Crypto is an asset class that forces a new set of considerations for all participants. Viewed as a financial symbol, it looks like anything else with a price chart. Consider it a social technology; some could rightly regard it as an existential threat to what we call “business as usual”. As supplier of market data here at dxFeedwe think the point is that what makes crypto so interesting is also what has historically been such an obstacle for both corporate entities and regulators.
The top-down view
From an institutional perspective, crypto markets remain immature, despite all the accruals that have come into play. When an institution considers an asset class to be immature, this primarily means that the markets are fragmented and illiquid compared to their traditional counterparts. This makes them easier to manipulate – and harder to regulate. From a business perspective, the underlying ethos of crypto as permissionless and open source is another obvious hurdle to overcome. Approaching crypto from this point of view inevitably leads to questions like, “How do you make gardens of walled buildings when the underlying technology is explicitly concerned with bypassing them?”.
Crypto also obliges regulators to remain at the forefront of what is technically possible, which is more of a challenge than the role they have had until now. Staying ahead of financial innovation in traditional markets is quite a task, let alone a relatively new technology that was the domain of academia and the military just a few decades ago.
When companies create a crypto product or service for the centralized, top-down world, we take an institutional client’s idea and transform it into a finished, regulated financial product. This requires a formal methodology, the acquisition and refinement of data, and the development of tools for the ongoing management of all those mentioned above. The methods we use, how we collect and process data, and the tools we create for reporting and administration all have a dual purpose: they are also specifically designed so that the customer can make the strongest case to their regulators.
Bottom up view
In this view, it is important to understand that you are dealing with a set of concerns and assumptions unlike much of the above. I’ve already mentioned permissionless versus permissioned and open source versus closed source. But even Bitcoin’s status as a bearer asset is a feature from a bottom-up point of view—not a bug, as some institutional thinking would have it. Let’s not forget Bitcoin was created as a response to the kind of money surplus central banks have engaged in for some time.
Decentralized systems necessarily develop in a more scattered and random way. So when dxFeed, as a data provider, observes the landscape from the bottom up, we can identify many opportunities regarding what high quality data can offer the space. Yet these possibilities are of a completely different kind.
The way decentralized systems incorporate information from the outside world is a good example of how computer technologies can be valuable inputs for decentralized oracles. This is a fundamental requirement for all subsequent smart contract innovation because many of the things people really want to engage with have some kind of reality component that needs to be taken into account.
But we don’t need to get into the weeds. In reality, many of the questions that crypto raised after the 2017 boom/bust cycle have yet to be answered. These systems have yet to scale meaningfully—certainly not without sacrificing decentralization. However, technology has developed in leaps and bounds. Still, it’s difficult for onlookers to compare like-for-like because the space lacks a reliable and agreed-upon set of metrics to compare next-generation crypto platforms. It’s a technological arms race, and no one knows who will win.
The last one LUNA debacle is a timely example, not only because of how much value was locked up in it, but also because of how many prominent macro, VC, and crypto investors lost their shirts in this disaster. Data is how we separate sentiment from fundamentals, hype from truth, and I’d say the space badly needs it.
As you can see, these are all computer problems. Yet they are problems of a different order than those we face in the top-down world where what is known and allowed is already established. Innovation is tasked with playing within the rules.
The way forward
We are witnessing an exciting evolutionary battle between centralized versus decentralized approaches to organization and justice and top-down versus bottom-up approaches to achieving consensus. It is evolutionary because the two systems develop independently in an uncertain environment where what qualifies as “best fit” is a moving target.
What this means for business leaders and entrepreneurs from the centralized world is that in order to truly “get” crypto and have the opportunity to play a role in its development, they need to put certain long-held beliefs and business practices on the backburner. The world of crypto is permissionless and open source – anything with a whiff of a walled garden is considered suspicious and generally shunned by die-hards.
The question shouldn’t be “What can my business get out of crypto?” but “What can we offer that the space currently lacks?” Ask “What problems can we help solve?” instead of “How do we get some of this hype to rub off on us?” I think that’s how you bridge the two worlds and gain the trust and respect of communities that may be more influential in the future than they are today.
We live and work at a point where these two worlds are starting to collide, and no one knows how that will play out or what the world’s financial system will look like – to say nothing of how we do democracy going forward. The biggest disruptive influence crypto could have may ultimately be in governance rather than finance.
dxFeed is a leader provider of market data and services and calculation agent for the capital markets industry. According to the WatersTechnology 2022 IMD & IRD awards honors, it is The Most Innovative Market Data Project. dxFeed focuses primarily on providing financial information and services to buy-side and sell-side institutions in the global markets, both traditional and crypto markets. It includes brokerages, prop traders, exchanges, individuals (traders, quants and portfolio managers) and academia (educational institutions and researchers).
Oleg Solodukhin is the CEO of dxFeed (a data and data management solutions company) with 20 years of experience in the financial industry and information technology. Over the past five years, despite extremely challenging circumstances, dxFeed – a company Oleg has run – grew its revenue by 45% during 2021, continuing its trend of double-digit annual growth totaling over 560% since 2016.
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