Primex Finance: Bringing Prime Brokerage Tools To Blockchain

The issues with centralized finance

Power is concentrated in the hands of the few in centralized finance structures. This leads to inefficient and inaccurate markets, such as the overrating of CDO creditworthiness that led up to the 2007-8 crash. Prices and economies can also end up mismatched when jurisdictions diverge on regulatory principles.

A deeper regulatory issue is uneven enforcement. The lure of money and power can lead to regulations being twisted or outright ignored, giving unfair advantages and twisting true market values. That’s when barriers to entering markets are passable – laypeople aren’t even allowed to trade in derivatives markets, for example.

Even when markets are accessible, complex layers exist, such as brokers, clearinghouses, exchanges, etc., all acting as a buffer between people and markets. Keeping assets at arms-length also makes it easier for a government to seize them from “undesirable elements”. It’s even an issue inherent in crypto exchanges; assets are held on a balance sheet with transactions netted off as needed.

A consequence of this layering and withholding of access is the rise of oligopolies in some markets. Companies use their status and power to charge exorbitant fees for market access. The advent of Neo Brokers is bringing change, but it’s incremental and not yet significant.

DeFi: What and why?

Taking into account all these shortcomings of traditional finance, is decentralized finance (DeFi) the answer? Is an answer even needed?

DeFi puts power back in the hands of users, making markets more democratic and decentralized – crossing borders in the process. Anyone can participate with an internet connection; no citizenship tests, location requirements, or ideological needs. DeFi is a fully globalized market.

The ability to directly own assets is a key element of decentralized exchanges (DEXs). Everything is stored on an international network so governments and nefarious actors can’t seize ownership; there is no need for prime brokerages.

Think of DeFi as infrastructure; it’s email rather than Gmail. A provider can fail yet the underlying principles and structures remain intact. DeFi could only be taken down by a fatal coding error in a smart contract or a complete collapse of a globally distributed blockchain.

Removing brokers and regulatory enforcement reintroduces pure economic incentives and takes away politics, ideology, and social conditions. Add this to direct ownership and there is much less need for trust within the system; financial logic is the driver and computer logic is the key to execution.

The imperfections of DeFi

DeFi isn’t the ultimate solution for financial markets. Major services offered by prime brokerages include margin trading and automated trade execution. The anonymity of DeFi makes lenders wary of offering undercollateralized lending for trades. Traders tend to want to maintain that anonymity and shy away from traditional KYC.

Automated trading such as a stop-loss or limit order needs a trigger. In a prime brokerage or CEX, this trigger comes from their own back end but that can’t translate onto the blockchain.

The fragmented nature of DEXs is another concern. Although the DeFi space isn’t as fragmented as traditional finance, not all DEXs integrate with each other. What’s more, margin capital – when available at all – is usually platform-specific.

Finally, the complex security and lackluster interfaces hinder new entrants. The community developing DeFi is hardcore and focused on technology – UI is a distant second consideration, which puts off Joe Public from trusting the systems.

Bringing margin trading and automated trading to DeFi

These issues aren’t insurmountable; Primex is able to solve key DeFi issues with its new protocol.

Margin trading is introduced through liquidity pools that Primex calls credit buckets, each with a variable and regularly updated risk profile. These buckets can restrict traders based on risk scores that generate on past and current trading performance rather than KYC. Overly risky positions are liquidated automatically. The incentives for participant behavior are economic – “zero trust” is introduced.

The role of Primex Keeper nodes also offers automated trading; the second strand of prime brokerage service currently missing from DeFi.

Primex also solves cross-DEX trading issues. Traders can use their borrowed capital anywhere within the DeFi space, erasing the borders that DeFi intends to remove. All of this is available on a user-friendly, well-designed platform.

The future of DeFi

The shift towards decentralized, borderless, distributed financial systems with democracy at their heart is happening fast. Traditional finance still has a place in the world, yet we can expect DeFi to take a more prominent role. The concepts of Primex – margin lending, risk management, cross-DEX capabilities, automated trading – position it to be central to the future of DeFi.

 

Disclaimer: This is a company release. No HT journalist is involved in creation of this content.