news and opinion|20 December 2022|share

How to level up the global financial system 

Frederik GregaardChief Executive Officer

Nearly two years after one of the biggest short squeezes in market history, some lessons have been learned and others less so, possibly because investors are struggling to keep up with what has become a relentless and punishing stream of macro and market news.

The GameStop saga of 2021 has now been catalogued in two separate documentaries—aptly named ‘Eat the Rich’ and ‘Diamond Hands’— which make for compelling TV. The story illustrates the cumulative risks of powerful market players acting as gatekeepers while having little interest in protecting both individual and public interests.

The cycle of euphoria and crash that Gamestop epitomised has since played out, to even more devastating effect in the crypto arena. Hundreds of thousands of retail investors were left holding drastically devalued tokens thanks to the mismanagement of high profile investment funds and brokerages. In addition, crypto evangelists with vested interests in the inflated price of these assets and who zealously overhyped them must assume their share of the blame.

My own journey into blockchain started out of frustration. Why weren’t the benefits available to ‘accredited investors’ also available to ordinary citizens? In answering this question, I saw an amazing opportunity to democratise finance through decentralisation, empowering individuals to do more with their economic assets and to improve society as they did so.

While I firmly believe in the potential of blockchain, as long as we use the same breath to talk about crypto and meme stocks, we are falling far short of that potential.

The true financial potential of blockchain is not as a new set of speculative assets, but as a vehicle for radical transparency, giving power to identity and new forms of governance. Not to mention the efficiency of the technology itself, which can reduce market distortions and volatility, even as it lowers costs and speeds up transaction times.

In short, the blockchain mission should not be about promoting specific tokens or taking down Wall Street, but about levelling up our entire global financial system.

As we watch liquidity drain from financial reserves at frightening speed, it is critical that we refocus on this mission. We must set our sights on transforming, rather than merely trashing, the titans of Wall Street.

At the Cardano Foundation, we are committed to two difficult things: genuine engagement on the complex problem of how to educate, engage and drive adoption of blockchain technology among traditional enterprises; and active commitment to the principles of decentralisation and community best exemplified by the open source software movement.

I believe that addressing any of these two tasks properly helps to solve the other, and that we should prioritise both simultaneously. Just as the transparency embedded in open source software means it is now trusted by blue-chip companies to run their most crucial platforms, the openness and legibility of blockchain done right can help to make financial empowerment and disintermediation more than just meme stock buzzwords.

Third-generation blockchain protocols are more sophisticated and more resilient than the creaking technology on which much of our financial system still runs. But no matter how good our tech and how committed our community is, replacing the legacy technology of incumbent banks becomes an even more daunting task than trying to take down hedge funds over-exposed to a single stock. It demands not only revolutionary spirit but also regulatory awareness.

The innovation and transformation that our technologies can bring is continuing at tremendous speed, and policymakers have taken notice. In Europe, the Markets in Crypto Assets Regulation (MiCA) will soon go into effect, creating a legal framework for the functioning of crypto-assets markets. Across the Atlantic, the Biden administration is working to develop laws that spur growth and inhibit fraud.

This increased regulatory activity signals that blockchain technologies are here for the long haul. Right now, lawmakers need to ensure they future-proof their legislation so that, instead of just responding to possible threats, they can throw open the door for honest and beneficial innovation.

As for the industry, it is our job to keep innovating, to build more solutions that contribute to society, democratise and simplify finance, and enable access and inclusion to everyone. I, for one, am looking forward to what the future holds.

This article was originally published on Coindesk.