I have heard Emin Gun Sirer, the CEO at Avalabs, make statements about Avalanche being a platform to launch a new breed of never-seen-before crypto assets in some presentations. He specifically mentioned the stock market in those presentations and it seems as though people don’t even talk about it. In a recent talk about the platform, he stated it again and it struck me. I made a little research on how the stock market works. At the end of my study, I came to understand why the crypto-verse has been in parallel to the stock market. Having a little understanding about the Avalanche platform made me realize something new: The Avalanche platform is the convergence point of the stock market and cryptocurrency. This article will prove that.
What exactly is the Stock Market all about?
A lot of articles have been written about the stock market and how they operate. Read this really simple explanation from Investopedia. Stocks (categorized into two: common and preferred) are shares of a company that gives the holders certain voting rights (common stocks) as owners of the company. Shareowners in an enterprise are entitled to dividends at the end of a fiscal year. Shareowners have a certificate of ownership written in their names. Stocks or equities can be traded on the stock markets or sold to individuals who show interest without going through brokerage firms or the stock exchanges.
Today, most stock exchanges are digital to ease trades which are paper-based in previous times. Even with digitization the stock markets still go through a lot of checks and balance systems which requires some paper works. This can be seen in the waiting times for an individual to transfer his account from a current brokerage firm to another- it takes a minimum of 5-6 working days.
Regulations and Fees
The stock market is known for its regulation. Any company that must sell shares in an Initial Public Offering (IPO) have to abide by some stringent guidelines, else it will have a lot of problems with the Securities and Exchange Commission (SEC) in the jurisdiction where its operation is based. For multinational companies that wish to sell their shares or list their stocks in the stock exchanges, they have to follow the regulations of each of the regulating bodies in each country where they are located or wish to list their equities for trades. Aside from SEC is Self Regulating Organizations (SROs) that help keep sanity in the stock market. A popular example is the Financial Industry Regulatory Authority (FINRA). These many regulations and standards are to keep investors from total loss and scams. Obviously, any fake company will not survive these loads of regulations and regulating bodies.
Another important aspect of listing stock in an exchange is the fee. The fees are kept so high to keep investors safe and provide liquidity. This distinguishes the stock market from the crypto market.
The Differences Between the Stock market and the Crypto Market
As you educate yourself about the stock and the crypto market, you can begin to see the distinction between both worlds. On a lighter note, one can say the stock market is like LinkedIn and the crypto market is like Twitter or Reddit. Many writers have written pieces on this subject but sadly most are quite negative about cryptos. But in all these are truths that cannot be ignored.
Equities prove that a shareholder is the owner of part of the organization or company and are entitled to dividends. Cryptocurrency holders do not have that kind of right. Most times, tokens or coins held are regarded are utility and not a right to ownership. Many crypto start-ups escape issues with SEC, so they stay away from Security tokens (Security tokens are just like equities, only digital and blockchain-based).
An aspect that many writers seem to ignore is that aside from the fact that the stocks you own are only yours when you have the paper certificate. It is not really in your total control again when you trade it on a stock exchange or in the care of a broker. Essentially, you are not in total control of stocks when they are in the digital form. Cryptocurrencies are digital, you can store them in wallets. You can send and receive them. You can decide if you want them in centralized crypto exchanges. And with the efficient Decentralized Exchanges (DEXes) that we have today, you can be in total control of your assets at all times.
Stocks are stringent with regulations, that is why they are considered safe. Cryptocurrencies are riskier than stocks. Apart from security tokens which are very few today, most crypto assets are unregulated. Many centralized crypto exchanges today are also regulated.
Volatility and Liquidity
The stock market is old enough therefore it is predictable. You can study trade strategy and learn and how to make profits. Cryptocurrencies are new, just a little older than eleven years therefore it’s unpredictable. Crypto prices can make huge gains and losses in moments.
Stock exchanges have market makers that handle liquidities, centralized crypto exchanges do not have as huge liquidities. The advent of Automated Market Makers (AMMs) in decentralized exchanges has changed the face of things.
Avalanche Platform: the Convergence Point
Avalanche platform is a platform that can be used to create and launch a new breed of highly decentralized asset and blockchain. Its consensus surpasses the existing one (Classical and Nakamoto). It can process more than 4500 transactions per second. Avalanche basically the best in all aspects. It finalizes transactions in 200 milliseconds. Check more about it here. Validating nodes on the platform are currently 616 located on all continents except Antarctica.
The Potential of the Converger- Avalanche Platform
The Avalanche platform can be used to create subnets which bring validators together to reach consensus and create both permissioned and permissionless blockchains. Subnets are programmable such that the creator of the subnet can decide which criteria to be used to determine which validator can join the subnet. These criteria can be the possession of certification, location, etc. Because of this, the platform supports network layer programmability and each subnet can be designed to comply with the regulations of the jurisdiction where is it operating from.
The platform can be used to digitize and decentralize the stock market thus adding another layer of security to the industry. Because of the huge potential of the platform, it can support the demands of the stock market efficiently such as been highlighted in this article. Let’s get to it
Regulation: A regulated Avalanche Subnet
This is one of the most important aspects of the stock market. With Avalanche, each huge company can create a subnet adding its sections (or its employees with certifications) as the validating node. The subnet can be used to create a tailor-made private blockchain that complies with regulations. Thus, a blockchain like this will be closely monitored by the company in question. The problem security tokens are facing with SEC today is partly because the regulating body cannot ascertain the legitimacy of the nodes confirming and producing blocks that make up the ledger. Avalanche solves this, as the subnet creator can control who and who joins the network to validate transactions and create assets.
Subnets can create assets and attach them to Virtual Machines to determine how they behave. Shares can be created as NFTs if the company wishes so, to make each share different and customizable. Avalanche platform can really bring out the beauty of security tokens such as the ERC1400 standard for EVM.
This way, a share can actually be held digitally by the holders without the need for brokerage. The blockchain ledgers will eliminate the need for waiting days to transfer trading portfolios from one exchange to the other. Brokerage firms will also find usefulness in this kind of system.
Stock exchanges can implement their services based on Avalanche’s X-Chain. Assets or equities created by other subnets (companies) can be easily traded on X-chain. The nature of the stock exchanges will compensate for market volatility and liquidity.
You will not be surprised when we begin to see Paypal’s PYPL, Amazon’s AMZN, Apple’s APPL, as crypto assets powered by the Avalanche platform. The potential of the Avalanche platform is wider than the scope of this article, do well to DYOR!