WallStreetBets is at the eye of a war between Wall Street and an army of small investors over GameStop, a languishing video games chain, that has agitated financial markets, angered billionaire hedge funds, and made unlikely allies of political enemies.
Recently, the frenzy reached a crescendo when the popular trading platform Robinhood halted trading Gamestop and other short squeezed stocks on the platform, locking traders out of the market-leading to massive public uproar and has highlighted the political overtones around the competing ideologies about the distribution of wealth. To some, the activity signals the amateur investors have infiltrated and messed with the hallowed halls of finance, to others it is a liberation from the control of entrenched masters in a corrupted system, a popular uprising against the surfeit of capitalism, and the bailout of banks after the last financial crisis.
One thing is for sure. As a beneficiary of this outcry, Decentralised Finance (DeFi) and cryptocurrencies have gained the attention of politicians, retail investors, and entrepreneurs alike. In particular, how conversations DeFi is the antidote for the Robinhood drama.
There are two prevailing thoughts on why Robinhood clamped down on retail investors’ bets on several highly popular but volatile stocks. First, Robinhood faced pressure from institutions and market makers to halt the trades, magnified by the fact that Robinhood makes most of its money by selling its user’s trades to market makers like Citadel Securities. In another view, Robinhood was facing a significant solvency issue explaining why Robinhood had to draw on hundreds of millions from bank credit lines and why they raised a bridge round of $1 billion from existing investors.
Crypto and decentralized finance could help prevent this from repeating.
DeFi runs on the power of a network of traders and open-source code as opposed to the approval of an individual or entity. Therefore it is relatively resistant to conspiracy or pressure from external bodies to halt trading. The credit risk that plagued Robinhood thus far would be drastically reduced by DeFi as the markets are open 24/7 — traders would not have to wait for market opens to trade — with trades settled in minutes not days.
Systems that were designed in the 18th and 19th century, such as the stock market, are faltering because they weren’t designed for a world where everyone has democratized access to information, financial tools, instruments, and the power to coordinate and communicate in real-time. With the internet, social media, apps, Artificial Intelligence (AI), and most importantly DeFi one party no longer makes the majority of the financial decisions for the rest of the world. Our archaic monetary system is collapsing and will continue to collapse until we redesign it.
The DeFi movement provides the tools to democratize Wall Street. The market chaos enticed a new generation of investors. These retail investors are also everyday citizens who are tired of the unfair advantage Wall Street has had for over a century to control the market at their will.
As the fragility of our economic systems is unveiled, there is a real opportunity to acquire the millions of households looking for better sources of passive income that are not correlated with central banking monetary policy.
Over the past couple of years, we have witnessed explosive growth in DeFi, with the launch of many financial applications, including collateralized lending, decentralized exchanges, and prediction markets. Despite early success and a robust influx of brains and capital, DeFi has yet to generate a broad appeal outside the crypto native world. The world has now woken up to the tools DeFi has to offer, citizens can now be armed with effective tools to register their unhappiness with the system. The future of finance is decentralized.