Finance is a deeply established market with sprawling regulations and a diverse product range. There are many layers and facets to traditional finance, with a highly segmented framework based on national jurisdictions, like the NYSE or EuroNext. The systems of the old-guard have been ripped up with the coming of crypto; no more insularity, segmentation, or oligopolies. Crypto promises markets that act on financial logic, cross national borders, and are fully decentralized.
The problem with traditional finance
In traditional financial structures, power sits with centralized governing bodies, which can be inefficient and inaccurate – the overrating of CDOs in the run up the 2007-8 crash is a recent example of this. The same power can be exercised differently across nations, leading to mismatched and wrongly valued assets. Added to this, centralized institutions rest power in few hands so there is a chokepoint that can cause catastrophic failure.
Market players have an incentive to protect their money and power, so a system of layers has arisen that means a layperson isn’t able to directly trade their assets – if they’re allowed to trade an asset at all. Maintaining distance between people and their assets gives governments an opportunity to seize traded assets and also produces strong oligopolies that charge huge fees for market access. The introduction of Neo Brokers has gone some way to negate this, but not far enough.
Is DeFi the answer?
Are the issues with traditional finance big enough to need a whole new paradigm to solve them?
Distributed finance (DeFi) - truly decentalized, peer-to-peer financial products - flows power back to the masses with democracy and decentralization as key tenets of the system. There is no network of powerful regulators, rather anyone with an internet connection can be involved no matter where they are from, what their ideas about finance are, or who they are.
The issue of a few points of potential failure is solved with a distributed system. Think of DeFi as the email protocol rather than the email server; a server or node on the network can crash but the whole system is still intact.
Assets are traded directly by the people who own them on decentralized exchanges (DEXs). This means no potential for assets to be seized and no potential for oligopolies – prime brokerages become moot. Pure market forces are restored in DeFi; there is no need for regulation outside of the system so “zero trust” is introduced.
Does DeFi have drawbacks?
DeFi isn’t a complete solution to all the flaws of traditional finance; it isn’t mature enough as a system yet. Without prime brokerages, there is now margin trading or automated trade execution, which are both vital. Anonymity is highly valued by people who use DeFi and this holds back lenders who can’t be sure who is using their assets as leverage.
The backends of brokerages have tools to trigger automated trades. As it stands, DeFi has no equivalent so stop-loss and limit orders aren’t available. Even being able to trade across different DEXs can be troublesome since not all DEXs work well together.
Finally, widespread adoption of DeFi is hindered because it’s not user-friendly. The people who develop the tech of DeFi tend to be wrapped up in the process and there is little attention paid to the design element or user experience. To the uninitiated, DeFi can feel daunting.
The changes Primex Finance introduces
Some of the biggest issues in traditional finance and those that linger in DeFi are resolved with Primex Finance.
Margin trading is enabled in DeFi through Primex’s liquidity pools, known as credit buckets. Here, lenders add their assets to a risk-scored bucket so traders can borrow and leverage trades on different exchanges, with profits earning interest for lenders. Each trader has an up-to-date score which means KYC isn’t needed – lenders can work within their risk parameters based on trader performance.
Keeper Nodes in the protocol also allow for the automated trading that is lacking in traditional finance. Meanwhile, on the frontend, Primex’s design looks and feels like a normal trading terminal, inviting in people previously wary of complicated-looking tools.
Built on DeFi, Primex has all the benefits of the system and resolves some of the biggest issues still outstanding in the space – bringing in risk-assessed margin trading, automated trades, and a user-friendly interface to work with.
Is DeFi the new face of finance?
Financial markets are increasingly becoming decentralized, distributed, and borderless, but this isn’t the end of traditional finance, yet. Institutions like central banks will be around for a long while, allowing DeFi to evolve and increase democracy in finance and make money digitally native. Primex will be central to the evolution of DeFi, with margin trading, risk management, automations, and cross-DEX trading.
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