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Author: Beihai, PicWe Co-founder; Source: Bailu Living Room
Bitcoin spot ETFs were approved by the US SEC, opening new doors to the virtual asset market.Regulations are constantly pushing the industry to develop in an orderly and secure direction, and compliance has also become one of the highlights of 2024.Who can take the lead in compliant implementation and gain the opportunity in the future of institutional entry.
Whether it is a compliant exchange or an independent brokerage firm, the era of theirs has just begun.
Bailu Reception Room Recommended Today: Beihai, co-founder of PicWe, who specializes in Web3 brokerage purchasing services, interprets the development of compliant exchanges and Web3 brokerage.Understand the existing problems in the Web3 industry, recognize the importance of compliant exchanges and Web3 brokers, and interpret the positioning and future of Web3 brokers in the post-ETF era.
The following is the original content.
A drama “Flower Flowers” and half of the history of securities companies.
People on Web3 resonate with each other when watching the drama Fanhua.Many people subconsciously change their “stocks” to “Tokens” when watching the show.The Chinese stock market in the 1990s was exactly the same as the current cryptocurrency market.There are always people who get rich or lose their positions and “stand at attention”. They hope that friends make money every day but are afraid that “friends drive Land Rover”. Every month, they have the opportunity to miss freedom that can break their thighs.Now that ETFs have been passed, Web3 will also enter the era of great prosperity from the “old eight-legged stock” era.
In “Fanhua”, “No. 101 Xikang Road” is the place where my uncle wrote to Abao to buy stocks.The other name is “No. 101 Xikang Road” of Jing’an Securities Trading Department, Shanghai Trust and Investment Company of Industrial and Commercial Bank of China.”The tree that is embraced with is grown in a thin layer of hair.”This is the starting point for Chinese securities companies during the reform and opening up period.
Then we can’t help but ask, where is the “No. 101 Xikang Road” of Web3.
1. Why does the Web3 market need brokers
In the traditional securities market, ordinary traders cannot enter the exchange and can only place orders in the business hall established by securities companies (securities companies), and the securities companies will be represented by the securities companies to complete the actual stock transactions.In the Web2 era, users do not need to place orders in offline business halls, and can complete remote ordering operations through electronic terminals.However, ordinary traders are still unable to place orders directly on the exchange, and they still need to complete the transaction on behalf of users.This is the most basic role of securities companies as “buying services on behalf of others”.
There are no restrictions on exchanges within Web3, and any user can trade directly on the exchange.So does Web3 need a brokerage?
Many traditional exchanges adopt a membership system, and stock exchanges do not aim for profit.Members are self-governed and disciplined, and mutually restrained, and members can participate in the exchange’s stock trading and delivery.
(I) Compliance Transformation of Web3 Exchange
Web3 exchanges are divided into two types: centralized exchanges (hereinafter referred to as Cex) and decentralized exchanges (hereinafter referred to as Dex).Dex’s profit comes from two items: one is the transaction fee, and the other is the value-added value of Dex’s platform Token.In addition to these two revenues, Cex also has a third revenue, namely customer loss.Customer loss refers to the amount lost by the user on the exchange due to transactions.When a user places an order on the exchange, the exchange needs to help the user trade the corresponding number of tokens simultaneously. This is the trading function of the exchange.As for Launchpad and other businesses, as the compliance transformation advances, it will no longer be the main business of the exchange.
Qiang Zong United Exchange, Bao Zong and Kirin will all be buried.Imagine that if the exchange stocks in “Fanhua” do not require real funds to trade, and can rise and fall as long as the strong general says, then ten Qilins will not be able to save Mr. Bao.
In actual operations of the current exchange, transaction matching and virtual trading will occur.Transaction matching is reasonable and can improve transaction efficiency.But virtual transactions are very risky.Financial derivatives such as perpetual contracts were originally virtual transactions that allowed users to bet on each other.The price of a perpetual contract does not need to be consistent with the spot price, and the price of a perpetual contract on each exchange may also be inconsistent.However, when bets and “hands” are transparent to exchanges, many exchanges will take the initiative to manipulate virtual trading prices and win users safely.Therefore, we can often see the situation of the loss of positions by the exchange.For example, the HT buried the big player incident that Brother Sun staged last year.
Some Cexes clearly do not have enough tokens, but provide corresponding transaction volume.Indeed, most users only trade coins on exchanges, but they also occasionally encounter situations where users want to withdraw cash.Some small exchanges will take measures that do not allow “withdrawal of coins” and only allow trading on numbers.Large exchanges will suspend “withdrawal of coins” and use this time to purchase sufficient tokens on the chain or other exchanges.However, in this process, the fluctuation of currency prices will cause certain losses to the exchange.Therefore, the number of token spots held has become the core competitiveness of Cex.The exchange will further aggravate the insufficient liquidity of Web3.
These problems are all obstacles to the exchange’s compliance path and will eventually be solved in the future.
(II) The overall liquidity of cryptocurrencies is insufficient
The overall size of the cryptocurrency market is still relatively small.At present, traditional financial markets still dominate and are far from comparable to the cryptocurrency market.Taking the securities market as an example, the total market value of the global securities market is about US$110 trillion, of which the total market value of the US securities market is about US$45.5 trillion, accounting for about 42.1%.After a significant increase from November to the recent past year, the total market value of the cryptocurrency market has just recovered to a market value of US$1.59 trillion.Australia, which has just surpassed the 16th place in the global securities market, and is still a little different from the 15th place in the South Korean securities market.
Cryptocurrency assets cannot be exchanged for each other.The protocols adopted by assets such as Token, NFT, and inscriptions are different, such as ERC-20, ERC-721, BRC-20, etc.Assets with different protocols cannot be converted directly. Some can use third-party tools to complete swaps, while others can only be auctioned through markets and settled with tokens.
Each public chain is splitting liquidity.Tokens on different chains can only be transferred through cross-chain bridges, which is both slow and unsafe.Therefore, a large amount of funds in public chains basically flow in a single chain. Every time a new public chain is issued, when external funds enter limited, they are splitting the cryptocurrency market that is originally lacking in liquidity.
Dex’s development cannot meet the needs of growing users.Dex is limited to a single public chain or part of the ecosystem.For ordinary users, Dex’s operation is more cumbersome and has a higher learning cost than Cex.Moreover, on-chain transactions are at risk of being arbitrage or being attacked by “sandwiches”. Once operated inadvertently, it is easy to cause a large amount of losses.
MEV classification data from December 14, 2023 to January 11, 2024
Arbitrage case on January 10, 2024, earning a profit of 17,000 U with a cost of 25U through Lightning Loan.
(III) User transaction experience needs to be improved
Can’t buy any token with one click.Many people have had this experience and saw a “wealth password”, but they don’t know where to buy this token, and some even bought fake coins.Many tokens can only be purchased on some exchanges, while some tokens can only be purchased on the chain.To this day, Web3 still has no product that allows users to buy any token.Even if you use on-chain tools, you can only buy the corresponding tokens in a specific ecosystem. For example, 1inch is useless in non-EVM.
The threshold for learning on-chain transactions is too high.Even the “old wizards” in the circle often have troubles about “where to buy” and “how to buy”.Each ecosystem and protocol are very different, and in order to lock in liquidity, each chain will try its best to prevent TVL from being lost, which will create artificial obstacles.Many heterogeneous chains only support their own ecological wallets, and each chain will also establish its own Defi ecosystem.This directly leads to the inability of users to complete all Token transactions with Universal Wallet + Universal Dapp.
2. The role of Web3 brokerage in the post-ETF era
(I) Positioning of exchanges in the post-ETF era
ETFs have been passed, and the Web3 industry will become more and more standardized in the future.Cex will gradually return to the nature of the exchange and is unlikely to continue to be “both both a referee and an athlete”.In the future, the benefits of compliant Cex will come from four items: one is transaction commission; the second is brokerage membership fee; the third is consulting service fee; and the fourth is coin holding and withdrawing coins.The first three items are consistent with traditional exchanges, and the fourth item is unique to Web3.
Coin holding and withdrawal fees will be important benefits for Web3 exchanges.There are big differences in attributes and functions between securities and tokens. Tokens have more financial interests than securities and have more usage scenarios.There will be no user requests to “take securities” in securities trading, but in the Web3 world, users often have the need to raise tokens, and holding a large amount of Crypto is a considerable capital cost.In the future, there will be situations where securities companies do not hold coins and will be held by exchanges.When withdrawing coins, it is initiated by the brokerage firm and transferred to the user by the exchange.The exchange charges a certain amount of currency holding fees from brokers and a certain amount of currency withdrawal service fee from users.
Cex’s assets held
(II) Positioning of Web3 securities firms
Web3 brokerage provides five services:
The first is to buy services on behalf of others.Through the Web3 infrastructure, brokers connect Cex and Dex to realize one-click buying of any token, helping users complete token transactions.Like securities, users do not care about who provides the stock, but only care about the convenience of trading.
The second is consulting services.On the one hand, it is preaching.Securities companies need to explain the basic knowledge of Web3 to new users and do a good job in promoting blockchain technology.At the same time, in accordance with local policies and regulations, services such as account opening and deposit and withdrawal are provided.On the other hand, investment consulting.Provide various Web3 consultations to assist users in finding investment targets and making transaction decisions.
The third is financing allocation and financial derivative services.When the exchange moves to compliance, perpetual contracts and leverage businesses will be transferred from the exchange to the brokerage firm.This can effectively avoid the problem of “the referee ended in person”.When projects and users need financial support, the funds in the hands of securities firms and the credit of the securities firms to withdraw cash on the exchange will be the first choice.In addition, currently, order-following transactions, on-chain monitoring and other businesses will also be aggregated into the services of securities companies.
The fourth is asset management.Web3 brokers provide not only traditional financial management and fund products, but also provide on-chain mining, stablecoin pledge lending and other unique products.Help users achieve periodic and stable value-added assets.
Fifth, underwriting, distribution and OTC business.Although Web3 fundraising can be directly through IDO and ICO, with securities firm endorsement, underwriting and distribution will have a more marketable market.There are a large number of tokens unlocked in the circle every month, and the OTC business can avoid fluctuations in the market price.OTC business is easier to facilitate transactions through securities firms with trust.
3. Web3 brokerage companies will become a segment of the trading track
Whether it is the traditional financial market or the cryptocurrency market, every time a bull market starts, the first thing that breaks out is the trading track, and “buy brokers in the bull market” is a consensus.
Currently, Web3 brokerage firms are still an emerging track, but some projects have appeared.According to the types of services provided, it is divided into several categories:
The first is to buy tools on behalf of others.Web3 has always lacked an app similar to the Oriental Fortune or Tonghuashun in securities. Users can buy any stocks with just one click.In the future, a series of purchasing tools will appear in Web3, allowing users to buy any token without learning on-chain operations or registering on exchanges.
The PicWe platform is currently available for this service.The platform is based on AA wallet, aggregation trading system and SIS technology (state evidence storage service based on Lightning Network), which opens up the liquidity of Cex and Dex. Users do not need to provide an exchange API or register on the exchange. PicWe platform buys on behalf of others.The service can help users “buy any token with one click”.Moreover, all users’ assets are locked on the chain, which is very safe.The platform Dapp and Tgbot have been launched and are in the beta testing phase.
The second is information tools.The news that ETF passed allowed ETH to take off 10 points instantly, and the L2 track and ETH-related concepts (such as ETC) rose by nearly 20 points.Getting information first means “geting in the car earlier” on Web3, with lower costs, less risk and higher returns.
The fastest Web3 off-chain data intelligence system on the entire network is the BubbleAI platform.Combined with the team’s self-developed AI big model analysis engine, we will create the “All in One” AIFi ecosystem, empowering global users in the fastest and easiest way.The Beta version of BubbleAI terminal has been launched.Its core functions include real-time signal aggregation, AI public opinion analysis, AI agent ordering, AI popular AI sector tracking, and AI strategy bot.At present, the BubbleAI platform is carrying out whitelist application activities, with the number of applicants exceeding 20,000.
The third is financial derivatives.There are many types of financial derivatives, and the one closest to brokerage services is the order-following service.The order-following service can be divided into three types: DeFi mining, order-following transactions (also subdivided into Cex order-following and on-chain Smart Money tracking) and quantitative transactions according to the business type.Among them, the DeFi mining type focuses on “mastiff dolls” or stablecoins, and in a strict sense, it is more Fi type.The scale of order transactions is relatively large and will be the main part of Web3 brokerage services in the future.
There is one securities company’s follow-up service worth paying attention to.Logearn is the world’s first decentralized automatic follow-up/order trading middleware, and is an aggregated decentralized follow-up trading platform.The platform provides decentralized order-study SaaS solutions, which completely connects order data and processes for CEX, DEX, wallets, communities and other scenarios, and can aggregate the liquidity of all order-study in the industry.Make it easier for users to enter Web3 to invest or trade.
Fourth, asset management tools.The cryptocurrency market has always maintained a high rate of return, and the Web3 asset management project has always been very popular.The asset management platform can be divided into three categories according to the authority of asset holders: centralization, decentralization and semi-centralization, with different product forms and technical routes.Overall, Web3 asset management projects are uneven. Often, tools with high returns in a short period of time have very low returns or even losses in the long period of time. Only projects that have experienced a round of cyclical market inspection are excellent asset management projects.
The Enzyme project was born in 2017. Managers can build their own investment portfolio in Enzyme, and investors can choose specific investment managers to invest.After the V2 version was launched, it supports nearly 200 assets, has more than 1,300 investment portfolios, and manages nearly US$1.7 billion in on-chain assets.However, since users in this circle prefer high short-term returns, although Enzyme is a leading project in the decentralized asset management track, it is still relatively small.This bull market may lead to semi-centralized high-quality asset management projects on chain.
Fifth, underwriting, distribution and OTC business platforms.Platforms represented by Amber can provide channels for non-cryptocurrency market users to purchase crypto assets.However, no OTC business platform based on smart contracts has been found to help project parties complete token transactions in non-secondary markets.
January 11, 2024 marks a new era in Web3.In the future, Web3 compliant exchanges and securities firms will work together to build a more convenient trading infrastructure, introduce a large number of out-of-circle users to hold crypto assets, provide more warm trading services, aggregate the liquidity of the entire cryptocurrency market, and improve blockchainA global consensus will jointly welcome the prosperity of Web3.
