The rumors that Goldman Sachs is considering hosting services for crypto funds are appearing on Wall Street and quickly spread in the world of encryption, making it the most inspiring news today.
The encryption market is constantly and attractive, but it is undeniable that this market is extremely small compared to the traditional asset investment market. At present, the total market value of the global cryptocurrency market is about $ 235 billion , compared to the total market value of the US stock market alone reaching $30 trillion . A common view in the market is that even if traditional institutional investors only allocate 1% of their assets as cryptocurrency assets, it means huge wealth effects and investment opportunities.
Of course, there are still many obstacles to be removed to promote traditional investors into the cryptocurrency market. One of the obstacles is the rumor that the”hosting service” that Goldman Sachs is conducting research .
According to Bloomberg News, Goldman Sachs is considering hosting services for crypto funds. If this opportunity is implemented, it means that the investment bank will hold cryptocurrencies on behalf of the funds , which can reduce the risk of customers suffering losses due to hacking.
People familiar with the matter said that Goldman Sachs is still seriously studying the related services and is still not sure about the timetable for the company to launch the hosting service. However, the officially provided hosting services of institutions such as Goldman Sachs will provide reliable support for crypto funds and pave the way for more investors to invest in this asset class.
In fact, compliant currency exchanges, including Coinbase, have also been exploring hostage businesses for institutional investors, and institutional investors on Wall Street are welcome to enter.
However, the hosting business is only one of the conditions that institutional investors need. In addition to this, in the world of cryptocurrency investment, thelack of intermediary sources , and the lack of trading tools to hedge risks , these problems become a headache for cryptocurrency investors, and also let tens of billions of dollars against this The market is discouraged.
The good news is that in these areas, whether it is traditional investment banks ,large crypto-equity exchanges , or startups , there are many teams working hard to fill the gap in the world of encryption for institutional investors.
Ethereum token shorting agreement will be available soon
The current cryptocurrency investment market, lack of trading tools to hedge risks , has become a major obstacle to institutional investors.
This situation may change soon. A decentralized financial derivatives startup called”dYdX” officially confirmed that it will launch an agreement that can be used to short Ethereum token ETH and other ERC20 standard tokens in two months , which can be used for these Leverage investment in tokens.
All in all, investors can make a lot of money by shorting these tokens; shorting can also be used as a way for investors to hedge against price fluctuations in cryptocurrencies.
“DYdX” is located in a San Francisco start-up company, its founder, Antonio Juliano 2015 graduated from Princeton University in computer science, was once Coinbase software engineer, and later in the Uber worked for some time, after a brief over-founded a company called ” Weipoint ‘s startups develop a search engine for decentralized networks. He worked full-time on the project for a few months, but found that not many people developed DApp, so no one searched for these DApps. He felt that this idea was too early.
Not long after, he turned to “dYdX”, a startup that developed a cryptocurrency leverage deal. Because in the process of developing the DApp search engine, he noticed that although investors’ interest in buying and selling cryptocurrencies has exploded, there is a lack of corresponding derivatives financial instruments.
He believes that if someone builds a hedge fund into the blockchain investment world, then large hedge funds will eventually knock.
The company completed the seed round financing at the end of last year , and investors can be said to be a big coffee. In this round of $ 2 million in financing, Andreessen Horowitz and Polychain led, and Kindred Ventures and Abstract Ventures followed. Juliano also received angel investments including Coinbase CEO Brian Armstrong and co-founder Fred Ehrsam. In addition, the famous continuous investor Elad Gil is also an angel investor in the project.
Juliano now leads a team of five people who have worked for Google, Bloomberg, Goldman Sachs, NerdWallet and ConsenSys.
Impressing these star investors is an exciting reality: in the traditional investment market, the size of the derivatives trading market is usually several orders of magnitude higher than the spot trading and trading markets. Therefore, Antonio Juliano, the founder of “dYdX”, said to the outside world: “The current cryptocurrency market transaction size may be about $5 billion to $10 billion, but the derivatives market is likely to be 10 times larger than this size . I think there. There is a huge opportunity.”
In addition, Juliano also said: “So far, cryptocurrencies have been mainly used for trading and speculation, both for trading and holding, but mature financial institutions do not trade like this.”
In a mature financial market, short selling through leveraged trading is the main means by which institutional investors hedge their investment risks.
How does dYdX achieve a short sale?
dYdX provides short currency tokens . This protocol is open source, so technically anyone can fork it to distribute their own tokens. But dYdX plans to become the vane, with its own version of the short-selling currency, providing maximum liquidity for investors trying to buy or sell short-selling coins.
The mechanism behind it is to buy “ETH to make empty coins” through ETH or stable currency through an exchange or by using the dYdX protocol. The price of ETH for empty currency changes inversely with ETH, so when ETH price drops, it will rise. ,vice versa. If the investor’s securities predict that the ETH price will fall, you can cash in the currency by selling ETH.
On the back end, the lender will provide ETH as a collateral for a smart contract that supports ETH to make empty coins, earning interest from it. Smart contracts require only a few actors to initiate or close ETH to make coins.
At the same time, if the price of ETH rises, dYdX also provides the leveraged coin business of Ethereum tokens , which investors borrow to increase profits through leverage.
dYdX plans to offer short and leveraged services for any ERC20 token in the future.Juliano said dYdX is building a client-side app for buying tokens, but will also work with exchanges to provide leveraged trading tokens.
“We believe that the positioning of dYdX is not only a junk coin that allows you toshort the money , it should be a mature financial product.”
Build infrastructure that attracts large amounts of money into encrypted transactions
How will dYdX make money? Just as the very common situation in the world of crypto assets, Juliano is not completely sure about this, just want to establish a use case first .
“We plan to capture value at the protocol level through a value-added token,” Juliano said. “If we rush to launch a problematic token, it’s easy because we’ve seen many other agreements do this. But we think it’s worthwhile to think deeply aboutthe best way to integrate tokens into our ecosystem , which creates value for the user, not the end user.”
His investors are very good at him. Polychain founding partner Olaf Carlson-Wee told the media: “Juliano and his team are top engineers in the encryption ecosystem, creating an innovative software system for P2P financial contracts. We believe this will attract millions of people. Users. I don’t care about the short-term income model, but focus on the opportunity to permanently improve the global financial market.”
Less than two months after the official release of the agreement, Juliano is also scrambling to protect the protocol from attacks. “You have to take smart contract security very seriously. We have almost completed a second independent security audit,” he said.
The security provided by decentralization is one of the selling points of dYdX, and opponents such as Poloniex use leveraged trading to achieve leveraged trading, using a centralized agreement. There, investors must lock ETH as a collateral for a long time, and if the exchange is attacked, these assets will be at risk and they will not benefit from shared liquidity like dYdX .
dYdX will also compete with the Chicago Board Options Exchange CBOE, which now offers Bitcoin futures and margin trading, for short-selling cryptocurrency investors , although CBOE does not currently have ETH-related futures contracts.
Since the dYdX protocol can generate short tokens for other ERC20 tokens, Juliano hopes that users can short the entire cryptocurrency market through a mix of investments .
Of course, if dYdX wants to compete with these centralized exchanges and institutional futures markets, it must face the convenience of these exchanges. dYdX must significantly improve the user experience and bring in more partners.
In addition, dYdX said that if everything goes well, it is hoped to enter the option or swap market.
“These derivatives are usually traded by mature traders. We believe that there are not many such traders in the current cryptocurrency market,” explains Juliano. “Once the market matures, the other types of derivatives markets we enter in the future will be very large.”
Institutional investors also need “intermediaries” to provide institutional brokerage services
On Wall Street, middlemen are called “brokers” and match business between institutional investors such as hedge funds or fund managers and exchanges and other trading platforms. In the cryptocurrency world, such operations are difficult to achieve because the entry threshold is very high .
The introduction of institutional brokerage services in the world of cryptocurrencies sounds ironic.
The world’s largest cryptocurrency bitcoin BTC was created after the global financial tsunami. Its original purpose was to act as a financial system for direct transactions between people, abandoning these financial intermediaries on Wall Street .
However, institutional investors will have difficulty entering the market if they do not have “intermediaries” such as institutional brokerage services.
Colleen Sullivan, head of CMT Digital, a cryptocurrency venture capital firm , said that the lack of institutional brokerage services is one of the constraints that hinders the growth of the cryptocurrency industry , because if so, investors need to mobilize their own money for each transaction, making it risky. The level is above the Wall Street average.
“Lack of institutional brokerage services, trading organizations directly bear various risks, such as cross easily as being black, regulatory issues, operational issues, technical issues , and so there are a lot of problems, any problems can bring a deal to give money or institution Token loss,” she said.
The rise of institutional brokerage services in the 1990s, and at the same time, the hedge fund industry has also begun to take off. According to the banking research firm Coalition, the world’s 12 largest banks in the first quarter of 2018, the agency brokerage department revenue totaled 4.9 billion US dollars, reaching the highest level in the past three years.
If a cryptocurrency investor wants to buy or sell tokens, he/she must open an account at an exchange. Michael Moro, head of over-the-counter trading agency Genesis Global Trading, said that this caused a lack of liquidity and a large spread to erode profits, and in terms of market structure, a better option was to have a brokerage business for institutional investors. Institutions are in the middle of the line , and investors have to have an account to trade on all platforms simultaneously.
How to introduce institutional brokers in the decentralized encryption world?
At present, several companies in the field of cryptocurrency hope to provide this so-called “institutional brokerage business”, which means that brokerage institutions provide investment clients with funds , and customers do not need to deposit fundsin the transaction process .
Many mainstream Wall Street institutions, such as Goldman Sachs, are considering expanding such services offered by the stock market and gradually sneaking into cryptocurrency products. However, they need better market security conditions and a matching service structure .
Startups are also working on related efforts. For example, a startup called “SFOX” is interested in providing institutional brokerage in the future and is discussing future product architecture issues with outside lawyers. Digital currency company Digital Gamma also told the media that it is building its own institutional brokerage business.
SFOX is one of the few Bitcoin companies to enter the Y Combinator Entrepreneurship Inc. 2014 summer list, which helps users find the best bitcoin prices, just like the Kayak Kayak in a centralized Internet design. Help users find the best discount ticket booking website , and SFOX does it across multiple cryptocurrency dealers to help investors find the best deals and the best liquidity.
Older cryptocurrency exchanges also do not want to give up this part of the business.Coinbase, the largest cryptocurrency exchange in the United States, has been working hard to develop related businesses and hopes to provide services related to brokerage.
Mike Belshe, founder of Bitco, a cryptocurrency hosting company , said the company will one day enter the service sector, but first focused on improving managed service offerings.
For start-ups, this area is not easy to enter, because an institution needs a huge balance sheet to provide institutional trading services , which will make many start-ups look down. In addition, it is no small challenge for companies wishing to conduct institutional economic operations to be able to establish business with all exchanges that are eager to trade.
For Wall Street financial institutions, the gap in regulatory policy is the biggest challenge. CMT Digital’s Sullivan said: “Many cryptocurrency exchanges in the US and overseas are largely unregulated. According to the regulatory rules followed by institutional brokerage providers, they are not even able to establish normal peer-to-peer transactions with certain exchanges. relationship.”
[su_quote]This article is writing on 08 Aug 2018 based on information available online & news portal. If you feel it’s outdated or incorrect, please write here to update it. Mail us: [email protected] Or Whatsapp Us- +13098896258[/su_quote]
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