We are currently living through one of the most turbulent, financial, technological, and social periods of our lives. This year has brought forward mass global economic uncertainty, unlike anything we have seen before.
As a result, monetary policies and their custodians are attempting to adjust without clarity on how decisions will impact both the near and long term future. Financial markets and monetary policies across the globe are unstable and their futures are viewed with broad skepticism.
Many of us look to market or economic “experts” for direction, however, we appear to be lacking modern economic precedence to put our current circumstances into the proper context. The answer can possibly be seen through a technological lens, as innovation has the potential to improve how legacy financial systems shape our path forward.
Over the past twenty years, we saw the proliferation of index funds, which are seen as one way to protect against market volatility. Another innovation was Exchange Traded Funds (ETFs), which allowed people to easily and quickly improve their diversification and results.
More recently, we have seen “Robo advisors” becoming more common, which use advanced data analytics to improve investment results. One such popular robo advisor is Betterment, which uses AI to automatically and intelligently curate investor portfolios. One of the most famous uses of advanced machine learning to improve results was the medallion fund (founded by a mathematician and cryptographer) that returned over 70% annually for two decades.
As our global economy has been under immense stress for most of 2020, this year investors have begun to look more widely for sound investments with near term potential and long term value. The digital asset space, also known as cryptocurrencies, has seen a precipitous rise in popularity this year in spite of being highly volatile as these digital assets have also recorded the most successful gains in all of the recorded history of money markets.
They have provided many solutions that integrate technology, finances, and results for investors. These technologies are beginning to incorporate artificial intelligence and smart contracts to revolutionize how assets interact with markets and provide value to the market – across institutions, professionals, and common investors, alike to improve results.
The latest trending innovation in digital assets is decentralized finance (i.e.DeFi). In the beginning of 2020 there was under $1 billion dollars invested in Defi, today, there is over $9 billion. Decentralized finance, uses artificial intelligence to automatically take investments and place them in the highest yielding financial instruments available. Platforms like Compound, Curve, and Yearn, allow users to receive 6-20% (and even higher) interest rates (i.e. APY). This is made possible by automating the entire lending, borrowing, and investing infrastructures.
This entire ecosystem of digital assets uses AI to operate autonomously, reconfiguring and operating without intervention. This reduces the overhead costs to nearly zero.
All of the transactions and financial infrastructure are also transparent and can be accessed or viewed by anyone. The attributes of an “open source” platform and operating AI logic mean that decentralized finance platforms cannot take an unfair share of profits or set the system up to unduly benefit themselves over customers.
These Defi platforms serve to make digital assets a more dependable and viable financial investment option. Despite high levels of autonomy these platforms still need at least some central ecosystem and ownership to ensure they continue to operate. However, some platforms are creating even more novel and decentralized cases of smart technology solutions to revolutionize finance.
An example of this is an Australian based company called Synthetix, that operates a digital exchange that brings real-world assets and offers an identical digital form of the asset. Using the platform provides users with passive income, as well as instant and easy access to a variety of assets. Synthetix uses features like collateralization and profit sharing to provide a more stable platform for investors across the globe, who are able to invest in assets such as gold or silver. By transforming assets like gold and the Nikkei into digital assets and using collateralization and profit-sharing, Synthetix can provide a more stable platform for finances in digital assets.
Some solutions are fully decentralized and are even creating new asset classes which don’t require an established ecosystem to function. These innovative assets can act as an instant tool to have an investor’s finances intelligently and automatically react to the market.
One of the most novel examples of this is an asset called xBTC. xBTC uses an intelligent and automatic smart contract to put a price on an important metric in digital assets: Bitcoin market cap dominance. This is a measure of how much better Bitcoin does than the rest of the digital assets in market. This “dominance hedge” would be similar to having an instrument that paid an investor when the Nasdaq outpaced Microsoft’s share price. This dominance hedge is a brand new way of hedging that is more adaptive and reactive to the highly volatile digital asset marketplace.
“As a strong advocate for financial liberty and decentralization, the development of xBTC was a no-brainer. The current financial system is steering down a rocky road, and the fundamentals for continued positive growth are simply not there. Considering the current climate, advocating for true decentralization places our team in the category of ‘founding fathers’ for a serious revolution that is not being televised!” – Aatash Amir, Founder of xBTC
The company uses AI to track bitcoin dominance and adjust the economy of the token to benefit holders. In 2017, Bitcoin dominance fell from 60%, all the way down to 30%. Mark Sgambelluri, Founder and CEO of xBTC states, “xBTC creates a whole class of assets that are completely decentralized, making digital assets more accessible for all people. Digital assets exist to create novel and revolutionary investment tools that aren’t available in traditional markets.”
xBTC introduces a new way to hedge an investment; using AI to be responsive to market forces in a novel way. This opens up a whole new world of instruments that can be used by a broader group of investors.
Our traditional markets are becoming less and less stable and dependable, as monetary policy and global trends stress the current infrastructure and we move into uncharted territory. As we begin to see digital assets continue their trend to serve the people more equitably and successfully, we will see a major shift in the investment landscape as a large number of investors look towards these new financial instruments. However, the volatility of these digital assets has kept most investors at bay.
With new smart contract technology and AI, we begin to see real-world applications that are revolutionary, adaptive, and autonomous. These innovative solutions are making digital assets more accessible to a wider population of investors, who will continue to migrate to digital assets as they become more valuable and less volatile.
Platforms like Compound, Synthetix, and xBTC are providing financial instruments that couldn’t exist anywhere else. They are also ushering in a new investment power structure where users can benefit more without companies or centralized authorities taking an undue share of profits and power.
The future can deliver a new world where investments are equitable in a way that unites all people involved. This is a bright new world where power is being given back to every individual.