The current financial market structure is mainly made up of a network of connected market participants that support the formation of investment resources and the accumulation of capital. These market participants carry out particular tasks such clearing, settlement, clearing and settlement, asset custody, central bookkeeping, and liquidity provisioning. Many of these businesses are not vertically integrated due to function, capital limitations, or law, preventing collusion or unilateral investment decisions. Therefore, even if different markets may control different items, the basic financial tenets remain the same. Products like stocks, bonds, futures, options, and currencies, for instance, all need to be traded, cleared, and settled. This leads to other processes like collateralization, lending, and borrowing.
It is significant to note that for financial markets to function, there must be both a supply and a demand for capital. Currently, these networked parties share information using sequential batched relay systems, and this asymmetric information distribution leads to opacity as well as inefficiency in terms of the amount of liquidity needed, system trust costs in the form of fees, and opportunity costs.
With the features of immutability and asymmetric transmission of consistent information, which lends itself to trust and quick transaction processing, blockchain and distributed ledger technology solutions strive to tackle these time and trust challenges. So, what went wrong and why? And why are the crypto capital markets experiencing an exponential rise in the complexity and prevalence of the issue we were seeking to solve?