Legacy Finance vs. DeFi

The Preamble to the United States Constitution emphasizes “liberty for ourselves and our posterity”.  Ever since the establishment of the Federal Reserve in 1913, our liberties and the ability to transfer wealth to our future generations has been eroding at a “boiling frog’s pace”.  Had our predecessors known then that purchasing power of the US dollar would erode by over 97% over the next 100 years, they would not have renewed their charters.

We now find ourselves with a fiat U.S. dollar that lost its peg to gold in the 1970s and is losing its strength as the “petrodollar” as Russia coordinates shipments of oil and natural gas in non-U.S. dollar-denominated currencies, even Bitcoin.  For U.S. citizens, they are beginning to see inflation return to their home shores; inflation that had been successfully exported along with manufacturing starting in the late 1980s.

The legacy banking system in the U.S. is in decline with banks struggling to source new income streams.  The cash cow that was the mortgage-backed security died abruptly during the 2007-2008 financial crisis.

The good news is that Bitcoin arose from the ashes of the financial crisis and came into existence in 2009.  For the past 13 years, it has arisen from obscurity to becoming the fastest-growing asset class in financial history.  That bears to be repeated; no other financial asset has grown as fast as Bitcoin in 13 years.  The total market capitalization of the entire cryptocurrency space now approaches $2 trillion.  In comparison, as of September 2021, the U.S. held 8,133.53 metric tons of gold in reserve equaling just over $11 trillion.  

*Source: https://capitalcounselor.com/gold-statistics/

Can cryptocurrency replace the legacy financial system?

The short answer is absolutely!  The bad news is the path toward that end is unpaved and has had numerous dead-ends.  The good news is that we are still very early in the adoption curve and innovations in the space are ever-evolving.   Since 2015, with the launch of the Ethereum blockchain, money has become programmable.  In 2017, initial coin offerings or ICOs took the place of stock offerings and VC funding to raise capital for projects.  In 2019, decentralized finance or DeFi created the ability to loan and borrow in a trustless manner using smart contracts.  Even today, the yields available in DeFi dwarf those offered by legacy finance and do so without a middleman or custodian.  The latest adoption craze is that of non-fungible tokens or NFTs.  In the future, these can replace car titles, home mortgages, municipal bonds, stock certificates, etc.

Today, with cryptocurrencies, you can transmit financial value across the globe in seconds without the need of a bank or any other intermediary like Western Union, and you can do so at a fraction of the cost and at any hour of the day.  Bank wires are now dinosaurs, soon to become extinct.

This new cryptocurrency technology allows purchasing power to be held by the individual instead of being at the mercy of the custodian like a bank or stockbroker.  In short, if you measure your wealth by numbers on a quarterly statement or on a computer screen, ask yourself “Do I really own these assets?”.  If you are looking at a brokerage statement, the answer is “NO”.  Cede and Company owns your shares. 

*Source: https://www.bloomberg.com/opinion/articles/2015-07-14/banks-forgot-who-was-supposed-to-own-dell-shares

Cryptocurrencies, when secured properly, allow a person to become self-sovereign over their wealth, reinforcing the Preamble’s promise to obtain liberty and preserve purchasing power for future generations.  Sanctuary Dex is creating solutions to “Make Cryptocurrency Useful” for self-sovereign individuals.

Author: Stephen Stubblefield, SANCTUARY DEX™ Technical Advisor

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