Why the Crypto Market Could Soon Challenge TradFi’s Dominance in Active Trading

The crypto market is now over 15 years old, and trades round the clock (24/7). As of writing, the total market capitalization stands at $2.5 trillion, while the number of listed digital assets on centralized and decentralized exchanges is well over 13,000.

Although still a drop in the ocean compared to the $109 trillion global stock market cap and gold’s $14.54 trillion, financial innovations in this nascent space are gradually proving to be superior to traditional markets on several frontiers.

Decentralized Financial Markets: The Future of Trading 

Before diving into the details of how decentralized financial ecosystems could improve on the fundamentals of TradFi, it is worth highlighting that Decentralized Finance (DeFi) protocols rose in popularity during the summer of 2020. 

Since then, they have been a focal point in the growth of the crypto market, given the solutions they offer when it comes to permissionless and non-custodial trading. So, how are these futuristic financial ecosystems changing the face of trading as we know it? 

Besides the allure of volatility, which has made some crypto traders millionaires overnight, the very fundamentals of blockchain infrastructures are also the game-changers in financial market trading: decentralization, borderlessness, and on-chain financial products that offer more flexibility for customization, such as Ithaca’s non-composable options.

Borderless & Permissionless 

As was Satoshi’s intention when Bitcoin launched in 2009, DeFi markets have morphed into decentralized markets, with over $91 billion currently locked in various protocols.

Unlike their traditional counterparts such as the New York Stock Exchange, which is owned by the ICE, DeFi trading protocols like Uniswap are designed as decentralized ecosystems and thus governed by a community; any major developments have to be voted on through the $UNI governance token.

Additionally, the aspect of decentralization has made it easier for more people to access crypto trading opportunities, which is not the case in TradFi. For one to trade on a centralized TradFi platform, there are several requirements, including meeting all the KYC criteria and in some cases a minimum net worth. 

This ‘formal gatekeeping’ has significantly contributed to the growth of the wealth gap; for example, in the U.S. top 10% earners own 66.6% of the total wealth while the bottom 50% only own 2.6%. 

On the flip side, DeFi trading protocols are changing the narrative. They do not discriminate based on traditional financial market laws. What this means is that anyone from across the world can simply sign up for a non-custodial wallet such as Metamask or Ambire and instantly begin their trading journey. 

Given the seamless access to trading opportunities, it is no coincidence that the leading nations in crypto adoption, as per Chainalysis' latest report, are users based in developing countries, where cryptocurrencies are emerging as a strong inflation hedge or form of remittance. To add to it, acquiring a regulated trading account in most of these jurisdictions is a challenge, and in most cases small time investors end up missing out on opportunities. 

Advanced On-Chain Market Products 

Another fundamental way that crypto is changing traditional finance is through on-chain economies. Before Bitcoin’s debut, all markets operated on centralized databases with the information stored off-chain. However, with the advent of DeFi, even traditional assets are being integrated with on-chain markets, most notably Real World Assets (RWAs). 

This novel financial markets niche is projected to balloon into a trillion dollar economy by several TradFi firms, including Boston Consulting Group and JP Morgan. Ideally, the goal is to tokenize real world assets such as stocks, commodities, real estate, and art, among others. This will make them tradeable via the blockchain, ultimately attracting more liquidity and introducing core aspects such as fractionalization to help traders purchase smaller units. 

There are also on-chain derivative markets that are launching more flexible financial products for both crypto natives and newcomers. A great example is the Ithaca non-custodial composable option protocol. This DeFi protocol leverages a multi-product cross-order book matching engine to offer access to composable option contracts that can be easily integrated or "composed" with other DeFi protocols or smart contracts to create more complex financial products or strategies.

These advanced offerings are just a sneak peek of the developments taking place in the on-chain crypto market trading environment. Other notable advancements, which are building on the TradFi trading model, include the adoption of decentralized identity solutions enhancing security and compliance in crypto trading, and decentralized prediction markets which are democratizing access to financial information and market insights.

Conclusion 

Although mocked over the years, the crypto market's resilience is undeniable. Bitcoin has posted better returns than all asset classes over the past decade, not to mention that these gains were not and are still not reserved for the elite, as is the norm in TradFi. In many ways, the digital asset trading ecosystem embodies futuristic establishments where control will be given back to the people, and anyone will be able to innovate or participate. Time will tell!

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