Crypto is an asset class that forces a new set of considerations on all participants. Viewed as a financial symbol, it looks like anything else with a price chart. Consider it a social technology; some could justifiably regard it as an existential threat to what we call “business as usual”. As a market data provider here at dxFeed, we think the point is that what makes crypto so interesting is also what has historically been such an obstacle for corporate entities and regulators alike.
The Top-Down View
From the institutional perspective, crypto markets remain immature, despite all the on-ramps that have come into play. When an institution regards an asset class as immature, this primarily means that 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 obstacle that has to be overcome. Approaching crypto from this point of view inevitably leads to questions like, “How do you create walled gardens when the underlying technology is explicitly concerned with their circumvention?”.
Crypto also obliges regulators to remain at the cutting edge of what’s technically feasible, which is more of a challenge than the role they’ve had to play until now. Staying ahead of financial innovation in traditional markets is enough of 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 sourcing and refining of data, and the development of tools for the ongoing management of all those mentioned above. The methodologies we employ, how we source and process data, and the tools we create for reporting and management all have a dual purpose: they’re also specifically created for the client to make the strongest case to their regulators.
The Bottom-Up View
In this view, it’s important to understand that you’re dealing with a set of concerns and assumptions as opposed to 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 the bottom-up point of view—not a bug, as a certain institutional mindset would have it. Let’s not forget Bitcoin was created as a response to the kinds of monetary excess central banks have engaged in for a while.
Decentralized systems necessarily develop in a more sprawling and haphazard manner. So, when dxFeed, as a data provider, observes the landscape from the bottom-up, we can identify plenty of opportunities regarding what high-quality data can offer the space. Still, these opportunities are of quite a different kind.
The way decentralized systems incorporate information from the outside world is a great example of how data technologies can be valuable inputs for decentralized oracles. This is a basic requirement for all subsequent smart contract innovation because many of the things people really want to engage with have some sort of real-world component that has to be accounted for.
But we needn’t 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 meaningfully scale—certainly not without sacrificing decentralization. However, technology has developed in leaps and bounds. Yet, it’s difficult for bystanders to compare like-for-like because the space lacks a reliable and agreed-upon set of metrics for comparing next-generation crypto platforms. There’s a technological arms race, and nobody knows who’s winning.
The recent LUNA debacle is a timely example, not just because of how much value was locked up in it but also because of how many prominent investors from macro, VC, and crypto lost their shirts in this disaster. Data is how we differentiate sentiment from fundamentals, hype from the truth, and I’d say the space is in dire need of it.
As you can appreciate, these are all data problems. Still, they’re problems of a different order than the ones we encounter in the top-down world where what’s known and permitted has already generally been established. Innovation is tasked with playing within the rules.
The Road Ahead
We’re 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’s 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 from the centralized world is that to truly “get” crypto and have the opportunity to play a part in its evolution, they will have to put certain long-held beliefs and business practices on the back burner. The crypto world is permissionless and open source—anything with even a whiff of a walled garden is considered suspect and generally eschewed by the 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?” rather than “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’re living and working at a point where these two worlds are starting to collide, and nobody knows how it will play out or how the world’s financial system will look—to say nothing of how we do democracy going forward. The greatest disruptive influence crypto may have could ultimately be in governance rather than finance.
dxFeed is a leading market data and services provider and calculation agent for the capital markets industry. According to the WatersTechnology 2022 IMD & IRD awards honors, it’s The Most Innovative Market Data Project. dxFeed focuses primarily on delivering financial information and services to buy–and sell–side institutions in the global markets, both traditional and crypto. That 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 firm) with 20 years of experience in the Financial Industry and Information Technology. During the last five years, despite extremely challenging circumstances, dxFeed – a company Oleg has been running – boosted its revenue by 45% during 2021, continuing the trend of annual double-digit growth totaling over 560% since 2016.