After finishing the sixth year of learning finance，I graduated with the idea of a ride on the crest of success in the financial market and earning a hundred million in the financial market. My university attached great importance to building students’ confidence in their teaching. I came to a securities company to work as a PE analyst. Due to automation, most of my work is operating the system, verifying and correcting errors. When “options, futures, and hedges, etc.” started to blur in my mind, I realized that I was getting further and further away from being “The Wolf of Wall Street”. So I resigned. I didn’t want to end up being a system operator.
With the application of emerging technology in the financial field, the recruitment of talents in the financial market also pays more attention to assessing their technical ability. Therefore, a friend of mine, a finance major graduate student, spent the whole summer learning Python online. But after the summer, his knowledge of Python was stuck in the “HELLO WORLD.” I wonder what kind of changes the financial market are going through.
Blockchain and cryptocurrency
The biggest change Blockchain’s technology has brought to the financial industry is Defi. What is Defi?The traditional finance is centralized finance. All service rely on a central authority. In contrary, Defi means financial service with no central authority or someone in charge.
Defi is the short for Decentralized Finance. Defi ecosystem is based on blockchain technology. Defi includes digital assets, protocols, smart contract and dApps. So what is the difference? Defi gives you full control of your own asset. The blockchain technology brings speed, accuracy and efficiency to the financial market.Defi’s components are decentralized infrastructure(Ethereum),decentralized money(stable coin-DAI),and decentralized financial services( DEX, money markets, insurance, etc.).
From my research, stablecoin is a stable cryptocurrency. Unlike Bitcoin, it is pegged to the value of a real world asset like US dollar or Gold. It might be hard for us to do the daily transactions using cryptocurrencies like Bitcoin. This reminds me the news that 10 years after the guy who bought 2 pizza for 10K Bitcoins has no regrets.So how do stablecoins keep away from volatility? Companies try and maintain its stable coins’ peg to a fiat currency by collateral and control the supply of stablecoins. For example, each USDT is backed by an actual US dollar which is hold by Tether as a collateral. And they can also decrease the supply of stablecoins as the demand decreases to maintain the value. Stablecoin now is not accepted as a payment method.They are used in cryptocurrency exchange. But I am skeptical about if stablecoin is decentralized or not.After all, there are still companies behind to maintain the peg.
A professor of mine said “Bitcoin and Tesla ‘s intrinsic value are all hope.”Although there has been a lot of buzz around cryptocurrency and blockchain, Visa, Mastercard, and Paypal feel they need to put a stake in this ground. Mastercard obtained over 30 patents for technology to process cryptocurrency payment with the traditional credit card systems. One of the best patents is the blockchain-based payment system. It is expected to provide merchants with instant payments, quick customer tracking, and secure verification of payments. For Visa, they focus on the approach to create value for businesses by blockchain technology. Visa B2B Connect platform assists the progress of transactions between businesses by providing a way for their clients and vendors to be paid without third-party involvement.PayPal continues to battle with Square in the cryptocurrency space. In late November, PayPal launched a cryptocurrency trading service, allowing clients to buy and sell Bitcoin. Also, PayPal customers will be able to use cryptocurrencies to shop at the 28 million merchants on its network starting in early 2021, the company said. For Square, their cryptocurrency transactions platform Square’s CashApp is appointed as their main driver to their third-quarter earnings performance success.Square also said it purchased $170 million in Bitcoin in February to raise its holdings to about 5% of the company’s cash and equivalents.Co-founder and CEO of Crypto.com, Kris Marszalek, said that “blockchain payment platforms provide a better way to handle online payments which will also replace credit card payments soon in the coming years.” I wonder when the replacement will happen? With so much information, I couldn’t wait to close my first cryptocurrency transaction. Maybe the replacement is not in the coming years but is happening now.
Decentralized Exchange and Decentralized Insurance
Decentralized exchanges is peer to peer. Without the central authority, we don’t have to have accounts, sign up or verify id to make a deal because there is no exchange operator. The smart contracts enforce the rules and execute the trade.Since the blockchain runs on smart contracts, the investment can be completely autonomous.
Decentralized insurance is a decentralized platform connects the people who are willing to pay for a insurance with the people who are willing to insure them for a premium.There is no insurance company in the process.
The decentralized financial services are like playing lego to find matches.We could get more creative when we can decide what we want to build.
Do you think the future will be a combination of traditional finance and Defi or Defi will totally replace traditional finance?