Opinion by: Mike Cahill, co-founder and CEO of Douro Labs
While crypto has sparked excitement around democratized investing, a large portion of the global population remains excluded from traditional wealth-building opportunities. In the US, the top 10% of earners control over 90% of stocks, and globally, many lack the financial literacy, digital tools, or capital to participate in even basic investments.
To address this disparity, traditional institutions must go beyond simply investing in crypto and explore new use cases for digital assets, particularly in the equity market.
The equity market, traditionally reserved for the wealthy, is ripe for disruption. By incorporating decentralized technology into pricing, execution, and settlement, we can broaden access to equities worldwide.
The Current Challenges in Equity Markets
Equities, or shares of private companies, are powerful tools for wealth creation. However, access is limited due to:
- Stale and Inaccurate Pricing Data: Traditional equity markets often restrict access to pricing data through non-disclosure agreements and paywalls, limiting informed decision-making for most investors.
- Exclusive Execution Venues: Despite the illusion of easy access through apps, investing in equities often involves strict vetting processes and high minimum investment thresholds. Brokerage fees and geographic limitations further hinder participation.
- Slow Settlement Periods: Equity settlement systems are notoriously slow and bureaucratic, taking days to finalize trades, especially cross-border ones. This locks up capital and discourages smaller investors.
DeFi: A Solution for Equity Market Disruption
Decentralized Finance (DeFi) offers the potential to reimagine traditional financial infrastructure, creating a faster, more accessible, and more efficient system. Key DeFi innovations include:
- Synthetic Equity Markets: These markets allow users to gain exposure to the price movements of traditional equities without actually owning the underlying asset.
- Tokenized Private Equity: Tokenization breaks down private equity investments into smaller, more affordable units, making them accessible to a wider range of investors.
- Equity-Based Prediction Markets: These markets allow users to speculate on the future performance of equities, providing another avenue for participation.
How DeFi Can Revolutionize Key Components of Equity Markets
DeFi can transform the equity market’s fundamental components:
Price
Decentralized price feeds offer real-time, accurate equity pricing data without the high cost of traditional services like Bloomberg Terminals. This empowers traders worldwide to make informed decisions, regardless of their background or location.
Execution
Decentralized execution platforms create marketplaces for fractional, tokenized equity exposure. Through smart contracts, these platforms automate trade matching, liquidity provision, and order fulfillment. This allows individuals, even in remote areas, to own small stakes in high-growth companies.
Settlement
Blockchain-based settlement in DeFi is near-instantaneous. By removing intermediaries, blockchain enables equities to be traded in milliseconds, reducing counterparty risk and unlocking capital for continuous use.
The Future of Finance: Democratized Equities
A truly democratized financial system requires rethinking the underlying infrastructure. By revolutionizing price, execution, and settlement through decentralized innovations, we can disrupt equities and bridge the wealth gap.
Key Benefits of DeFi in Equity Markets:
- Increased Accessibility: Lowering barriers to entry for a global audience.
- Enhanced Transparency: Providing real-time, verifiable data.
- Improved Efficiency: Streamlining processes and reducing settlement times.
DeFi is not just about institutions buying and trading digital assets; it’s about fundamentally changing how our financial infrastructure operates to promote equity, access, and transparency for all.
Opinion by: Mike Cahill, co-founder and CEO of Douro Labs.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. 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.
