Fusion Market Analysis- March 17, 2023
Fusion Market Analysis
The US banking system is a highly regulated network of institutions that work together to ensure the stability of the financial system and provides multiple services to consumers, businesses, and government entities.
A few key components of our banking system:?
Federal Reserve System: The central bank of the US in charge of monetary policy and bank regulation.
Commercial Banks: Takes deposits and gives loans to customers and regulated entities.
The Federal Deposit Insurance Corporation, FDIC, insures these accounts up to $250K.
Credit Unions: Provide many of the same services as commercial banks but are smaller.
Investment Banks: Facilitate issuing securities and managing assets for corporations.
Mortgage companies: Deal with mortgage loans utilized by commercial and investment banks.
The banking system has changed over time by the creation of the Federal Reserve System in 1913 and the repeal of the Glass-Steagall Act in 1999 which previously separated commercial and investment banking activities.
Our system has faced multiple challenges such as the Great Depression of the 1930s, the savings and loan crisis of the 1980s, and the financial crisis of 2008-2009.
It is concentrated with a small number of institutions dominating the industry such as JPMorgan Chase, Bank of America, and Citigroup which limit competition and customer choice making the system vulnerable to systemic risk.?
Some of the largest banks in the US are considered "too big to fail," meaning their failure could have catastrophic effects on the economy, creating a moral hazard, where banks take on excessive risk knowing that they may be bailed out by the government in the event of a crisis.
Not all individuals have equal access making it difficult for people to get credit and other financial services.
The system is subject to federal and state regulations with the complexity creating compliance costs and limiting transparency for consumers.
As our system has inevitably become digital there are concerns about cybersecurity risks potentially stealing sensitive financial information or disrupting operations.
It's difficult to predict with certainty whether fiat currency like the US Dollar will last forever…
Fiat currency has been dominant in most countries being widely accepted as a reliable means of exchange.?
Central banks have a complete control over fiat which is useful for managing inflation and supporting economic growth.?
The US dollar is backed by trust in the US economy and government which might cause potential risks…
The potential for inflation and currency devaluation, fiat currency may become less needed into the future as more people move towards digital currencies.
Converting the US banking system from fiat to crypto would be a massive undertaking.
Moving the entire banking system to a cryptocurrency-based model requires a significant amount of technical infrastructure involving building blockchain networks, developing digital wallets and payment systems, and modifying existing banking software to work with digital assets.
It would also require monumental regulatory changes on the use of cryptocurrencies.
Despite these obstacles there are numerous potential benefits to transitioning to a cryptocurrency-based system…
Cryptocurrency is built to be decentralized, meaning no need for a central authority, like the Federal Reserve, and reduces the overall power of the banking system giving greater financial freedom to the people.
Encrypted and secure transactions so the risk of fraud and other financial crimes dissipate.
Transactions are completed quickly at low cost to improve efficiency and reduce fees.
Adding blockchain technology attributes transparency and reduces risk of manipulation and corruption.
When a customer deposits money into a bank, traditionally banks hold onto that money as a liability on its balance sheet, meaning that it owes that money to the customer.?
The bank then uses those funds to generate income.
One way is through bonds, which are debt securities issued by the government and corporations.?
When a bank buys a bond it’s lending money to the issuer of the bond in exchange for regular interest payments and the promise of repayment of the principal.
The income generated from investing with customers' money can be used to cover the bank's operating expenses, pay dividends to shareholders, and generate overall profit.
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In the case of the Silicon Valley Bank collapse, they used their clientele’s money to invest in long-term U.S. Treasuries and mortgage-backed securities, both are types of bonds that are considered to be relatively safe investments with high yield.
The downfall happened because they did not protect their liabilities with short-term investments for quick liquidations and had to unload their long-term investments at a massive loss.
Staking cryptocurrencies also involves investing money with the expectation of earning a return on the investment.
Similar to bonds, when you stake a cryptocurrency such as ETHUSD, SOLUSD, AVAXUSD, or ADAUSD, you're locking up your coins to help secure the network and then earn rewards in the form of additional chosen crypto.
Bonds typically have a fixed term and interest rate whereas staking rewards vary based on the network's performance and other factors.
To implement staking in a bank, they would need to integrate a blockchain network that supports staking then offer customers the ability to stake their crypto on their platform by letting them choose which crypto to stake, how much, and for how long.
The bank would need to ensure that the staking is secure and reliable, trusting that the crypto is in the bank's custody during the staking period.?
The bank would need to provide transparency around staking rewards and fees so customers can make intelligent investing decisions.
ADA Is the native token of Cardano and is stored in a wallet which can be delegated to a stake pool to earn rewards, to participate in the successful running of the network, or pledged to a stake pool to increase the pool's likelihood of receiving rewards.
Below are ADAUSD Analytics:
ADAUSD held on the Cardano network represents a stake in the network, with the size of the stake proportional to the amount of ADAUSD held.
The ability to delegate or pledge a stake is fundamental to how Cardano works.
There are two ways an ADAUSD holder can earn rewards: by delegating their stake to a stake pool run by someone else, or running their own stake pool.
The amount of stake delegated to a given stake pool is the primary way the Ouroboros protocol chooses who should add the next block to the blockchain, and receive a monetary reward for doing so.
The more stake is delegated to a stake pool, the more likely it is to make the next block – and the rewards are shared between everyone who delegated their stake to that stake pool.
This is what a 100K ADAUSD delegated investment would reward you with. (estimated)
The US banking system might be improved with a Financial Revolution shifting towards crypto.
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