DeFi Adoption: How Wall Street just made a case for it


TL;DR Breakdown

  • Wall Street’s actions on the GameStop shares have driven a new set of investors into the crypto industry and DeFi space.
  • Retail investors are seeking a financial system that provides a level playing field for everyone.
  • Transparency, fairness, and openness are the ideals that DeFi looks to promote.

The early weeks of 2021 have been filled with unprecedented drama, but one is standing heads and shoulders above the rest. It is a rehash of the David vs. Goliath Bible story, but this time, there are no stones or slings; it is all about a battle of wits between Wall Street’s big hegemony against a bunch of “amateur” traders.

It all started when some traders on a subreddit known as WallStreetBets noticed that a top Wall Street firm was shorting Gamestop shares, this alerted the traders to start buying up the shares. Before anyone could tell what was happening, the stock price had risen beyond what the hedge funds and brokers had in mind, leading to tons of losses for the Wall Street firm.

Wall Street has claimed that this was pure market manipulation and even called for such trading to be outlawed. The retail investors, however, would consider it as an economic victory because it is simply a case of the amateurs beating the professionals on their turf.

While the Gamestop situation drew attention to the stocks market, its aftermath will help the crypto industry, further making a case for a decentralized finance (DeFi) system.

For several years, financial liberalization and DeFi have been a recurring issue. It has been the dominant factor that led to the development and popularity of fintech and blockchain technology. 

While many trading fintech platforms built their brands on the ideas of allowing users to have an access to the concept of a decentralized platform, however, when the cock came home to roost, they have been found wanting. A perfect example of this is Robinhood, which restricted GameStop trading and crypto trading on its platform.

Due to the decentralization in the crypto industry, the market activities are in the users’ hands, and there is no central authority to “halt tradings” or enforce restrictions. We saw that play out in the recent rise and fall of the value of Dogecoin.

More retail investors have begun to look at the crypto industry in a new light, especially with the torrent of harsh decisions that have followed the Gamestop trading: we have witnessed the removal of Gamestop stock from Robinhood, the restriction of WallStreetBets on Discord, shutting down of the Robinhood Stock Traders Group on Facebook, and several other decisions that show censorship by the authorities. 

Notably, calls for DeFi have more than increased, and the first beneficiary of such moves would be the crypto industry that has been waiting on the wings for an opportunity to prove its mettle.

Effects of this faceoff on DeFi Adoption

The cryptocurrency market saw unprecedented traffic within days of the incident which resulted in crypto assets like Bitcoin, Ethereum, Dogecoin, XRP, and others reaching new highs due to the surge in the industry. Several crypto trading exchanges also reportedly faced certain challenges due to the massive traffic they witnessed on their platform. 

Thus, the first effect of the face-off between Wall Street and the traders was the massive surge the crypto industry immediately saw when regulations began to set into the market. Nonetheless, the current situation presents a significant opportunity for DeFi to gain a more widespread following and mass adoption. Here are some other reasons to note:

DeFi satisfies the need for a fairer finance sector.

Traditional financial institutions and the authorities are wary of the potential that DeFi holds, and that is why some of these institutions have been prominent critics of the sector. However, to an average man on the street, DeFi levels the playing field and allows them to also be able to reap whatever rewards they can get from the system.

Wall Street was quick to call the shorting squeeze of GameStop illegal because it was running into losses; the hypocrisy of the institutions on this street who try to restrict the average joe from profiting off its misadventures is legendary.

It means an investor seeking fairness, immutability, and transparency will enjoy DeFi because they, ordinarily, are the ideals on which its system is built.

Fear of overregulation by governments

There are considerable fears that the new US government may overregulate the financial sector, making a case for DeFi.

However, this fear pales in comparison to the sentiment that this rebellion has already stirred. Any attempt at over-regulation may further push DeFi and the crypto industry to the forefront.

One thing that could count in favour of the industry is the expected nomination of Gary Gensler as the chairman of the United States Securities and Exchange Commission (SEC). Gensler, being pro-crypto, could provide the industry with structural reforms that will further democratize the finance sector, making it more accessible for retail investors.

Transparency and openness 

The transparency and openness of cryptocurrency is one of its major selling points. In this age where traditional finance appears to be working in favour of only the elites, plus its apparent attempt to stifle any notable competition leaves the masses with the short end of the stick. The crypto industry, however, represents a brilliant opportunity to grow wealth. 

This could be linked to why the crypto industry witnessed a surge in its traffic as an aftermath of the crackdown on the stock investing options. Going forward, this could be the same thing that would motivate many others to opt for DeFi and crypto.

The abundance of choices in the DeFi market space 

The crypto industry provides its traders and investors with several trading and investment options that are practically impossible with the traditional market. Here, we have seen traders focus on Dogecoin before shifting their attention to the embattled Ripple’s XRP and Stellar’s Lumen, driving the value of all of these assets higher. 

Crypto assets provide trading opportunities that require a low entrance fee for most retail investors. And instead of being restricted to the regulated fiat currencies that are subject to the whims and caprices of the authorities, they have the option of several digital assets that are only subjected to market forces. 

Last words

Despite all the positives that DeFi will offer its traders, crypto enthusiasts must note that the sector’s adoption will not necessarily be a walk in the park. Many are still reluctant and unwilling to change their views about the crypto industry and the fact that some may not be technologically inclined, automatically puts them at a disadvantage with DeFi.

One can also assume that in the next few years, crypto exchange firms would provide better and more coordinated options to conventional banks. With the growth and advancement made in blockchain, the crypto industry would profit from this and become much more developed.

And at the end, when all the dust settles, DeFi can someday point to the faceoff between WallStreetBets and the Wall Street firms as when the public became aware of how they can better utilize the crypto sector to their advantage.

Bruno Johnson

Bruno Johnson

Bruno loves the crypto industry. He is a believer in the transformative power Bitcoin and Blockchain industry holds. He is interested in sharing knowledge and ideas. When he is not writing, he is looking to meet new people and trying out new things.

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