bookmark_borderStablecoins present new dilemmas for regulators as mass adoption looms

A close look at the policy issues relating to the potential impact of stablecoins on financial systems and economies around the world.

Stablecoins present peculiar challenges to regulators. Although there is no single, agreed-upon definition of a stablecoin, the common denominator of the commonly used definitions is that stablecoins are designed to maintain a stable value in relation to a specified currency, asset or pool of such currencies/assets. They are contrasted with regular cryptocurrencies, which have no such stability mechanism and whose values tend to fluctuate, sometimes even substantially. 

Related: All risk, no gain? The vague definition of stablecoins is causing problems

Stablecoins do not denote a uniform category but represent a variety of crypto instruments that can vary significantly in legal, technical, functional and economic terms. Despite its name, it is important to stress that this asset does not guarantee stability, which depends on the specific design features and governance mechanisms.

Related: Algorithmic stablecoins aren’t really stable, but can the concept redeem itself?

Regulatory attention to stablecoins

Stablecoins have been on the rise since 2014, when the first stablecoin, Tether (USDT), was launched, and even though they have become an important digital asset in the blockchain ecosystem within a few years, they have not attracted much regulatory attention. This abruptly changed with the announcement of the Libra project in June 2019 by the Libra Association, of which Facebook is one of the founding companies.

Related: The way of the stablecoin: A journey toward stability, trust and decentralization

Almost immediately, many financial authorities around the world — including the Financial Stability Board, European Central Bank, Bank of England, United States Federal Reserve as well as the U.S. House of Representatives Committee on Financial Services — issued strong statements on Libra, where the collective sentiment was caution and concern, highlighting the serious potential risks.

Related: How Facebook Libra is seeking compliance, but may not launch by 2020

Libra’s potential to become global and access billions of users through a user-centric social network platform revealed an entirely new dimension to stablecoins. The potential impact of a global yet fast, cheap, easy, seamless payment solution through a platform that is already seamlessly integrated within the lives of the global population would be very far reaching indeed. The authorities have come to realize that this crypto asset warrants special attention, due to its potential scale, borderlessness and impact on economies and financial systems.

In the following months, many official reports and documents analyzing stablecoins were produced by bodies like the ECB, G7, FSB, Financial Action Task Force and International Organization of Securities Commissions. They mostly highlighted risks and challenges, including risks to financial stability and concerns over consumer and investor protection, Anti-Money Laundering, Combating the Financing of Terrorism, data protection, market integrity and monetary sovereignty, as well as issues of competition, monetary policy, cybersecurity, operational resilience and regulatory uncertainties.

Among the plethora of official statements and reports, the Libra Association announced a redesigned project Libra 2.0 in April 2020, and soon afterward, the coin was rebranded Diem, in an effort to distance it from the controversies surrounding Libra.

Related: New name, old problems? Libra’s rebrand to Diem still faces challenges

Stablecoins and the United States

In the United States, the Office of the Comptroller of the Currency was actively contributing to the debate, publishing three interpretive letters related to digital assets. The first letter in July 2020 concluded that national banks can hold digital assets in custody on behalf of their clients. The second letter in September 2020 concluded that national banks can hold stablecoin reserve accounts on behalf of their clients. Finally, the latest letter issued in January 2021 effectively granted permission to national banks and federal savings associations to participate as nodes in the independent node verification networks (a common form of which is a distributed ledger) and use stablecoins to facilitate payment activities and other functions.

The OCC acknowledges that, like other electronically stored value systems, stablecoins are electronic representations of currency. Instead of value being stored in a more traditional way, it is represented in a stablecoin, but this constitutes only a technological distinction and does not affect the underlying activity or its permissibility. To address potential risks, banks should act in accordance with existing regulatory and compliance requirements, while staying consistent with applicable laws and safe-and-sound banking practices.

On the other hand, in December 2020, just before the end of the U.S. Congress tenure, a draft of the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act was introduced, which proposed significant increases in the regulatory oversight of stablecoins, requiring all stablecoin issuers to have a banking charter, be licensed by multiple federal agencies and follow banking regulations. The bill is at the early stages of the legislative process and has not been introduced to the House of Representatives yet.

Related: A nightmare on Stable Street: Centralized stablecoins may be doomed

Stablecoins and the European Union

In the meantime, the EU Commission issued a comprehensive regulatory proposal on Markets in Crypto-Assets, or MiCA, in September 2020, which aims to address potential risks to financial stability and orderly monetary policy from stablecoins, particularly those that have the potential to become widely accepted and systemic. MiCA provides a bespoke regulatory framework and establishes a uniform set of rules for crypto-asset service providers and issuers.

Related: Europe awaits implementation of regulatory framework for crypto assets

For stablecoins of significant potential, MiCA introduces more stringent compliance obligations, including stronger capital, investor and supervisory requirements. They will cover governance, conflicts of interest, reserve assets, custody, investment and the white paper, as well as provisions on authorization and operating conditions of service providers, who will need to be specifically authorized. Requirements include prudential safeguards, organizational requirements and rules on the safekeeping of funds. Additionally, more specific requirements will apply to certain services, including crypto-asset custody; trading platforms; exchange of crypto assets; reception, transmission and execution of orders; and advice on crypto assets.

MiCA is one of the most comprehensive attempts at regulating stablecoins and targets stablecoins not governed by financial regulation. The EU regulators want to leave no stablecoin outside of the regulatory framework. The offering and trading of any stablecoins that do not fall within MiCA definitions (e.g., Tether), and do not fulfill regulatory requirements will not be permitted within the EU. Denial of regulatory approval to certain stablecoin products that thrive in other jurisdictions may give rise to regulatory arbitrage.

Takeaways

Current regulatory scrutiny around the world is heavily oriented toward investigating and emphasizing potential risks. The benefits of stablecoins and the advantages of cheaper, faster and seamless payments (including cross-border remittances) are less accentuated, mostly just acknowledged.

A major regulatory challenge relating to global stablecoins is international coordination of regulatory efforts across diverse economies, jurisdictions, legal systems, and different levels of economic development and needs. Calls for the harmonization of legal and regulatory frameworks include areas such as governing data use and sharing, competition policy, consumer protection, digital identity and other important policy issues. Regulatory difficulties are compounded by a remarkable diversity in structure, economic function, technological design and governance models of stablecoins.

Stablecoins are an important piece of the puzzle for a future DLT-based digital economy, and the challenge for regulators is to ensure adequate regulatory treatment, supportive of innovation and mindful of potential risks. The potential global outreach of stablecoins magnifies regulatory tasks but also reinforces the urgency and importance of adequate regulatory considerations.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article is for general information purposes and is not intended to be and should not be taken as legal advice.

Agata Ferreira is an assistant professor at the Warsaw University of Technology and a guest professor at a number of other academic institutions. She studied law in four different jurisdictions, under common and civil law systems. Agata practiced law in the U.K. financial sector for over a decade in a leading law firm and in an investment bank. She is a member of a panel of experts at the EU Blockchain Observatory and Forum and a member of an advisory council for Blockchain for Europe.

The opinions expressed are the author’s alone and do not necessarily reflect the views of the University or its affiliates.

bookmark_borderThe great tech exodus: The Ethereum blockchain is the new San Francisco

The blockchain shift from Ethereum to alternate chains closely resembles the exodus of tech talent from San Francisco to emerging hubs.

Remember the “Silicon Valley Tech Bubble”? In the early- to mid-2000s, the San Francisco Bay Area gave birth to some of the most storied and successful technology companies the world has ever seen. Facebook, Google, Salesforce, Twitter, Tesla, Lyft — the list itself could take up half of this article. From the palpable energy to the networking potential, one thing was certain: San Francisco was the place to be.

For many, present-day San Francisco has lost its allure. Across the city, the cost of living continues to surge. The remaining inhabitants are cobbling together money to afford the egregiously high rates and are constantly browsing Zillow to see where the grass is greener. Suffice it to say, San Francisco has become unlivable for the working class and is no longer suitable, much less ideal, for many new and existing companies. Although it gave us early tech platforms, the overcrowded, overpriced locale clings to its reputation and the memory of what it once offered.

This isn’t to bash the city of San Francisco but, instead, to highlight the allure of what is becoming San Francisco 2.0: Austin, Texas. The cheaper, sleeker city of Austin is siphoning off a high volume of San Francisco’s best companies and brightest people. Sound familiar? The blockchain community is in the midst of a similar shift.

If you’re a developer, Ethereum was your San Francisco — you had to build there. Ethereum hosts many of the most notable decentralized apps available today and truly outlined the blueprint for smart contract development. Present-day Ethereum looks very different.

Much like the city of San Francisco, Ethereum is becoming far too crowded and far too overpriced to retain its population. The limited scalability is forcing users to explore alternative options to circumvent the excessive gas prices and avoid network congestion. To maintain the analogy: Developers are looking for their Austin, Texas.

In the blockchain ecosystem, the equivalent of Austin can be seen in the likes of similarly attractive chains like Solana, Binance Smart Chain or Polkadot, to name a few. The rise of nonfungible tokens has even brought newer chains, like Flow, to the forefront as an alternative option.

New chain, who dis?

Make no mistake, although NFTs are rising in popularity, decentralized finance remains at the heart of the crypto ecosystem. Among other things, the sustained rise of DeFi brought to light two critical concepts:

  • Decentralized finance will (most likely) attract the most mainstream institutional capital.
  • Ethereum is no longer equipped to handle the scaling decentralized economy.

Related: DeFi-ing the odds: Why DeFi could rebuild trust in financial services

For this reason, alternative chains to Ethereum are receiving more developer attention than ever before. We’ve seen the likes of Polkadot, Moonbeam, Polygon, Binance Smart Chain and Solana not only challenge Ethereum but actually win over developers.

It is possible, perhaps, that instead of completely abandoning Ethereum, developers are simply test-driving these alternative chains. Maybe a developer hasn’t given up their $3,500 per month San Francisco apartment, but they’ve sublet it while renting an Airbnb in Austin.

Related: DeFi users shouldn’t wait idly for Eth2 to hit its stride

Of course, the list does not end here. A multitude of other chains are gaining ground against Ethereum. Similarly, Austin is not the only hot destination; Miami, Denver and Toronto have each opened their arms to Bay Area transplants.

Long-term implications

As more developers flock to new chains in search of respite from high gas prices, it is worth questioning whether this is the new normal or merely an experimental phase.

At this moment in time, it is difficult to predict whether free agent developers are moving to new chains as a temporary means of mitigating gas prices or whether they view these chains as their new long-term homes. One thing we can say with absolute certainty is that alternative chains are threatening the development monopoly held for so long by Ethereum.

Related: Where does the future of DeFi belong: Ethereum or Bitcoin? Experts answer

Among the most telling factors will be the unveiling of Ethereum 2.0. The upgraded solution promises to increase the efficiency and scalability of the Ethereum network — alleviating the most alarming pain points of the blockchain at present.

Related: Ethereum 2.0: Less is more… and more is coming

At the same time, San Francisco had the biggest drop in rent across the country over the past several months, with costs dropping 23% early this year. San Francisco, in its own right, is trying to entice people with its own “2.0” unveiling.

Related: Eth2 is neutral infrastructure for our financial future

One question now haunts both Ethereum and San Francisco: Will it be enough?

Although the number of developers on Ethereum is a bit harder to determine, we’ve already seen the number of newcomers to San Francisco fall by 21%. If this is any indication, Ethereum may be in danger of permanently losing its clientele to alternative chains if it does not address its problem areas in the very near future.

Ethereum and San Francisco have both served as linchpins for development in their respective ecosystems. Their blueprints, in fact, are the basis on which these new and exciting alternatives are being built and modified.

As the blockchain community reshuffles and new apartment tenants unpack boxes, it begs the question: In which blockchain do you reside? Hopefully, one that offers less network traffic, lower gas fees, and can handle an influx of newcomers. If not, it may be time to consider a move.

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

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Alex Wearn is the co-founder and CEO of IDEX, a cryptocurrency exchange focused on performance and security. He has spent his career in software development, including time at a marketing analytics startup that was acquired by IBM and as an analytics project manager for Adobe. Prior to IDEX, he led the product management efforts for Amazon Logistics’ capacity planning. He has been working for crypto startups since 2014, transitioning to full-time with the launch of IDEX in 2018.

bookmark_borderThe rise of DEX robots: AMMs push for an industrial revolution in trading

AMM-based decentralized exchanges are seeing unprecedented adoption, but are they the future of trading?

Centralized exchanges play an important role in the cryptocurrency industry. While their decentralized exchange counterparts have been growing in popularity and usage since 2020, the overwhelming majority of crypto trading volume is still concentrated on centralized exchanges. 

The supremacy of CEXs can be clearly observed in the size and popularity of trading platforms like Binance and Coinbase, which are now so recognizable and mainstream that Coinbase has recently become the first crypto company to be listed on the Nasdaq stock exchange.

Acting as a necessary bridge between fiat and crypto, centralized exchanges provide unparalleled convenience. Nevertheless, industry leaders often see these types of exchanges as one of crypto’s single points of failure. Sergej Kunz, co-founder of 1inch Network — a DeFi platform offering automated market makers and other related services — believes that AMMs will be the main competition for centralized exchanges. He told Cointelegraph:

“In the next four to five years, the DeFi industry will grow a lot. We will eliminate intermediaries, such as banks, and replace them with DeFi. In the upcoming years, 1inch is going to be ready to compete with centralized exchanges for users who swap assets a few times a day.”

Another factor fueling the interest in DEXs is the security concerns. Although malicious attacks on exchanges have become less frequent, exchanges have repeatedly proven that they are vulnerable to hacks and information leaks.

More decentralized alternatives aim to provide an answer for those concerns, and one way to do it is through the use of the automated market maker on exchanges.

The history of AMMs: From zero to hero

AMMs are the latest prominent breed of DEX protocols. They do not rely on order books like regular exchanges but instead use mathematical formulas to calculate the price of assets.

AMMs also provide liquidity from different pools, excluding the need to have another user on the other side willing to trade. Trading is done by interacting with smart contracts or peer-to-contracts, which provide the price and liquidity necessary to execute trades.

The new AMM-based DEXs greatly facilitate exchanges between crypto assets and have surged in popularity ever since the DeFi summer of 2020. The concept was first introduced by Bancor back in 2017. Vijay Garg, chief marketing officer of MakiSwap — a cross-chain AMM — explained how AMMs are revolutionizing the world of trading, telling Cointelegraph:

“AMM is going to drive the entire financial ecosystem, as they work independently without holding private keys of users and lie under less regulatory framework. Moreover, with enough liquidity, it’s faster, easy, convenient and cheap for users to trade. AMMs fundamentally alter how users swap cryptocurrencies.”

Hailed as the first true decentralized AMM, Ethereum-based Uniswap launched in late 2018 and, within several years, took the crypto world by storm due to its simple user interface and broad listing system. Right now, Uniswap is holding on to the top spot as the world’s leading DEX in terms of trading volume.

Uniswap spurred multiple “spinoffs,” one of which was SushiSwap, an AMM that launched a vampire attack and ultimately solidified itself as Uniswap’s main rival. Although SushiSwap was the first to use this method, it has since become a common practice, as protocols constantly try to leech liquidity from one another in “AMM wars.”

AMM protocols make up almost all of the total volume on DEXs and are considered an instrumental tool for the DeFi ecosystem. However, with innovation, there are always new problems and challenges that arise.

As such, new types of AMMs have now started to bloom and have been diversifying the space, where different exchanges cater to different user needs. Alex Lee, a developer at ZKSwap — a privacy-centric AMM — told Cointelegraph:

“DeFi and traditional finance aren’t much different, but DeFi requires lesser trust. AMMs, in particular, brought changes to the current financial landscape, and this can be observed in its growth.”

The different types of AMMs

Each AMM tends to have its own unique price algorithms to harness liquidity in various ways and from different sources. In the current DeFi landscape, the three most dominant and distinct AMM protocols are Uniswap, Curve and 1inch.

As the second-largest DEX in the world, Curve inherited the core design of Uniswap but specializes as the first AMM optimized for stable asset pools. As a result of its architecture, Curve minimizes the risk of impermanent losses, solves the problem of limited liquidity, and offers one of the lowest trading rates across all DEXs.

Another popular trend in the world of AMMs is aggregation. The 1inch Network has pioneered this technique to have a dominant market share in the area. This method seeks to allow its users to save on fees when making large trades on low-liquidity pools, avoiding high slippage by routering the transaction through multiple liquidity pools. Kunz told Cointelegraph: “Through our Pathfinder algorithm, deals are split across multiple DEX pools, ensuring users will be able to find the best swap rates.”

AMM downsides and risks

One of the downsides inherent to the current AMMs is impermanent loss. Whenever liquidity pool tokens fluctuate in value, an arbitrage opportunity is created that will incur losses to the pool. The larger the fluctuation, the worse the losses will be. Therefore, AMMs work better if token pairs have similar values.

Although Curve minimizes this risk, the new version of Bancor seeks to prevent the problem completely. Allowing the creation of AMMs with pegged liquidity, Bancor v2.1 was designed to mitigate slippage and help solve the issue of impermanent losses. Nate Hindman, head of growth at Bancor Protocol, told Cointelegraph:

“The Bancor protocol uses its elastic supply token, BNT, to co-invest in its pools and earn fees that the protocol uses to compensate for IL when an LP eventually withdraws their stake. An LP must be in a pool for 100 days or more to receive full protection from IL. This means that even if a token moons in price, an LP is entitled to withdraw the full value of their tokens as if they held them in their wallet.”

There are other disadvantages to trading with AMMs. On Ethereum, high gas fees have become an issue for the typical retail trader. Still, many exchanges have started to adopt layer-one and layer-two solutions to accommodate traders looking for smaller-size swaps. As Kunz stated: “The scaling of blockchain is a missing piece for further growth of the DeFi sector, but we already see some layer-two solutions by Optimism and Matter Labs, which are hopefully going to solve this in the coming months of 2021.”

Limited liquidity in some assets can also cause issues. Still, perhaps one of the most significant problems in the world of AMM trading is front-running bots that can take advantage of trades made by unwary buyers/sellers, creating faster transactions to profit from these traders.

Aleksandras Gaška, CEO of Blank Wallet — a privacy and user-centric wallet — told Cointelegraph that this issue is affecting the common AMM user. “Although tech-savvy investors can decrease their slippage or follow a DCA strategy to avoid front-running bots by buying in a few, smaller transactions, the only foolproof strategy is to allow users to use silent transactions.”

The need for privacy in DeFi

Privacy has always been a central topic in the cryptocurrency world. For example, Bitcoin and Ethereum are pseudonymous; they are also public in their nature. All transactions and addresses are exposed on the blockchain and can be viewed by anyone.

This level of transparency creates a danger for users sharing their public addresses. As such, privacy in the world of decentralized finance is becoming a highly demanded commodity. Speaking about this need, Lee told Cointelegraph:

“Market-level information should be transparent to all participants while still preserving individual privacy. And privacy is the basic right of an individual. It’s critical to keep in mind that any decentralized financial system worth having must respect the financial ownership of the individuals it serves.”

As previously mentioned, front-running bots are a big issue in the DeFi sector, and they are a direct result of the lack of privacy found in the DeFi sector, where all transactions are exposed on the blockchain. Therefore, the use of privacy-centric wallets can mitigate this issue.

The Future of AMMs

On May 6, Uniswap released its long-anticipated v3 update. Aiming to maximize capital efficiency, the upgrade was a success and, in just one day, recorded more than twice the volume that v2 saw in its first month. Despite the achievement, many users are calling the launch a flop due to the complex user interface and soaring gas fees, which are even higher than v2’s.

While most of the DeFi ecosystem resides on the Ethereum blockchain, there is a mass migration of projects, like 1inch Network joining Binance Smart Chain and other rival DApp blockchains. Uniswap and other ERC-20-based protocols might be reliant on the success of Eth2, but the future looks to be in interoperability.

It’s tempting to assume AMMs protocols will be responsible for all on-chain liquidity in the future. However, DeFi is still a maturing technology, and its innovation is fast-paced. Even if AMMs can resolve their limitations, regulatory frameworks and new technologies might present threats to their dominance.

bookmark_borderGameStop saga paves the way for a new decentralized financial order

The GameStop saga may indicate a paradigm shift in the financial system or even the creation of an entirely new one.

Every significant transformation comes with a new toolset, one that is always surprising at the time and obvious in hindsight. Bitcoin (BTC), climate change and GameStop are all examples of ways in which mass action is pushing for dramatic, not 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 an aggregation of individuals with a collective belief.

What is so striking, but not unexpected, is that some of these events highlighted the opaque nature of centralized systems. They follow the recent trend of companies like Reddit, Robinhood and E-Trade restricting user access to entire platforms or specific features. The GameStop episode demonstrated how centralized systems could steer trading processes and unfairly disadvantage retail investors for the benefit of legacy institutions. Specifically, it brought to light a surprising amount of collateral requirements on brokers — such as Robinhood — by the clearing corporations. The reasoning for this was the maintenance of sufficient levels of margin.

Related: GameStop tale exposes regulatory paternalism and DeFi’s true value

Another thing that came to light is that brokers like Robinhood, Fidelity, E-Trade, Charles Schwab and TD Ameritrade engage in a much-debated practice called “payment-for-order-flow” that could lead to front running. In this process, market-making firms like Citadel Securities pay a broker a fee to access orders placed by retail traders. When bundled, these orders give market makers access to information about potential short-term, future price movements. Is there any benefit for the retail trader? As the brokerage companies state: yes, as this practice allows for commission-free trades.

Although these practices are commonplace in traditional internet and finance within a narrow context, things can get uncertain when we take a broader perspective of similar implications of censorship in other areas of our society.

In response to this broken system, viable decentralized alternatives create the precondition for a mass exodus, marking a historical curtailment of centralized structures. Decentralized finance, or DeFi, and decentralized exchanges, or DEXs, play an important part in this broader transformation, addressing the opacity inherent in legacy financial systems and the resulting disadvantages to common participants.

Related: GameStop saga reveals legacy finance is rigged, and DeFi is the answer

Can DeFi and DEX be a fair alternative to traditional finance?

The decentralized nature of blockchain technology confers censorship resistance. It thus allows for applications where the ability for centralized actors — such as Robinhood — to restrict traders can simply be designed out. The open-source and auditable nature of a decentralized ecosystem would make such moves obvious and result in the discrediting of such exchanges by its users. Thus, DEXs offer the promise of a censorship-resistant exchange function where users, regardless of retail or institutional status, can conceptually participate on a much more even playing field.

Innovation around DEXs is still in the early and experimental stages. But, it carries the potential to allow disparate participants unfettered access to a limitless world of asset exchange, not just for traditional blockchain tokens but public equities, commodities, derivatives and — yes indeed — even eventually GameStop, should the users demand it.

Related: The rise of DEXs: Fueled by DeFi and ready to disrupt the status quo

Many founders in the space say that the inequalities of traditional finance motivated them to build their part of the DeFi ecosystem. Alex Pack, the managing partner of Dragonfly Capital, said:

“The goal of DeFi is to reconstruct the banking system for the whole world in this open, permissionless way. You only get that shot every 50 years.”

In 2014, Bitcoin Foundation’s Harsh Patel published a paper titled “A block chain based decentralized exchange,” outlining how code, not institutions, could manage the trading market. The idea wasn’t new, but it came at a time when crypto markets were facing difficulties. Mt. Gox, along with many other centralized crypto exchanges, met its demise between 2011 and 2014 through hacks and loss of its users’ assets.

Related: Report on crypto exchange hacks 2011-2020

To avoid the flaws inherent in centralized exchanges, a number of entrepreneurs sought to launch DEXs, supporting what would come to be the core values of DeFi: transparency, unfettered access to trading opportunities and markets, and the option to participate in decision-making in the platforms they use through ownership of governance tokens.

Related: DeFi is the future of banking that humanity deserves

The future is decentralized

Early DEX protocols functioned by utilizing smart contracts to facilitate cryptocurrency trading in direct peer-to-peer transactions. However, challenges, including lack of liquidity and poor user experience, prevented DEXs from becoming viable platforms for users. Today, iterative and innovative DEX protocols have made considerable strides to overcome those challenges and are shaping up to have trading interfaces familiar to traditional markets. For example, traders today can buy crypto with card and bank account balances directly with fiat on/off ramps that convert fiat to cryptocurrency and vice versa.

In addition, soon-to-launch DEXs will introduce features germane to traditional markets such as market analytics, and trading tools like liquidity charts, trading volume and order book depth. These functionalities provide users with objective real-time data and insights into the trading landscape.

In this new financial system, DEXs that utilize automated market makers — like Uniswap or 1inch — generate an equal playing field for all participants. There are no brokers, clearinghouses or centralized market makers; trades are settled peer-to-peer or peer-to-protocol without arbitrators, except those codified by smart contracts. And critically, there are no different sets of rules for different groups of players.

Access is also improved. Whereas in traditional markets, it can be difficult to gain entry due to the complex requirements for accreditation, a typical DEX requires little to no private information from the user. These standards offer a benefit of pseudonymity and a measure of privacy protection that otherwise isn’t guaranteed when handing over your personal, identifiable information to a centralized broker. However, this may change with more Anti-Money Laundering laws coming to DeFi and the regulatory environment remaining uncertain. But, teams are working on solutions to address both the compliance requirements and an individual’s desire for privacy, which enables users to retain full ownership of their assets and identity rights, and grants specific permissions to businesses to verify their identity.

If the GameStop saga proves to be more than just a momentary anomaly, we might presently be witnessing the emergence of a profound change in the financial system or the creation of an entirely new one. As financial technology companies made it easier for consumers to participate in financial markets, DEXs are tackling the flaws of centralized markets. In some ways, this generation of DEXs may become the new Robinhood’s. Perhaps this is one of those moments where the people, and not institutional legacy, will define the future.

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

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Elvina Kamalova is a director of investments at Aludra Capital, a digital assets investment management firm based in San Francisco. Elvina has a background in digital assets investments, portfolio management and fintech product development. She is the recipient of the President’s Volunteer Service Award, presented by former President Barack Obama. She’s supported underrepresented entrepreneurs and STEM education of girls and believes in the importance of developing solutions for reducing the wealth gap and cultivating human advancement.

bookmark_borderDogecoin dumps following mention from Elon Musk on Saturday Night Live

While the crowd seemed to enjoy his performance, DOGE traders soured on Elon Musk’s shout-out.

Meme cryptocurrency Dogecoin finally got its long-awaited shoutout on Saturday Night Live — but despite hodler hopes, the immediate result has been a violent dump.

First teased by entrepreneur and DOGE cheerleader Elon Musk in late April, the Tesla CEO finally mentioned the digital asset on live television tonight in his opening monologue of the sketch comedy show. The reference was a throwaway line from Musk’s mother, who joined him onstage and asked if her Mother’s Day gift would be Dogecoin; Musk replied that it would be. 

In the minutes afterwards, $DOGE dumped upwards of 25%, falling as low as $.50 from $.66 highs at the start of the show. It has since partially recovered, trading at $.52 at the time of publication.

The Dogefather
SNL May 8

— Elon Musk (@elonmusk) April 28, 2021

An hour before the episode began, the price of DOGE sat at $.66, down from an all-time high of $.72. A pair of bearish headwinds may have shared responsibility for the pullback: Musk himself seemed to try and get ahead of the hype, urging followers in a Tweet to “invest with caution,” and a host of new data indicates that many investors may be rolling their DOGE profits into other, largecap digital assets

Cryptocurrency is promising, but please invest with caution! https://t.co/A4kplcP8Vq

— Elon Musk (@elonmusk) May 7, 2021

Additionally, Barry Silbert — the founder and CEO of Digital Currency Group, the parent company of crypto investment vehicle company Grayscale — announced a public short on DOGE via the FTX exchange. In a series of follow-up Tweets, he revealed that the position was $1 million in size, and that any proceeds or remaining funds after closing the short would be donated to charity. 

Okay $DOGE peeps, it’s been fun. Welcome to crypto!

But the time has come for you to convert your DOGE to BTC

[disclosure: we’ve gone short DOGE via https://t.co/s8Qde2Ub4Z]

— Barry Silbert (@BarrySilbert) May 8, 2021

(It’s unclear if Silbert was is using “we” in reference to Digital Currency Group, one of its portfolio companies, or is simply and bizarrely using a plural pronoun in reference to himself). 

Many DOGE investors were nonetheless holding out hope for a high-profile shoutout on what looked to be a major pop culture event. NBC, the studio behind SNL, chose for the first time ever to live-stream the episode on Youtube, per the Wall Street Journal.

Even a mention could have significant impact on the price of DOGE as well: the meme currency has proven to be susceptible to price movements based on positive social media volume, and multiple studies have shown that Tweets from Musk often lead to price appreciation. A mention on an even bigger platform was thought to potentially lead to even greater gains. 

Leading into the premier of the episode, Alameda Research trader Sam Trabucco (who said in a previous Tweet that he was “studying the typical SNL episode structure to try and understand when a DOGE mention would be the most natural”) speculated that if a joke or mention didn’t come in Musk’s opening monologue, it would be “all over.”

My instinct is if it’s not in his monologue it’s all over.

— Sam Trabucco (@AlamedaTrabucco) May 8, 2021

Despite arriving during the monologue, traders nonetheless responded negatively. It remains to be seen if a DOGE-centric skit later in the show can perhaps turn the speculative asset’s fortunes around.

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