The crypto industry needs a crypto capital market structure

The past few weeks have been interesting and have surfaced what we in the financial services industry call matters requiring attention, or MRAs. An MRA describes a practice that deviates from sound governance, internal controls and risk management principles. These matters that require attention have the potential to adversely affect the industry and increase the risk profile. 

I have always focused on technology and innovation-led business models — systems and interconnected elements of blockchain-powered business networks — redefining the transaction systems that power many industries, including financial services. A growing number of naysayers have become vocal about recent events, which have revealed extensive mismanagement, ill-defined and misgoverned systems, and general misrepresentation of the industry. As a result, I want to take a systemic view of the industry to understand what led to this point, dissect the failings, and be prescriptive on how we can learn from failures and build upon successes.

Let’s first understand the market structure and what it means. That will help shed light on inefficiency in the current crypto market structure and allow me to make the case for a better-defined structure aimed at systemic fairness, robust information flow for risk profiles, and a convincing innovation narrative to revive the industry and instill confidence.

Understanding the current financial market structure

The modern financial market structure is essentially a chain of interconnected market participants that aid in accumulating capital and forming investment resources. These market participants have specific functions, such as asset custody, central bookkeeping, liquidity provisioning, clearing and settlement. Because of function, capital constraints or regulation, many of these entities are not vertically integrated, which prevents collusion or unilateral investment decisions. So, various products may be governed by different markets, but the fundamental financial primitives remain universal. For example, products such as stocks, bonds, futures, options and currencies all need to be traded, cleared and settled, and other functions such as collateralization, lending and borrowing ensue.

Financial markets work only where there is a supply of and demand for capital, and this is important. Today, the information between these interconnected participants is a function of sequential batched relay systems, and this asymmetric dissemination of…