Bitcoin must not be locked in the “cage” of derivative finance
By Claire Wu, a writer from Twitter
How can blockchain projects be integrated with the real economy and not idle in the financial sector is a question that people of insight in the blockchain industry often reflect on themselves. Bitcoin is defined by Satoshi Nakamoto as a decentralized P2P cash payment tool. A robust system, short-term price stability, and transaction depth are key factors in fulfilling the cash payment function. The network effect of user size is also very important for currency pricing.
Bitcoin is widely used in various derivative financial instruments, and the result will be dry and fishy
However, Bitcoin is actually stuck in the “cage” of derivative finance. As an asset, Bitcoin is widely used as collateral for various derivative financial instruments with leverage of up to 50-100 times. In order to seize bitcoins from retail investors, when the number of contracts is high enough in an upward or downward direction in the market, “casino bookmakers” will “apply a needle” to instantly lower the price of Bitcoin, and then suddenly increase it, in an attempt to explode both buy-up and buy-down contracts to maximize profits.
Please don't make a fuss about this; the coin community is just learning from its peers in the stock market.
This kind of “reckless operation” has greatly increased the volatility of the Bitcoin price. 3.12 In the Black Swan incident, investors stepped on each other because of the serial liquidation of various highly leveraged derivative financial products, Bitcoin also caused investors to step on each other due to the small size of the market, relatively poor liquidity, and limited network scalability, etc., causing the Bitcoin price to fluctuate greatly in a death spiral.
The post-90s, who had not experienced turbulent waves, shuddered when they heard the name of Bitcoin after the 3.12 Black Swan incident. Some beautiful investors who once held over 100 million dollars even claimed to have withdrawn from the coin industry since then. In the community debate, a senior investor complained that Bitcoin has become an accomplice in cutting chives, and he even advised young people not to enter the coin industry and become prey to financial giants. For this reason, the famous creator of Coinhu “Walking” said that derivative financial products have taken Bitcoin out of the payment stage because of payment currencies, a safe and stable system and stable currency value are major prerequisites.
Picture source:Read one
This is indeed the original intention behind Satoshi Nakamoto's creation of Bitcoin. He expects the Bitcoin community to continue to grow, develop more commercial use cases of Bitcoin, integrate it into physical payment scenarios, and be held more decentralized by real users, making Bitcoin larger, more stable and more liquid, and forming a network effect, rather than locking Bitcoin in a “cage” of exchange-derived finance. In fact, according to Qun Youming's report, a top exchange that supplies a lot of contracts not only recently lost contract players, but its trading volume was overtaken by new exchanges, and it was also extremely poor in terms of spot and new currency listings. This wave of DeFi boom has also come to an end. Karezawa's fishing seems to be a perfect way to describe the current state of this exchange.
Does DeFi also have centralization issues?
Contrary to the high volatility of Bitcoin prices, stablecoins in the crypto sector have always been considered the best use case that can be applied to physical payment scenarios because their prices can remain stable in the short term due to the support of government stabilization measures in monetary policy. USDT did play an important role in cross-border trade in times of power games in the past. However, according to Mars Finance, Centre (note: Centre is a joint venture between Coinbase and Circle) recently blacklisted an Ethereum address worth 100,000 USDC, effectively freezing the funds in that address. Coincidentally, Tether, the issuer of USDT, another centralized stablecoin, blacklisted an Ethereum address holding 158 USDT on July 10. This is the 40th blacklisted address by Tether.
As stablecoins anchored to the US dollar, centralized companies issuing these stablecoins must comply with US court orders or global sanctions restrictions; otherwise, they may lose their eligibility to use the US dollar as an anchored asset and be sanctioned by the US government. So, here's the problem. Many DeFi projects now accept USDT and USDC as collateral assets. For example, the MakerDAO project mortgages USDC to generate DAI, and the compound agreement guarantees USDC loans to generate income. Cryptocurrency enthusiasts are beginning to worry that if an address holding USDC is blacklisted by Center, the USDC in that address is frozen, and the USDC in this address has been pledged into the Maker system, then smart contracts will not be able to send and receive transactions.
At this point, the centralization of DeFi began to cause concern among cryptocurrency enthusiasts. Their souls are questioning, can stablecoins really help us achieve the goal of decentralized finance? In terms of regulation, what is the difference between a network using stablecoins and the current traditional financial system? They are starting to wake up and try to break out of the recent stablecoin boom and rekindle the demand for decentralized Bitcoin...
Picture source:Asia Blockchain
Is Bitcoin a viable means of payment?
Now let's leave aside the negative impact of financial derivatives on Bitcoin's price stability and re-analyze the viability of Bitcoin as a payment instrument from another perspective.
Payments are used in many different consumption scenarios. Among them, luxury consumption and retail payments are clearly two scenarios with different requirements. At a time when the price of Bitcoin soared, we saw that many luxury goods transactions, such as jewelry, luxury cars, and housing transactions, were solicited to accept Bitcoin payments, with the aim of attracting this group of wealthy people who have become rich due to the wealth effect of the coin industry to spend. It is not difficult for Bitcoin to spend a large amount of money, because Bitcoin is about one block every 10 minutes, and it should take more than 10 minutes to pick up and inspect luxury goods. In places like airports that are often haunted by local tycoons, there are many luxury stores in duty-free shopping malls, so smart airport operators have already set up payment options for cryptocurrencies such as Bitcoin.
Many people mistakenly believe that Bitcoin is unsuitable for retail payments. In fact, Satoshi Nakamoto demonstrated the example of a “Bitcoin snack vending machine” in the early days, showing that in the Bitcoin blockchain network, even if there is a difference of 1 second when a transaction is issued, the number of transmitted nodes will be 80% and 20% different after 1 minute. As a result, the earliest transactions sent were far ahead in terms of dissemination, and there was no hope of achieving a significant proportion of the remaining nodes at all with double spending. Therefore, from a probabilistic point of view, excluding exchange rate fluctuations, the risk of Bitcoin zero confirmation payments is very low, making it suitable as a payment tool in the retail industry. Of course, if the transaction amount is large, you will usually wait for 1-6 blocks to confirm.
However, even if the risk of Bitcoin double spending is very low, for retailers, if they receive a currency with extremely volatile exchange rates and poor liquidity, it may cause capital turnover difficulties and increase their operating burden. Therefore, price stability is currently the biggest obstacle for Bitcoin as a retail payment currency.
Recently, quite a few large cryptocurrency exchanges have joined the cryptocurrency debit card war. On March 26, Binance announced the launch of the Visa version of the Binance Card on its official website. The card will be recharged with BTC and BNB through the Binance Card app and paid as a stored value limit. Binance claims that it has now been accepted by more than 4,600 online merchants.
Image Source: Binance
The difference between this type of debit card and direct cryptocurrency payments is that it can convert the cryptocurrency in your wallet to fiat currency for transaction settlement at any time. For merchants, this can eliminate the trouble caused by poor cryptocurrency liquidity and large price fluctuations, but real-time exchange of cryptocurrencies and fiat currencies in wallets requires the support of exchanges with a very deep transaction depth, such as Binance and Coinbase. Otherwise, when cryptocurrency prices fluctuate instantaneously by more than 20% (there are crazy moments like 3-4 times every year), it may cause the operators behind them to go bankrupt. The payment experience of this kind of debit card is no different from an ordinary credit card, making it easy for merchants outside the community to seamlessly connect to the cryptocurrency sector.
If Bitcoin develops according to the route conceived by Satoshi Nakamoto, as a medium of exchange — currency, the size of the transaction network is very important to Bitcoin's pricing. The size of the trading network depends on the number of users, and whether it can get out of the circle and attract more fans to use Bitcoin is the key. While financial derivatives in the coin industry are drying up, causing some speculators to leave Bitcoin, we see that leading figures and KOLs from different tracks are constantly joining the ranks of people who are good at Bitcoin.
What makes Bitcoin different from other cryptocurrencies is that in addition to being sought after by geeks and HODL, Satoshi's story and Bitcoin's decentralized concept can indeed attract people from top hedge fund managers, traditional and internet business giants to influencers who are willing to stand up for Bitcoin based on common commercial interests or interests, so that the Bitcoin fan base continues to expand.
Picture source:0x info
In Bitcoin's darkest hour, those standing for Bitcoin included Twitter CEO Jack Dorsey and Tesla CEO Elon Musk, the heavyweight who had just surpassed Buffett in the wealth rankings. Recently, Bill Pulte, a famous American real estate developer and founder of the Poulter Group, kindly threw money on Twitter and advised those receiving donations: “In order to have a better life in the future, please be sure to use these donations to buy bitcoins on CashApp.” His actions have moved countless people on Earth. In addition, parents are willing to buy and store bitcoins for their children's future, while young people think bitcoin is the internet currency of the future. Similar cases continue to occur around us. It can be said that Bitcoin is the decentralized currency that has the potential to form a payment network effect and help us achieve the goal of managing our own wealth.
Today, when we receive USDC, centralized wallets can automatically identify users in different regions. If the US sanctions Hong Kong, centralized wallets may automatically refuse to accept USDC remittances for Hong Kong users. These features are no worse than traditional banks' anti-money laundering functions. The centralized stablecoin we had high hopes for has actually set up a vast network for regulators. In the future, what we need even more is decentralized Bitcoin to help us handle our wealth. In order to achieve the goals that Satoshi Nakamoto founded for us, we should integrate Bitcoin into the physical payment scenario and be held more decentralized by real users, making Bitcoin larger, more stable and more liquid, and forming a network effect. Instead of locking Bitcoin in a “cage” of exchange-derived finance as a wealth generating tool for certain financial institutions, making Bitcoin an angel of breaking wings.
This article is an original work of the blockchain media “Comparative”. Reprinting requires authorization, and violators must be investigated.
