Opinion: Decentralization is an 'absolute necessity' for building crypto capital markets

One industry insider said that if the crypto capital market has any chance of becoming an entrenched reality, decentralization will be one of the key aspects.

Capital markets bring together suppliers and those who need capital to initiate so-called high-efficiency transactions. Investments or savings usually flow between suppliers of funds such as banks and demanders of funds such as businesses, governments, and individuals.

Sang Lee, co-founder of crypto financial services provider VegaX Holdings, told Cointelegraph today that existing financial institutions have been left behind by the rapid development of the crypto industry.

VegaX Holdings is building a suite of crypto-based financial services. Its VegaX decentralized finance (DeFi) platform allows staking, while its Konstellation ecosystem is a Cosmos (ATOM)-based DeFi ecosystem.

According to Lee, decentralization may be the most important thing to help cryptocurrencies enter the capital market. Decentralization involves removing costly intermediaries in decision-making and executing transactions.

Lee denounced the current state of centralized payment platforms, saying: “It’s too bad that you can’t wire money on weekends. When you buy a stock, it’s too bad how many times it changes hands.” He added:

"We've evolved enough to say we don't need a human intermediary. There was a need before, but not now."

Intermediaries tend to increase the fees spent and the time it takes to make an investment, which can reduce potential returns. Removing them through decentralization could be a viable way to make markets more efficient and help investors earn higher returns.

Lee also believes that stablecoins will play an important role in expanding the crypto capital market. In his view, stablecoins have the strongest potential to surpass other digital assets and even fiat currencies, since most stablecoins such as Tether (USDT) and Dai (DAI) are still denominated in U.S. dollars.

He emphasized that stablecoins allow investors to have a common unit of account for transactions. More importantly, stablecoins are something that everyone will use because they add a sense of stability, especially if the market is frothy. Lee said:

“In an economy where things are more obscure and harder to track, stablecoins help bring things into balance.”

Circle’s USD Coin (USDC), the world’s second-largest stablecoin by market capitalization, has begun experimenting with access to capital markets, backed by new partner BlackRock.

Ultimately, Lee believes, the flow of money, people and things will move from the traditional financial world to the blockchain, not the other way around. like he said,

“Cryptocurrencies may refuse to be included in the existing space. What is off-chain will be transferred to the chain, but not the other way around.”

However, he believes that "DeFi and crypto markets need to have greater efficiency" to help increase adoption as the technology improves. In his view, the main reason for the inefficiency is the "unusable" platforms designed to help less experienced users bring funds into the crypto space. He added:

“People are avoiding the historically best-performing asset class because there’s no way to get it. If the platforms were more usable to the layman, adoption would be much higher than it is now.”

This sentiment echoes an analysis by Cointelegraph on April 12, arguing that the traditional financial industry’s resistance to the use of cryptocurrencies is an increasingly apparent futility.

Bringing things into the blockchain and crypto space requires token bridges, which Vitalik Buterin raised concerns in early January, and token bridges have also been the target of several security breaches in 2022, costing nearly $1 billion.

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

Cointelegraph Chinese is a blockchain news information platform, and the information provided only represents the author's personal opinion, has nothing to do with the position of the Cointelegraph Chinese platform, and does not constitute any investment and financial advice. Readers are requested to establish correct currency concepts and investment concepts, and earnestly raise risk awareness.