Sang Lee argues that while blockchain technology advancements have already left traditional banks in the dust, adoption remains relatively low due to a number of variables.
If crypto capital markets have a chance of becoming an institutional reality, decentralization will be one of the main components according to one industry insider.
Capital markets bring together suppliers and people in need of capital to launch ostensibly efficient transactions. Investments or savings are frequently channelled between fund sources such as banks and those in need of capital such as corporations, governments, and individuals.
Sang Lee, the co-founder of VegaX Holdings, says established financial institutions have simply been left behind by the quick speed of development in the crypto industry.
VegaX Holdings is developing a suite of cryptocurrency-based financial services. Its VegaX decentralized finance (DeFi) platform supports staking, and its Konstellation ecosystem is a Cosmos-based DeFi ecosystem.
Lee believes that decentralization will be the most essential factor in crypto’s entry into capital markets. Decentralization entails eliminating costly intermediaries in decision-making and transaction execution.
“You can’t send a wire on the weekend, which is atrocious,” Lee said of the current condition of centralized payment platforms. Furthermore, the number of times a stock changes hands when you acquire it is appalling.” He continued, saying:
“We’ve evolved far enough that we no longer need people as intermediates.” It used to be necessary, but not any longer.”
Intermediaries tend to increase the number of fees paid and the time required to make an investment, potentially lowering possible returns. Decentralization may be a practical method to make markets more efficient and help investors achieve higher profits.
Lee also feels stablecoins will be critical in growing crypto capital markets. Stablecoins, he believes, have the most potential to outperform other digital assets and even fiat currency because most stablecoins, such as Tether (USDT) and Dai (DAI), are still denominated in US dollars.
He stressed that stablecoins provide investors with a global unit of account with which to conduct transactions. More importantly, stablecoins will be used by everyone because they add a sense of consistency, especially if markets grow frothy. Lee stated:
“In an economy where things are becoming murkier and more difficult to track, a stablecoin helps to even things out.”
Circle’s USD Coin (USDC), the world’s second-largest stablecoin by market value, has already begun to undertake a bid to enter capital markets with the support of new partner BlackRock.
Finally, Lee believes that money, people, and things will flow from the traditional financial world into the blockchain, rather than the other way around. As he phrased it:
“Crypto will probably refuse to be brought into the incumbent fold. Things off-chain will move on-chain, but it won’t go in reverse.”
However, he feels that “DeFi and crypto markets need to be a lot more efficient” in order to help the pace of adoption rise as the technology advances. According to him, a significant amount of inefficiency stems from “unusable” systems aimed to assist unskilled consumers in bringing funds into crypto. He continued, saying:
“People are staying away from the best performing asset class in history because there is no way to get there.” Adoption would be much higher if platforms were more user-friendly for the average person.”
This viewpoint is consistent with an analysis published earlier which sees traditional financial resistance to embracing cryptocurrency as an increasingly clear exercise in futility.
Token bridges are required to bring goods onto the blockchain and into crypto, something Vitalik Buterin expressed concern about in early January. They have also been the target of many security breaches in 2022, resulting in losses of about $1 billion(R 15.7bn).
Regardless, Lee considers them to be an important part of the capital markets infrastructure. “We need bridges to build out the capital markets,” he continued, “but the problem is that most bridges are pseudo-centralized.”