Crypto Trend: Gradual shift in narrative from “Be your own Bank” to “Be your own fund manager”

The evolution from the mantra "Be your own bank" to "Be your own fund manager" in the context of cryptocurrency represents a significant shift in how individuals interact with and perceive the burgeoning digital finance landscape. Initially, the allure of cryptocurrencies like Bitcoin lay in their promise of enabling individuals to control their own money without the need for and related overheads of a traditional financial institutions. This revolutionary idea was encapsulated in the rallying cry "Be your own bank," emphasizing the empowerment of having complete control over one's financial assets without the oversight or intervention of banks. This ethos was born in the wake of the 2008 financial crisis, out of a desire for financial autonomy and privacy, offering a way to store, send, and receive money with a level of freedom and security not afforded by traditional banking systems. The seminal Bitcoin paper catalyzed this movement.

However, as the cryptocurrency market matured and expanded beyond mere digital cash (which is still questioned) into a vast ecosystem of financial products and services, the narrative began to evolve. The introduction of DeFi (Decentralized Finance) platforms brought a new dimension to the crypto space, offering complex and sophisticated financial instruments such as lending, borrowing, yield farming, liquidity mining, and more. These innovations mirrored the services traditionally offered by investment funds and banks, but with a crucial difference: they were accessible to anyone with an internet connection, significantly lowering the barriers to entry for investment management activities. This shift gave rise to the concept of "Be your own fund manager," reflecting the increased sophistication and complexity of managing digital assets. Individuals were no longer just holding or transacting in cryptocurrencies; they were actively managing portfolios, making investment decisions, and seeking returns through a variety of DeFi protocols. This transition required a deeper understanding of financial principles, risk management, and market dynamics, much like a traditional fund manager.

"Be your own fund manager" underscores a transition from simple asset ownership to active financial stewardship. It embodies the democratization of finance, where the tools and platforms empower individuals to take on roles traditionally reserved for financial elites. These narrative champions the idea that anyone can create and manage a diversified portfolio, leverage trading strategies, and engage with a global financial ecosystem from the comfort of their home.

This evolution reflects the growing maturity of the cryptocurrency space and the expanding capabilities of blockchain technology. It suggests a future where individuals have the knowledge (or not), tools, and platforms to not only store their wealth but to grow it through savvy investment strategies. In essence, the journey from "Be your own bank" to "Be your own fund manager" is a testament to the empowering potential of cryptocurrencies and DeFi, offering a glimpse into a future where financial autonomy and sophistication are accessible to all.

Crypto (Tokenized) Finance - From Transaction Efficiency to Market Efficiency (We're Not There Yet!)

The thesis posits that crypto assets aren't merely speculative assets operating within inefficient markets. On the contrary, while at first glance crypto assets may appear to be all about speculation and rug pulls, the innovation that has emerged during bear market cycles has been nothing short of extraordinary.

Innovations range from:?

a.??? Scalability - Ethereum's "DenCun" upgrades, Celestia, EigenLayer, and various data availability layers combined with Layer 2 innovations around data availability and rollups — these are aiming to provide the foundation for a global transaction infrastructure. This infrastructure is capable of supporting transactions stemming from new financial products and innovations at a global scale, serving a diverse range of asset classes and markets.?

b.??? Usability - Projects like ENS, account abstraction, liquidity aggregation layers, intent protocols, intent routers, and various new wallet technologies aim to resolve usability issues that have plagued the industry since its inception. Intent protocols, which strive to remove the barriers of expertise and core knowledge (and the associated risks of fees and engagement), offer a means to define intents and let technology deploy capital to find the best returns for individuals and professionally managed funds alike.

c.???? Privacy Preservation - There have been massive advancements in communication efficiency with the "Zero Knowledge" family of technologies such as ZK for scalability (ZK rollups, etc.) and privacy preservation (SNARKs/STARKs, etc.). This is essential for a meaningful transactional paradigm on an open public network. Privacy preservation is not only a regulatory agenda but also a matter of privacy as a basic human right, especially given the shortcomings of various data leaks and exploits on social media and information networks. Privacy preservation is crucial not just to the "Be your own fund manager" narrative but also as a vital design imperative for protocol design on open public value networks powered by blockchain-based transaction systems.

d.??? DeFi-nTech Innovation - There has been an explosion in financial products, not only in fundamental areas such as borrowing, lending, collateralization, and deposits (yield), but also in novel areas like liquid staking, yield farming, and high yield products. These rely on combinatorial value drivers from staking and the use of derivatives to provide an interest equation to preserve or stabilize the value of assets that would otherwise be volatile. This price stability aims to provide a foundation for payment and collateral management, which ironically has been missing from a robust DeFi ecosystem, touching upon ease of access, inclusion, and financial innovation. There are over 250 such innovative projects/protocols that hold the potential to revolutionize finance.

The impact of these innovations is no longer solely focused on achieving transactional efficiency but more towards utilizing a nexus of technologies to achieve market efficiency. Markets are constructs that enable not only the trading of financial instruments and the facilitation of interactions between capital seekers and investors but also serve as crucial engines of credit creation and capital formation. Digital markets are no different, except for the shift in modalities that include tokenized finance. The underlying technology aims not only to bridge information asymmetry gaps but also to hyper-charge a) information dissemination, b) value extraction, c) best execution of trades, and more, eliminating gaps and asymmetries that have been created by the flow of information across markets and among various participants. Digital markets accomplish all of this while removing several intermediaries that exist in current market infrastructures, either by providing lower-cost digital intermediaries (DeFi smart contracts, DEXs, CDPs, etc.) at a fraction of the cost or by eliminating intermediaries entirely (such as fund managers, investment managers, etc.). The technological innovations discussed above aim to remove the barriers that allow various financial institutions (FIs) to leverage this information asymmetry and the delay in aligning asset prices with their true value.

On the Efficient Market Theory: The efficient market hypothesis suggests that asset prices always incorporate all available information, reflecting their true value. However, market inefficiencies exist due to information asymmetry and behavioral biases, which can lead to mispricing and create opportunities for investors to profit. Market inefficiencies manifest in various forms, such as informational asymmetry, where one party has access to more or better information than the other, leading to an unfair advantage in transactions.

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Conclusion:

While global regulatory efforts are currently centered on classifying instruments (such as securities, commodities, and payments), the emphasis should shift to encompass not only the resilience and security of infrastructure but also the entire ecosystem that constitutes the crypto market infrastructure. Historically, technological innovations in pivotal eras have been shown to yield exponential gains, either by eradicating inefficiencies or by creating novel products. Digital assets, powered by cryptocurrency and blockchain innovations, should be no exception. We must approach this technology not merely as an embodiment of speculative asset price movements but recognize it as an emergent asset class—the fifth asset class—and acknowledge the innovation (and indeed, the frenzy) that accompanies it. The thesis is that crypto assets transcend their reputation as speculative and inefficient markets. Despite appearances suggesting that they are rife with speculation and fraudulent schemes, the advancements made during bear market cycles have been nothing short of extraordinary. We are witnessing the beginning of a transition from transactional efficiency to market efficiency in the world of crypto assets.

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