As a long time member of the blockchain community, I’m frequently asked “which token should I buy?” My answer in 2017: “Any token would do but act fast or you won’t get any”. After 2017: “Every token is highly risky except for BTC”. What lies at the root of this reality is the fact that current digital assets are all high risk / potential high reward products. The high returns earned by some in 2017 can help explain the high risk tolerance of investors at that time, while the current risk averse mood can be explained by the cooling down of the markets. Both reactions represent two unhealthy investment environments — bubble and depression.
Financial application scenarios have evolved from interest-bearing debt first seen in Mesopotamia several thousands of years ago to various complex financial derivatives of Wall Street today. Vast changes have finally resulted in the current theoretical frameworks, products, and investor systems.
We draw inspiration for the current digital finance reform from our ancestors. In the world of finance, speaking in terms of financial products, each and every product will find and obtain its market share. Money Market Funds with high liquidity vs. equity or debt products for long-term investment. Hedging tools vs. highly speculative warrant products, safe-haven assets vs. highly-leveraged financial derivatives, Forex forward transactions vs. oil futures closely linked to international conditions. From the investor level, each and every investor has their own individual profile and risk tolerance. Some believe in value investing while others follow technical opportunism, some are inclined to high-risk products while others gravitate towards safe-haven ones. As a professional institutional investor or as an amateur, each individual can and will find his/her comfort zone in financial markets. But regarding digital finance, there is still a significant lack in diversity and richness of financial products which means individual investors’ preferences are often left unmet.
An increase in the diversity of available financial products is crucial for more value to flow into digital assets. Regarding investing, there’s no such thing as objectively good or bad assets, simply assets with different levels of risk vs expected return. The current digital asset ecosystem is not healthy. Lack of asset diversity is to blame. The growing market for stable-coins is a strong indication of this. When looking for low risk digital assets, stable coins are the only currently available choice. The current basket of available stable coins is growing increasingly diverse, but what is desperately needed right now is not just a larger basket of stable coins, but rather more baskets of entirely different types of low risk assets.
This is at the core of FinNexus’s value proposition. Besides just providing a reliable and convenient interface, more importantly, FinNexus is focused on exploring and offering more innovative and diverse digital assets. By establishing a channel for offering diverse and innovative assets, FinNexus will supply users, present and future, with more plentiful asset options to fulfill all their investment needs. The diversity offered by FinNexus will also continue to attract investors of various kinds to the world of digital finance.
So what exactly are these innovative digital assets which differ from both traditional financial assets as well as currently available blockchain assets?Finance reflects our economic lives, and digital assets are no exception.
Assets like utility tokens reflect open economic ecosystems. We buy utility token because we believe that each token’s value will climb as the public chain prospers. Mr. Qian Yao, the first director of the People’s Bank of China’s (PBOC) research institute on digital currency, mentioned in his recent speech that terms like “utility” and “security” are attributed to blockchain digital assets by traditional finance. In fact, those notions have blurred the traditional definition of asset. It is said that a stock reflects a company, sovereign money reflects to some extent the sovereign economy, but nothing representing an entire economic ecosystem existed before the appearance of public blockchains and their tokens. These tokens are without a doubt innovative digital assets, however they all share the characteristics of high risk / expected return.
We can compare such assets with stocks. In the ecosystem surrounding stocks, investors directly account for a small proportion of stock investment. Around such assets, fund-based products will be generated, and investment strategies of different products will form different types of risk-return products based on such assets. The current blockchain ecosystem still lacks the proper foundation to support such large scale fund products. First, fund managers cannot access public infrastructure such as public chains and exchanges through convenient connections. Fund managers must have both strong technical and fund management capabilities, which greatly increases the barriers to entry. Users cannot access such products in a standardized, regulated manner, and purchase them quickly and safely. At the protocol level, FinNexus will provide more convenient and standardized tools to provide easy access for fund managers, sellers and users. At the commercial level, FinNexus will work with traditional financial and digital finance asset managers to provide users with more asset options.
Value creation and appreciation on investment are the most fundamental of financial principles. When digital assets are categorized and labelled as “security” tokens, people choose to keep them at a distance due to regulations. Since all finance reflects our real economic lives, digital finance cannot totally abandon traditional real world assets and live in the virtual world alone.
However, certain traits of traditional financial products limit the liquidity of assets around the globe. This can lead to regional barriers between the supply and demand. Digital assets can help play a role in providing a solution to this dilemma.
FinNexus will explore the globe in search of undervalued assets which will be converted and delivered to investors in a tokenized format. For example, it’s difficult for a traditional investor in Korea to make investment in assets in Southeast Asia. But investors will be enabled to invest in traditional assets of Southeast Asia via the access provided by FinNexus. After a reasonable risk evaluation, investors may buy the token representing the assets. Investment made by this way is of higher returns compared with investment made within Korea. FinNexus will initially collaborate with the fintech company Superatom to offer a tokenized bond-like product which will be used to fund Superatom’s Southeast Asian based lending business.
It’s widely misunderstood that derivatives are exclusive to financial professionals. In fact, it’s not the case. We will walk you through a specific scenario below. One of the most frequently encountered issues is how to control the volatility in the price rate between digital tokens and an fiat currency during the process of conversion. It poses a challenge to a wide range of people, Bitcoin miners in need of cash to pay for electricity bills, overseas employees sending money back to hometown via digital currency, and any individual or organization making fixed payments with digital assets.
It poses a great challenge for most of the people mentioned earlier if they resort to digital currency futures in order to hedge against their risks. If there could be a one-stop solution provider who helps hedge against the risk of price volatility of 10 BTC over three days, wouldn’t that be perfect for the users? After paying the hedging costs to the service provider, and informing the provider of the quantity and the hedging period, users are done. FinNexus will cooperate with a professional finance team to standardize its products through technical protocols. For a user who wants to remit USD $1,000 in BTC to the Philippines (it takes 2 days from customer buying BTC to his/her relative converting BTC into US$), with the help of FinNexus, he/she only has to buy BTC under FinNexus’ protocol, provide buying details mentioned earlier and pay the charges accordingly. He/she will get compensation for in case the price of BTC drops during the hedging period.
The example mentioned above is not strictly asset oriented and does not represent the entirety of the future of digital finance. Asset categories based on blockchain will bring dramatic changes to finance with old asset categories being reformed, boundaries among different assets being redefined and brand-new asset types being created. There will be a host of new diverse and innovative digital assets, ushering in the beginning of the more mature and prosperous age of digital finance.
In addition to diversifying digital assets, FinNexus will make the financial and commercial rules for innovative digital assets more standard and transparent.
There are two key principles regarding this goal:
Innovative digital assets are not suitable for bid based digital transactions such as today’s centralized and decentralized digital asset exchanges. Bid based exchange markets such as Binance and Huobi are currently the dominant platform for the exchange of digital assets, and competition between exchanges is fierce. However there has been little development in the way of standardized and large scale OTC exchanges for digital assets.
In traditional financial markets, OTC trading is often large-scale and high volume. High value and low trade frequency assets are particularly suitable for OTC trading, which exactly matches the profile of innovative digital assets. FinNexus intends to scale up OTC trading of innovative digital assets and set the standards for such an application scenario.
FinNexus aims to standardize the integration of traditional financial assets with blockchain technology by drawing on its team’s mature experience in traditional financial product design, and information disclosure. Through the establishment of an open finance protocol, FinNexus aims to set the industry standards for traditional and digital asset integration.
FinNexus has a long road ahead in terms of development and ecosystem building goals, and I am confident that our strong team will navigate successfully through all the challenges ahead. Starting from the flagship Superatom-based product offering as our first stepping stone, we will build FinNexus into the protocol for the issuance, sale, exchange, and tokenization of innovative digital assets. The future is bright for digital finance, and we are determined to play our role in it!
FinNexus is the open finance protocol built on the Wanchain blockchain. It is a hub for connecting different decentralized ledgers to each others and users, and also for connecting with traditional finance applications. The first iteration of FinNexus will be a marketplace for hybrid decentralized/traditional financial products.