September 24, 2022

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Primex Finance: Dismantling trading barriers with blockchain

Finance is one of the oldest industries that has evolved into a diversified market with many products and services. It has developed layers of control to protect money and power and has segmented into national jurisdictions with centralised trading hubs, such as the NYSE or EuroNext.

This highly regulated, insular world was ripped up with the coming of crypto oligarchic corporations that have been replaced by a truly globalised, decentralised, free market.

How is traditional finance different from decentralised finance?
In traditional financial markets, there are gatekeepers such as banks, stock exchanges, clearinghouses, brokers, etc., who are interested in controlling who can and can’t trade and even what assets can be traded. Get on the wrong side of your government, and you can quickly lose access to your money when assets are held centrally. Even crypto centralised exchanges (CEXs) have the same issue, maintaining and clearing balances off a central database.

The layers of control in markets also lead to inaccuracies and inefficiencies. The overrating of the creditworthiness of CDOs directly led to the 2007-8 global crash, for example. With few nodes in the system, one failure point can become catastrophic, and the concentrated power can cause the price divergence and inefficiencies when regulators take opposing stances.

These traditional financial structures have also led to oligopolies – vast institutions begin to gatekeep market access with significant fees charged to access the market. The advent of Neo Brokers is somewhat changing this, but not fast enough.

Many of these issues are resolved through decentralised finance (DeFi). Using the power of blockchain technology, many barriers to entry in traditional markets have been broken – anyone can trade crypto without concern for their nationality or status; they just need an internet connection. Assets remain in the hands of the owner within DeFi, meaning what you own can’t be seized following a change in regulation, for example.

The pure economic incentive is the market driver rather than national regulators. Without brokers, there are no gatekeepers, and there are no bottlenecks of control – even if an exchange were to fail, for example, the whole infrastructure of DeFi would remain and keep the system together. Power is inherently unable to be concentrated in one place, meaning there is less chance of a significant failure, and oligopolies are no longer possible.

Problems with DeFi
No market can be perfect, and there are indeed flaws in DeFi that need to be resolved. Two of the primary functions of a prime brokerage are margin trading and automated trade execution. A desire from traders to remain anonymous coupled with a highly volatile crypto market is a disincentive for lenders to offer capital for margin trading.

Automated actions like stop-loss and or limit orders need new triggers in DeFi; they traditionally are generated by the backend of prime broker systems. Another limitation with DeFi technology is the lack of interoperability between some decentralised exchanges (DEXs).

Functionality on the frontend also causes friction with DeFi tools. Developers in the space tend to focus on the performance and pay less attention to the overall user interface and experience. This is an intangible barrier to entry for many people.

How does Primex resolve these issues?
To fully replicate the positive elements of traditional finance in the DeFi space, a new tool is needed, and it comes in the form of Primex Finance. The game-changing aspect of the protocol is the introduction of margin trading for risk-assessed traders.

ET Spotlight

Borrowers can access funds through lending pools, known in the system as credit buckets, and trade across a range of DEXs. The lenders who fund these credit buckets can choose one that suits their risk profile and earn interest from trading profits, knowing that they will liquidate overly risky trader positions to secure their assets. The anonymity demanded by traders is no longer an issue when their risk profile is regularly scored. Primex also uses Keeper Nodes which allow for automated trading – these two innovations together negate the need for prime brokers.

Allowing for cross-DEX trading with the protocol also removes that issue from the conversation. A trader can borrow assets through a credit bucket, open a position on one DEX, and close it on another.

The future of DeFi
A digital-native, truly democratic financial system that’s decentralised, borderless, and distributed is the direct route of travel. While traditional financial institutions aren’t going anywhere soon, there will be more space taken up by DeFi solutions.

By introducing margin trading, risk management, and DEX-agnosticism,
is at the forefront of the move to the mainstream for DeFi.