Crypto is an asset class that imposes a new set of considerations on all participants. Seen as a financial symbol, it looks like anything else with a price chart. Consider it a social technology; some might justifiably view it as an existential threat to what we call “business as usual.” As a market data provider whom dxFeedWe think the point is that what makes crypto so interesting is also what has historically been a stumbling block for both corporate entities and regulators.
The top down view
From an institutional perspective, the crypto markets remain immature, despite all the on-ramps 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 more difficult to regulate. From a business perspective, the underlying ethos of cryptocurrencies as open source and permissionless is another obvious hurdle that needs to be overcome. Approaching cryptocurrencies from this point of view inevitably leads to questions like: “How do you create walled gardens when the underlying technology is explicitly concerned with circumvention?”
Crypto also forces regulators to stay ahead of what is technically feasible, which is more of a challenge than the role they have had to play so far. Staying at the forefront of financial innovation in traditional markets is task enough, 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, vertical world, we take the idea of an institutional client and transform it into a finished, regulated financial product. This requires a formal methodology, data sourcing and refinement, and the development of tools for ongoing management of all of the above. The methodologies we employ, how we obtain and process data, and the tools we create for reporting and management serve a dual purpose: they are also created specifically for the client to make the strongest case with their regulators.
The bottom-up view
From this point of view, it is important to understand that this is a set of concerns and assumptions as opposed to much of the above. I already mentioned permissionless vs. permissioned and open source vs. 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 mindsets would put it. Let’s not forget that Bitcoin was created as a response to the kinds of monetary excesses that central banks have engaged in for a while.
Decentralized systems necessarily develop in a more messy and messy way. So when dxFeed, as a data provider, looks at the landscape from the bottom up, we can see a lot of opportunities with respect to what high quality data can offer the space. Still, these opportunities are of a very different kind.
The way decentralized systems incorporate information from the outside world is a great example of how data technologies can be valuable inputs to decentralized oracles. This is a basic requirement for all subsequent smart contract innovation because a lot of the things that people actually want to get involved with have some sort of real-world component that needs to be accounted for.
But we don’t need to get into the bush. In reality, many of the questions raised by cryptocurrencies after the boom and bust cycle of 2017 have yet to be answered. These systems have yet to scale significantly, certainly not without sacrificing decentralization. However, the technology has developed by leaps and bounds. However, it is difficult for passers-by to compare similar products because the space lacks a trusted and agreed-upon set of metrics for comparing next-generation crypto platforms. There is a technological arms race, and nobody knows who is winning.
the recent moon debacle it is a timely example, not only because of the amount of value locked up in it, but also because of the number of prominent macro, VC, and crypto investors who lost their shirts in this mess. Data is how we differentiate sentiment from fundamentals, hype from truth, and I’d say the space badly needs it.
As you can see, these are all data issues. Still, they are problems of a different order than we find in the top-down world, where what is known and what is allowed has generally already been established. Innovation has the task of playing within the rules.
the road ahead
We are witnessing an intriguing evolutionary struggle between centralized versus decentralized approaches to organization and fairness and top-down versus bottom-up methods of achieving consensus. It is evolutionary because the two systems are developing independently in an uncertain environment where what qualifies as “best fit” is a moving target.
What this means for business leaders and entrepreneurs in the centralized world is that in order to truly “get” crypto and have a chance to participate in its evolution, they will have to put certain entrenched business beliefs and practices on the backburner. The world of cryptocurrency is permissionless and open source: anything that even smells like a walled garden is considered suspicious and generally avoided by die-hards.
The question should not be “What can my business get from cryptocurrencies?” but “What can we offer that 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 this is how you bridge the gap between the two worlds and gain the trust and respect of communities that may be more influential in the future than they are today.
We are living and working at a point where these two worlds are beginning to collide, and no one knows how the global financial system will develop or look like, let alone how we will have democracy in the future. The biggest disruptive influence crypto may have could ultimately be in governance rather than finance.
dxFeed is a leader market data and service provider Y calculation agent for the capital markets industry. According to the WatersTechnology 2022 IMD & IRD awards, it is the most innovative market data project. dxFeed primarily focuses on providing financial information and services to buying and selling institutions in the global markets, both traditional and crypto. That includes brokerages, prop dealers, exchanges, individuals (traders, quants, and portfolio managers), and academics (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 last five years, despite extremely challenging circumstances, dxFeed, a company that Oleg has been running, increased its revenue by 45% during 2021, continuing the trend of double-digit annual growth totaling over 560 % since 2016.
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