitcoin

So, in the Bitcoin realm, there hasn’t really been any development to expand the ecosystem, with the trillion-dollar crypto asset only being utilized as a passive store of value. But now, times have changed, and both developers and users want to have fun and do exciting things with Bitcoin. This has led to a new wave of development on Bitcoin, which has given rise to BTC DeFi. The growth of decentralized finance on Bitcoin has resulted in varied sources of Bitcoin yields. 

These yield sources include Bitcoin layer-2 solutions that enable BTC holders to enjoy staking rewards, which are determined by market dynamics. Babylon is another Bitcoin staking protocol built on Cosmos that allows BTC holders to stake their Bitcoin on PoS chains without giving up the custody of their assets. 

We at pSTAKE Finance also offer Bitcoin liquid staking, for which we have collaborated with Babylon to offer boosted yields. While we are starting with Babylon to provide the primary source of liquid staking yields, which is generated through economic security, we will eventually introduce yBTC as well as multiple avenues for yield to offer a diverse range of earning opportunities.

All these different solutions not only enable BTC holders to earn yields but also offer Bitcoin miners an additional source of revenue. On top of that, Bitcoin’s decade and a half long resilience and trillion-dollar security can be utilized to secure other chains. 

In the future, Bitcoin yields, which are determined by the market instead of a central bank, may even be used to set the base rate of return for crypto markets, much like how US T-bills are used to set a base rate of return for financial markets.

So, the yield has far greater and broader implications that go beyond Bitcoin holders and the ecosystem. All this activity and investment into enabling native yield generation on Bitcoin can also lead to a resurgence of DeFi, which took a bigger hit during the 2022 bear market compared to the rest of the industry. Moreover, Bitcoin, which is a distributed, battle-tested, and censorship-resistance peer-to-peer network, can lay the foundation for a robust DeFi sector. With Bitcoin being the most accessible and universal asset class that has a capped supply and can’t be printed endlessly, all this innovation can finally lead to the truest version of DeFi.

Now, to conclude, we are clearly at the beginning of a stellar journey, but for this to become a reality, we need to focus on continued development and innovation in order to build a better future for our financial and economic systems. 

Tổng hợp và chỉnh sửa: ThS Phạm Mạnh Cường
Theo Crypto News

DeFi

Finding blockchain harmony to encourage TradFi participation | Opinion

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Traditional finance has taken a U-turn from the industry’s initial dismissive reaction to Bitcoin (BTC)  and blockchain technology altogether. Earlier this year, we witnessed the SEC approve spot Ether and spot Bitcoin ETFs, including from leading asset manager BlackRock. Concurrently, State Street, a large global bank, plans to launch a stablecoin, and TradFi trading hub Robinhood has expanded its crypto operations. 

While rigidly centralized institutions playing an oversized role in crypto developments could introduce risks to the industry’s decentralized ethos, most web3 enthusiasts are open to TradFi participation as it would accelerate adoption. Regardless, ties between the broader financial world and the emerging digital assets sector are steadily moving forward.   

Despite high-profile ETFs, growing interest in DeFi, and tokenized real-world assets, many financial institutions are reluctant to engage directly with various blockchain networks. The reason for this isn’t due to worries of SEC lawsuits or crypto’s inherent volatility; rather, it relates to the very nature in which banks operate. 

As trusted intermediaries managing customers’ assets and providing financial services, most banks find it hard to engage with public blockchains where transaction history and other private data are available for all to view. While transparency and openness are core web3 principles and are used to build trust among decentralized communities, this could lead to exposing private customer information within institutions. 

Financial institutions will always need to comply with local regulatory frameworks, which makes engaging with public blockchains complicated and limits flexibility in the rapidly evolving digital asset space. As such, banks wanting to engage with blockchain and crypto, for one reason or another, typically elect to do so via private blockchains due to privacy and compliance considerations. 

Private networks provide banks with a controlled environment, enabling them to experiment within a compliant and secure space, allowing more partners to join over time. While this is good for institutions looking to understand blockchain technology or perhaps implement it to facilitate their own payment systems, it blocks access to the vast majority of DeFi products, apps, and protocols. It also denies access to any liquidity stored on public blockchain protocols.

Sure, there are cross-chain bridges, sidechains, layer-2s, and other solutions that financial institutions could leverage to gain a bit more exposure to crypto markets. However, these solutions risk introducing the same security threats and vulnerabilities that led financial institutions to select private blockchains in the first place.

This puts financial institutions, especially smaller banks lacking the resources to take calculated risks, in a bind when trying to establish the most robust digital asset strategies to meet the rising demand of both retail and institutional clients. However, new projects are working to bridge these gaps and broaden the scope of institutions entering blockchain.

Vixichain, for example, is developing a solution for this problem that is confronting institutions. Its layer-1 blockchain, set to launch early next year, allows institutions to interact with crypto and DeFi compliantly. The network bridges the gap between legal frameworks and the innovative potential of web3 by using a stablecoin built with NFT technology. While it may sound unorthodox, this enables traceability and verifies authenticity, combining the best aspects of public and private blockchains. 

Vixichain’s objective is to build a private blockchain where financial institutions act as validators. This allows users to receive quotes from available nodes and choose the relevant partner to execute payments, while its NFT stablecoin facilitates easy access to the wider crypto ecosystem. 

Those in the web3 industry understand the value behind mainstream adoption, and strategically cooperating with TradFi provides more rewards than risks. For example, experience with compliance, risk management, and added liquidity are just some of the benefits that TradFi brings to the table. The key to leveraging TradFi’s desire to partake in digital asset marketplaces requires innovative solutions that strike a balance between the pros of both public and private blockchains.

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Theo Crypto News

Pháp Lý

Bridging TradFi and DeFi: The opportunities of complaint stablecoins | Opinion

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As crypto becomes more widespread, the regulatory issues become more significant. The recent update of the Markets in Crypto-Assets Regulation regarding stablecoins has led to a substantial market boom. The new rules impose strict restrictions on the use of stablecoins denominated in dollars, which account for the majority of global trading volumes.

While MiCA primarily targets the intersection of crypto assets and traditional financial services, its implications for decentralized finance are more nuanced. DeFi, by its very nature, generally operates independently of the traditional financial system. But people still need to be able to move their money between the two worlds somehow, and I believe that compliant stablecoins are the best gateway for it.

The regulatory shift has influenced major players in the crypto arena, such as Circle and Tether, who issue stablecoins, forcing them to reconsider their strategies. So, what potential do compliant stablecoins have regarding the DeFi market? Let’s break it down.

The role of compliant stablecoins: Bridging TradFi and DeFi 

TradFI and DeFi have existed in parallel for a long time, and together, they can bring financial opportunities never seen before. However, bridging the two worlds is a challenging task. In this sense, compliant stablecoins hold huge potential to act as a bridge between them.

As regulations tighten, compliant stablecoins are expected to become major assets. For example, in the Europen Union, stablecoin users are already required to transition from unregulated coins to compliant ones (at least if they want to use them with centralized finance platforms, where the use of compliant assets is often strictly mandated).

Centralized stablecoins like Tether (USDT) and USD Coin (USDC) are at the forefront of this regulatory evolution. They are typically issued by entities that maintain reserves in fiat currency, which allows them to offer stability and serve as gateways between the crypto world and traditional finance. However, since they essentially provide a financial service, it means that they are subject to oversight and stricter standards of transparency and consumer protection.

Compliance is critical to ensure the legitimacy of these stablecoins and allow them to be integrated into the global financial ecosystem. Circle, as mentioned earlier, has already made a significant leap by becoming the first global stablecoin issuer to fully comply with the new regulations. And it is likely that we will see more companies choose this path in the near future.

Where do decentralized stablecoins stand?

It should be mentioned that centralized stablecoins still have decentralized counterparts that don’t have a direct impact on centralized financial services. These stablecoins are typically governed by decentralized protocols and don’t rely on a central issuer or a reserve of fiat currency.

Because they are not linked to the TradFi system, these stablecoins are not subject to regulations like MiCA. However, this also means they are less likely to be integrated into traditional financial services, limiting their role in bridging the gap between TradFi and DeFi. For now, decentralized stablecoins remain a component of the DeFi ecosystem that provides liquidity without the need for centralized oversight.

However, I believe that centralized stablecoins are going to become the primary way in and out of the blockchain space, and they will have to be compliant to ensure legitimacy and broader integration into the global financial ecosystem. Eventually, as time goes by, I think that all redeemable stablecoins might follow this path due to their custodial nature.

The risk of increasing stablecoin centralization

There are decentralized stablecoins out there that show the trend of leaning toward greater centralization. A notable example of this is the recent announcement by MakerDAO regarding the migration of Dai (DAI), one of the most popular decentralized stablecoins, to the new USDS. The move sparked a lot of discussions among the DeFi community, with many taking it as a shift towards a more centralized model.

Increased centralization typically brings with it greater regulatory scrutiny and compliance requirements. This could limit the use of such stablecoins within the DeFi environment, as they would become less attractive to users who value the decentralized nature of crypto assets. However, they might be able to take some of the business currently occupied by USDT and USDC.

Compliant stablecoins: Controlled financial system evolution 

There are several advantages offered by compliant stablecoins that make them a foundation of the future financial system. Firstly, and most importantly, they can be redeemed directly through banks and other financial organizations. This means that people can reliably bring their money outside of the crypto ecosystem and use it in their daily lives.

Additionally, there are yield opportunities for users. A huge number of crypto users are interested in profit-making, whether it be interest payments, staking rewards, or capital gains. And the yield products based on compliant stablecoins will be regulated, ensuring the ways to profit are legal and safe. Admittedly, decentralized stablecoins also often offer sources of yield that tend to be higher than what centralized stablecoins could offer. Whether they want to get yields protected by human laws or by math is something users can choose for themselves based on individual preferences and risk tolerance.

Moreover, the question of whether a stablecoin is fully backed by fiat will be eliminated. Adhering to transparency and security standards means that users will have greater confidence in the coins’ stability. In comparison, fully decentralized stablecoins offer full transparency on-chain already, so users can verify the backing of the coins for themselves. Again, the choice comes down to which trust mechanisms a user finds more reliable—regulatory frameworks backing compliant stablecoins or the algorithmic transparency of decentralized ones.

Conclusion

To sum up, the evolving regulation will play a crucial role in shaping the future of stablecoins and their ability to bridge TradFi and DeFi. The existence of compliant centralized stablecoins will help TradFi users engage with digital assets seamlessly and without worrying.

Decentralized stablecoins, meanwhile, will remain largely separate from traditional financial systems and regulations, serving different needs within the DeFi ecosystem. However, this could change as the lines between centralization and decentralization blur.

Of course, predicting the market’s trajectory over the years is quite challenging. However, one thing is certain—compliant stablecoins will enable the composability of TradFi and DeFi. I am sure that DeFi is the future of the whole financial system, and compliant stablecoins can enable a more traditional and controlled way to transform it.

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Theo Crypto News

Altcoin

Can Ethereum provide a settlement layer for financial markets? | Opinion

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Public blockchains have a role to play in the future of financial markets, and Ethereum is well-positioned among public blockchains to act as a settlement layer. Understanding risk in the Ethereum ecosystem is vital to building robust applications for financial markets.

The benefits of blockchain and tokenization

For years, institutions have explored the use of blockchain and tokenization in financial markets. They aim to save time and money by streamlining settlement processes, using blockchain as a single source of truth among transaction participants, and reducing the need for cumbersome reconciliation efforts across participants’ records. 

Institutions also hope to make more asset types easier to use as collateral for transactions and to manage liquidity more efficiently by enabling intraday transactions. Holding assets as tokens on a blockchain should be an improvement over existing systems for most investors, and it should be possible to tokenize most financial assets. So, in the long run, shouldn’t all assets be tokenized?

Real use cases but small volumes

The key use cases so far in traditional financial markets are digital bonds (the issuance of a bond as a token on a blockchain) and tokenized Treasuries (or tokenized money market funds, shares in a fund holding US Treasuries). We have rated digital bonds across sovereign, local governments, banks, multilateral institutions, and corporates. 

We have also seen traditional financial incumbents setting up tokenized money market funds, such as Blackrock’s BUIDL fund. However, to date, the volumes of digital bonds and tokenized money market funds remain a tiny fraction of the volumes issued in traditional markets. What’s holding back adoption?

Challenges to adoption

Interoperability

The first key challenge is interoperability. Investors need to access the blockchains on which the tokenized assets are built, and institutions need to connect their legacy systems to those blockchains. To date, digital bond issuers have primarily used private permissioned blockchains, each of these being a “walled garden” set up by a specific institution. This does not support a liquid secondary market for these bonds to trade, hindering wider adoption. Different paths are emerging to address these challenges, including the use of:

  • Public blockchains. In recent months, we have seen the issuance of digital bonds on public blockchains, including Ethereum and Polygon. Blackrock also issued the BUIDL fund on Ethereum;
  • Private permissioned blockchains shared between a network of partner institutions;
  • Cross-chain communication technologies to allow different private and public chains to interact while mitigating security risks.

On-chain payments

The second key challenge is executing the cash leg of payments on-chain. Most digital bonds have used traditional payment systems rather than on-chain bond payments. This limits the benefits of issuing on-chain, weakening issuers’ incentive to issue and investors’ interest in buying digital bonds. In recent months, however, we have seen the first digital bonds from traditional issuers using on-chain payments in Switzerland, using a wholesale digital Swiss Franc issued by the Swiss National Bank specifically for this purpose. 

In jurisdictions where central bank digital currencies are further from crystalizing, privately issued stablecoins may similarly be tools that support the on-chain cash leg in financial market transactions. Emerging regulatory frameworks in key jurisdictions will enhance investors’ appetite to engage with stablecoins and the features they enable, boosting the adoption of on-chain payments.

Legal and regulatory considerations

Institutions remain cautious due to legal and regulatory questions, particularly with regard to their privacy, KYC/AML obligations, and whether it is possible to meet these obligations when using a public permissionless blockchain such as Ethereum. Technical innovations are emerging that address these challenges at different levels rather than the main Ethereum settlement layer. For example, zero-knowledge-proof technology can support privacy applications, whereas new token standards (such as ERC-3643 for Ethereum) enable transaction permissioning at the asset level.

Ethereum’s position in financial markets

Among public blockchains, Ethereum is well-positioned to gain adoption in a financial market context. It is where most of the liquidity in institutional-focused stablecoins currently resides. It benefits from relatively mature and battle-tested technology in its execution and consensus mechanisms, as well as its token standards and decentralized finance markets. 

Indeed, some of the main private blockchains used in financial markets have been developed to be compatible with Ethereum’s virtual machine. By converging around a common standard, institutions hope to keep pace with innovation and talent.

Managing Ethereum’s ecosystem risks

Ethereum’s success as a tool in financial markets will depend on institutions’ ability to understand and monitor Ethereum’s concentration risks, as well as the ecosystem’s ability to manage these risks. Ethereum requires the consensus of two-thirds of the network’s validators to finalize each new block added to the chain. If more than one-third of validators are offline at once, blocks cannot be finalized. It’s, therefore, crucial to monitor any concentration risk that could cause this to happen. In particular:

  • No single entity controls a third of validator nodes. The largest staking concentration (29%) is through the Lido decentralized staking protocol: these nodes share exposure to Lido’s smart contract risk but are operated by a multitude of different operators.
  • Diversification of client software packages run by validators (consensus and execution clients) mitigates the risk of a network outage resulting from any bug in this software. This is a strength over most public blockchains, which currently each use a single client. Client concentration risk persists, however, as seen in the network’s only delayed finality event in May 2023.
  • Validators are not concentrated through a single cloud provider: the largest exposure hosted by a single provider is only 16% of validators.

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Theo Crypto News

Altcoin

Is investing in classic stocks always safer than defi? Not exactly | Opinion

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In 2011, a 9.1 magnitude earthquake struck the seafloor of Japan, causing a massively destructive tsunami. In the following days, Japan’s Nikkei stock market fell by 6.2%, reflecting the market’s reaction to an unprecedented disaster. 

Thirteen years later, cryptocurrencies, which have surged in popularity, face criticism for their extreme short-term fluctuations, often perceived as even more volatile than traditional stocks. While this volatility can appeal to some risk-tolerant investors seeking high rewards, it represents a red flag for more loss-averse, conservative traders.

However, as outlined above, the situation with the Nikkei highlights a shifting narrative. Increasing economic uncertainties and market disruptions have led to a heightened price variability in stock markets, sometimes rivaling that of cryptocurrencies.

For instance, since the beginning of August, the Japanese stock market experienced its biggest one-day drop since 1987, with the US also seeing the Dow Jones fall by more than 1,000 points. These significant declines highlight the growing unpredictability in mainstream markets, reflecting broader economic uncertainties and market disruptions.

Now, investors are left questioning: Are the volatility risks associated with defi truly worse than those associated with traditional investing? 

Historically, classic investing options like purchasing real estate or stocks and bonds have been viewed as a cornerstone of a stable financial plan and are often considered less volatile than cryptocurrencies due to their backing by tangible assets and earnings of the companies they represent. Yet, the recent trends in global markets suggest this stability is being questioned.

The upcoming 2024 presidential election in the United States is forecasted to throw in an additional layer of uncertainty. Political developments can heavily impact financial markets, influencing investor sentiment and contributing to market instability. The growing volatility of stock markets is compounded by various factors like trade conflicts, changes in interest rates, and inflation concerns that contribute to market turbulence, leading to rapid and often unexpected fluctuations. 

Given the rising uncertainty in traditional markets, some investors are reevaluating if the risks associated with defi are worth taking. This is especially true as new developments in the sector rise in popularity.

Restaking, for example, is a concept that enhances capital efficiency by allowing assets like Ethereum (ETH) to be utilized more effectively across various networks. Pioneered by EigenLayer, a protocol built on Ethereum, this concept involves letting users take ETH staked within Ethereum and then “restake” it beyond the primary blockchain, unlocking additional utility and earning potential while maintaining its security and value. 

While some critics have raised concerns about financial stability and technical risks associated with restaking, it is important to approach these advancements with an open mind. Recently, the web3-focused VC firm DFG published a report highlighting the significant potential of restaking and liquid restaking, an offshoot of the sector that has grown exponentially alongside it. The report highlights that, despite the critiques, the sector’s innovations are reshaping financial models and offering new opportunities for staking to contribute meaningfully to the growing defi space.

Embracing these advancements with a balanced perspective while keeping in mind the inherent risks could provide a path forward for investors seeking new opportunities in an evolving financial landscape. The developments emerging from the defi space have the potential to unlock different avenues and attract a new wave of investors eager to explore the benefits of a dynamic and adaptive investment environment.

Tổng hợp và chỉnh sửa: ThS Phạm Mạnh Cường
Theo Crypto News

Công nghệ

Blockchain technology is the key to grassroots financial freedom | Opinion

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Traditional finance has produced many good things, like near-instant payments, intuitive mobile apps, etc. But on the flip side, its centralized and siloed infrastructures have created deep financial inequalities across geographical and cultural lines. Roughly one percent of the world’s population owns over $87 trillion in financial assets, i.e., over 43% of the total global financial wealth. More than 63% of their wealth is in financial assets compared to 37% for the majority.

Blockchain can fix this. Grassroots inclusion is the ethos of decentralized wealth-generation protocols and financial networks. But we mustn’t take it for granted. Especially when legacy players like Blackrock, VanEck, etc., are entering the space with a range of centralized products and ETFs.

Institutions wield a two-edged sword

Besides macroeconomic factors like moderating inflationary pressure, exchange-traded funds (ETFs) have been crucial in bringing the bulls back to crypto. The optimism around such developments is understandable. Exposure to blockchain-based digital assets through familiar instruments could provide mainstream users with a stronger impetus to join. 

Could this be the inflection point we’ve been chasing all these years? Yes. Given we don’t inherit persistent problems like high barriers to wealth generation and optimize for inclusion instead. 

One needs a minimum of $2 to $5 million in investable assets to access wealth management firms in the US. Whereas big fund managers like Blackrock exclusively serve high-net-worth individuals with portfolios above $100 million. Only the global financial elite can meet either of these criteria.

It’s unlikely that offering crypto-related products will automatically make established institutions more inclusive. Because the roots of exclusionary business models run deeper than this or that company’s policies or intent. 

Widespread information disparity is inherent to the very structure—centralized and siloed—of traditional financial systems. This evolved over decades and led to an uneven playing field that’s rather challenging to fix. In fact, most attempts at finding viable solutions within legacy financial paradigms have failed so far. For example, the STOCK Act couldn’t stop insider trading by members of the US Congress. No Member of Congress has been penalized under this Act to date, mainly because it’s very challenging to determine the scope of ‘material information’ affecting a given trade, despite centralized ledgers. 

There’s no way such half-baked approaches to ensure a level playing field would work in the user-centric and pseudonymous world of blockchains. However, the underlying tech has unique capabilities to provide equal access for all while supporting fairness natively. 

Wealth and financial freedom for all

Blockchain is one of the strongest wealth and access equalizing technologies since the Internet. It brings novel revenue streams and investment instruments directly to the average user. The peculiar dynamics of the ongoing market cycle are making this clearer than ever. As Mike Mallazo recently wrote:

“The real egalitarian appeal to crypto is not that it will democratize payments—but that a wintergreen ZYN-fueled degenerate in his mom’s basement can outperform an MIT-trained quant who spent a decade at Goldman.”

Institutions have forerun retail users on certain flanks so far. Parallelly, however, grassroots users are also generating life-changing wealth through memecoins, etc. For example, a trader recently turned $2,275 into $2.6 million in about eight hours (not financial advice). It’s rather common these days. 

This has been possible because the entry barriers are very low and almost non-existent. Anyone can start their wealth generation journey with as little as they want. No gatekeepers. No questions. No minimum income requirements. The degen and the prince are practically on the same plane.

Unlike tradfi systems, blockchain-powered financial networks truly offer the underdogs a substantial and fair chance to rise. More so with advanced wealth-generation protocols where an average user can make millions investing alongside top asset managers. 

The emerging social investing paradigm unlocks a meritocratic environment where seasoned investors and amateurs can benefit mutually. While the former can monetize their battle-tested strategies, the latter gets a stress-free means to profit.

It’s also possible to build accessible wealth management systems that support a wide range of asset classes, including meme coins, defi, NFT, RWA, etc. This will further democratize the space and unleash financial opportunities available only to the wealthy elite. 

No matter who or where they are, everyone can become financially free using blockchain-powered tools. Users are the biggest winners in this shift. That’s fairness epitomized. 

Last but not least, robust blockchain-native infra is the way to offset the potential negative impact of widespread institutional adoption. We will fully leverage the upsides of greater institutional participation only when decentralized, community-oriented systems are equally strong. 

It’s a battle of narratives and perceptions, where crypto’s core voice must ring louder than those trying to misuse the tech for selfish interests. ETFs, etc., can bring new users, and that’s great. But native protocols and their communities must set the standards. We mustn’t repeat the historic mistake of exclusion.

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Theo Crypto News

Bitcoin

Bitcoin is the solution to an inevitable hyper-financialization | Opinion

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If there’s one thing that is becoming clear, it’s that hyper-financialization is inevitable, and our best chance to navigate it successfully is through Bitcoin (BTC). This decentralized cryptocurrency, which is known for its fixed supply and robust security, offers a unique solution to the upcoming problem of wealth inequality and concentration of power. By adopting Bitcoin, we can create a more transparent and resilient financial future, or we risk losing our financial sovereignty to a handful of corporations.

The hyper-financialization of the world has already begun with the financial sector becoming a relatively bigger part of the economy, growing in size and importance. Financial structures are now fast creeping up in other sectors as well. 

For instance, in 2023, Americans spent more than $100 billion on state-run lotteries, according to The Economist, which reported poorer citizens spent a staggering amount on tickets. Additionally, the online sports betting market, valued at over $100 billion, is projected to generate almost $46 billion in revenue this year, with a 3.9% user penetration. 

Moreover, Robinhood, a commission-free investing platform popular among retail, has seen its number of funded customers rise to 23.9 million and assets under custody surge to $129.6 billion, yet another prime example of the hyper-financialization trend. It was during the COVID-19 pandemic in 2020 that Robinhood started gaining traction, and the trend of hyper-financialization was exacerbated. For people stuck in their homes, the online world became their primary means of entertainment and social interaction. 

Then, the governments injected billions of dollars into the market, providing people with an incentive to bet their money on markets. The subsequent surge in inflation and the weak economy around the world have now further intensified this trend as people bear the burden of survival. 

It has led to a heightened proliferation of financial structures in different spheres of life, which means that both builders and consumers are taking this route. 

The crypto industry

As we can see in crypto, it has grown from less than $150 billion in March 2020 to now worth $2.7 trillion. This explosive growth is not only turbocharging the hyper financialization trend for finance with yield farming, restaking, points, rewards, and meme coins but also for art via NFTs, social dynamics through social tokens and platforms like Friendtech, gaming with play-to-earn concepts, and physical assets via tokenization.

Then, there are prediction markets that allow people to bet on all kinds of events. These range from the US 2024 Presidential election outcome to whether Bitcoin will hit $100k by year-end, if Drake’s verse in “Wah Gwan Delilah” is AI, what will be ‘Bad Boys: Ride or Die’ Opening Weekend Box Office, or if Fed will raise rates this year?

This growing trend of hyper-financialization is detrimental to society, given that it broadens the already widening wealth gap by increasing wealth concentration and contributing to economic inequality. Not to mention, this will lead to even bigger asset bubbles, short-term focus over long-term approach, and more interest in speculative investments. 

Here, crypto can help provide a better way to approach hyper-financialization. After all, middlemen are where the wealth lies, and the use of blockchain technology removes this third party from the equation, bringing trustlessness, traceability, and immutability to the market. Blockchain actually allows the hyper-financialization to be fair and transparent.

Before crypto, not everyone was allowed to participate in markets. But through disintermediation and permissionlessness, crypto has made markets more efficient and accessible. Not to mention, one gets total control over their data, mitigating the risk of data manipulation and privacy invasion.

A better way to deal with hyper-financialization

This is where Bitcoin provides the perfect solution. This decentralized peer-to-peer network enables financial inclusion and resistance to censorship, which is critically important in today’s world, where organizations and governments are encroaching on people’s rights. This network has a decade-and-a-half-long history behind it, offering a robust and secure platform for people to achieve financial sovereignty.

The trillion-dollar asset class further serves as a hedge against inflation, allowing holders to preserve their wealth over time. Unlike fiat currencies, which are devalued through policies, Bitcoin’s fixed supply and decentralization safeguard it from such pressures, making it the perfect asset to be owned in a world where everyone is competing to extract value.

The largest crypto network has now also been seeing experimentation as both developers and investors use it as a base to build a truly decentralized future of finance and value.

For so long, Bitcoin has been a low-activity blockchain, its key role being a store of value. While Bitcoin has been playing a passive role in the blockchain world all these years, it finally changed with the Taproot upgrade that brought NFTs into the BTC realm. Then there has been an increasing interest in tokenization, that too from institutions like Blackrock. 

This focus on expanding Bitcoin’s utility has sparked a wave of innovation, and the day is not far when BTC might dethrone Ethereum to become the go-to blockchain for decentralized finance. Several aspects, including Bitcoin’s robust security framework, widespread recognition, and institutional interest, are positioning Bitcoin at the forefront of defi innovation. 

So, with these developments, Bitcoin is now evolving to start its new era of utility and innovation after fulfilling its original vision of being a peer-to-peer electronic cash system. 

As everything turns into a financial asset and becomes tradable, attention, which is a scarce resource, will become even more critical. Bitcoin has already solidified its position in the attention economy, and the newfound interest in regulatory complaints and the widely adopted BTC to drive productivity will see it lead the future of digital economies. This points to a world where crypto is leading the charge for hyper-financialization, with BTC in the driver’s seat.

So, to conclude, the resilient Bitcoin network that survived the test of time spectacularly may have started as a way to facilitate the transparent flow of monetary value, but today, it has become a foundation of hope to not just protect yourself from a future that is going to be super fixated on financialization aspect but to take advantage of it to build wealth and thrive.

Tổng hợp và chỉnh sửa: ThS Phạm Mạnh Cường
Theo Crypto News