GameStop legend paves the way for new decentralized financial orders

Every major conversion comes with a new tool set, which was always surprising at the time, but in hindsight it was obvious. Bitcoin (Bitcoin), both climate change and GameStop Mass action is being promoted Take dramatic rather than evolutionary action. We can also see that these are individual vectors of the same movement, highlighting the inefficient parts of the legacy system and the solutions driven by the aggregation of individuals with collective beliefs.

Shocking but not surprising, some of these incidents highlighted the opaque nature of centralized systems. They follow recent trends from companies such as Reddit, Robinhood, and E-Trade, which restrict users from accessing the entire platform or specific features. The GameStop episode shows how a centralized system guides the transaction process unfairly to the detriment of retail investors, thereby benefiting traditional institutions. Specifically, it reveals the staggering number of mortgage requirements that clearing companies place on brokers, such as Robinhood. The reason for this is to maintain a sufficient margin level.

related: GameStop’s story exposes the paternalistic style of supervision and the true value of DeFi

Another thing that was exposed was that brokers such as Robinhood, Fidelity, E-Trade, Charles Schwab and TD Ameritrade participated in a controversial practice called “pay-to-order”, which could lead to beach grabs. In the process, market makers such as Citadel Securities pay a certain fee to the broker to obtain orders placed by retail dealers. When tied together, these orders allow market makers to obtain information about potential short-term, future price movements. Are there any benefits for retail traders? As the brokerage company said: Yes, because this approach allows commission-free trading.

Although these practices are common in traditional Internet and finance in a narrow context, things may become uncertain when we conduct a more extensive study of the similar meanings of censorship in other areas of society.

In response to this broken system, viable decentralized alternatives created the premise for large-scale outflows, which marked a historic reduction in centralized structures. Decentralized finance (DeFi) and decentralized exchanges (DEX) have played an important role in this broader transformation, addressing the inherent opacity of the traditional financial system and the adverse effects on ordinary participants.

related: The GameStop legend reveals the manipulative nature of traditional finance, and DeFi is the answer

Can DeFi and DEX replace traditional finance?

The decentralized nature of blockchain technology gives resistance to censorship. Therefore, it allows applications in which centralized roles (such as Robinhood) limit the functions of traders can be simply designed. The open source and auditable nature of the decentralized ecosystem will make this move obvious and cause its users to lose credibility for such transactions. Therefore, DEX is expected to provide an exchange function that is not subject to censorship, so that users can conceptually participate in even fairer competition regardless of retail or institutional status.

The innovation around DEX is still in the early and experimental stage. However, it has the potential to allow different participants unrestricted access to an unlimited world of asset exchange, not only traditional blockchain tokens, but also public stocks, commodities, derivatives, and even if users need it, or even ultimately GameStop.

related: The rise of DEX: Driven by DeFi, prepare to destroy the status quo

Many founders in this field say that the inequality of traditional finance has prompted them to establish their own DeFi ecosystem. Alex Pack, managing partner of Dragonfly Capital Say:

“The goal of DeFi is to rebuild the banking system for the world in this open, permissionless way. You will only shoot once every 50 years.”

In 2014, the Harsh Patel of the Bitcoin Foundation Published A paper titled “Blockchain-based Decentralized Exchange” outlines how codes, not institutions, manage the trading market. This idea is not new, but it was proposed at a time when the crypto market was facing difficulties. mt. Gox and many other centralized cryptocurrency exchanges perished due to hacking and loss of user assets between 2011 and 2014.

related: Report on cryptocurrency transaction hackers from 2011 to 2020

In order to avoid the inherent shortcomings of centralized trading, many entrepreneurs try to launch DEX to support DeFi’s core values: transparency, unrestricted trading opportunities and market access, and choice to participate in decision-making. They use the platform by managing the ownership of the token.

related: DeFi is the future of banking that mankind deserves

Decentralization in the future

The early DEX protocol used smart contracts to facilitate cryptocurrency transactions in direct peer-to-peer transactions. However, challenges including lack of liquidity and poor user experience prevent DEX from becoming a viable platform for users. Today, the iterative and innovative DEX protocol has made considerable progress in overcoming these challenges, and is gradually forming a trading interface familiar to traditional markets. For example, today’s traders can use the fiat currency on/off ramp to directly use the card and bank account balance to purchase cryptocurrency, thereby converting fiat currency into cryptocurrency and vice versa.

In addition, the upcoming DEX will introduce functions closely related to traditional markets, such as market analysis, and trading tools, such as liquidity charts, trading volume, and order book depth. These functions provide users with objective real-time data and insights into the prospects of transactions.

In this new financial system, the use of automatic market makers (such as Uniswap or 1inch) DEX creates an equal playing field for all participants. There are no brokers, clearing houses or centralized market makers; transactions are settled through peer-to-peer or peer-to-peer agreements, without the need for arbitrators, except for transactions that are codified through smart contracts. Crucially, there are no different sets of rules for different groups of players.

Access has also been improved. In the traditional market, it may be difficult to enter due to complex authentication requirements, while a typical DEX hardly requires users to provide private information. These standards provide a pseudonym advantage and privacy protection measures, otherwise there will be no guarantee when your personally identifiable information is handed over to a centralized broker. However, as more and more anti-money laundering laws enter DeFi, the regulatory environment is still uncertain and this situation may change. However, the team is working on solutions to address compliance requirements and personal desire for privacy, which enables users to retain full ownership of their assets and identity rights, and grant specific permissions to businesses to verify their identities.

If it proves that the GameStop legend is not just a temporary anomaly, then we may currently be witnessing a profound change in the financial system or creating a completely new change. As financial technology companies make it easier for consumers to enter financial markets, DEX is addressing the shortcomings of centralized markets. In some ways, this generation of DEX may become the new Robinhood. Perhaps this is the moment when the legacy of the people, not the institution, determines the future.

This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed in this article are only the personal views of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.