As someone who spent a decade and a half in traditional finance, it dawned on me countless times that the system had more limitations than a toddler's lemonade stand. But it wasn't until I discovered Bitcoin that I realized just how desperately traditional finance needed a facelift. You can imagine my epiphany - there I was, just another cog in the London grind, thinking I had it all figured out. Little did I know, I was just another clueless minion in a sea of outdated processes. Then one day, I stumbled upon Bitcoin and suddenly my life turned topsy-turvy. It was like I had just taken the red pill and saw the financial world for what it really was - a dinosaur that should have gone extinct ages ago. Bitcoin opened my eyes to the potential for a truly revolutionary financial system that could change the world for the better. Suddenly, my old job felt even more pointless than a pair of waterproof socks in a desert. But hey, at least I knew there was hope for a meaningful future.
I used to work in asset management, specifically in a quantitative equity team, and I must admit that I was initially impressed by my old team's approach. However, upon further reflection, I realized that our industry is simply propping up a flawed global pension program. There are various methods to manage a portfolio of equity, but traditional fundamental strategies can essentially be boiled down to two: value or growth strategies. However, with the advent of machines, we were able to eliminate human biases and get more creative with our strategies. My team was one of the trailblazers in factor investing, where we balanced the four main factors in equity investing: growth, value, quality, and sentiment. We aimed to surpass the benchmark by approximately 2% in any market. However, I couldn't help but notice that we earned most of our revenue from management fees alone.
The excessive energy and talent that humans put into managing other people's savings is simply mind-boggling. The asset management industry squanders resources that could be better allocated elsewhere. And I've only touched on the equity side of things; the pursuit of asset diversification is often a façade that merely enriches asset managers at the expense of their clients. It's high time for a paradigm shift in how we manage money.
El Salvador's Volcano Bonds: A Game Changer for Nation-States
Bitcoin has the potential to revolutionize the financial industry, but it's not without its limitations. That's where Liquid comes in. So pay attention, all finance experts! If you're looking to upgrade the traditional finance system, then you're in for a treat with Liquid. As a federated blockchain, the Liquid Network is designed to provide a much-needed facelift to the industry. Unlike other “blockchain” tokens that rely on sketchy incentives and artificial hype, Liquid is a reliable bridge that connects traditional finance to the game-changing power of Bitcoin. By expanding the functionality of Bitcoin, Liquid offers a wide range of benefits that are sure to bring even more innovation to the financial industry.
With its emphasis on security, privacy, liquidity, and ease of use, Liquid is an ideal platform for issuing and trading digital securities, particularly for enterprises and nation-states looking to issue bonds such as El Salvador's Volcano Bonds. One of the most significant advantages of Liquid is its programmability, which enables the issuance of assets such as bonds, property deeds, equities, and even vehicles, allowing Bitcoin to flow into the legacy financial system. Liquid's Confidential Transactions feature ensures secure settlement between entities without the risk of information leaks, making it particularly useful for enterprises and nation-states looking to issue bonds as it provides a secure and efficient platform for these transactions. Therefore, it's a no brainer for nation-states to build on Bitcoin and Liquid.
El Salvador's Volcano Bonds represent one of the most promising innovations for nation-states. The original bond design by JAN3 CEO Samson Mow was essentially a $1 billion 10-year bond with a 6.5% coupon, half of which will be used to buy and hold bitcoin, and the other half to build mining infrastructure. This bond would allow El Salvador to eliminate its foreign debt and disengage from being tied down to dollar loans, providing an opportunity for countries to break free from the vicious cycle of debt. Liquid's feature set allows large-value projects such as the Bitcoin Bonds to be issued and traded seamlessly, providing a key advantage over other means of issuing and trading bonds, which are far more limited.
Asset Issuance: Bearer Instruments, Stablecoins & STOs
Liquid's assets are designed as digital bearer assets by default, allowing for easier transfer and custody of assets without the need for intermediaries such as custodians or transfer agents. Dividends, coupons, and other features can be programmed into Liquid with Blockstream's Asset Management Platform, allowing funds to go straight to the holder's wallet, eliminating the need for intermediaries to process payments, and making issuing and trading bonds more efficient and cost-effective. Liquid's ability to support small face-value instruments enables greater participation from a wider range of investors, including retail investors. Unlike other crypto platforms, Liquid does not have a native token (altcoin) that can be subject to speculation or volatility, making it a more stable and reliable platform for enterprises and nation-states looking to issue bonds.
On Liquid, stablecoins can be issued as tokens on the sidechain that are pegged to the value of the underlying asset. For example, a stablecoin pegged to the US dollar would be backed by a reserve of US dollars, T-bills and bonds, held in custody by a trusted third party. Once issued, these stablecoins can be traded on centralized exchanges like BTSE and Bitfinex. This provides users with a way to access and trade stablecoins on a fast and secure platform, without the need to go through the more cumbersome process of using a traditional bank or financial institution.
Promissory notes are similar to traditional promissory notes, which are legally binding agreements between two parties. On Liquid, these notes can be issued as digital assets that are recorded on the sidechain's blockchain. This can streamline the process of issuing and trading promissory notes, making it faster and more efficient than traditional methods. This opens up new possibilities for investors and traders who are looking for a more flexible way to invest in these types of financial instruments.
Security token offerings (STOs) on Liquid offer several benefits, including increased accessibility, transparency, liquidity, and security. Liquid allows for faster and more affordable transactions compared to the main Bitcoin network. With Liquid, all transactions are verified and recorded on a tamper-proof ledger which reduces the risk of fraud, hacking, and other security issues that can occur in traditional securities markets. Several companies have launched STOs on Bitcoin’s Liquid Network, including STOKR, DIGTL, and Bitfinex Securities.
NFTs—while they may seem trivial to some, one can’t deny that NFTs have become a hot commodity in the world of digital art and collectibles. So, if you really need to NFT, then you NFT on Bitcoin's second layer to avoid mainchain bloat. On Liquid via the Raretoshi marketplace, NFTs can be issued and traded as tokens on the sidechain. This provides creators and collectors with a fast and secure platform for creating, buying, and selling NFTs. These NFTs can also be traded on centralized exchanges or DEXs, allowing for greater flexibility and accessibility for users. This can potentially open up new opportunities for creators to monetize their work and for collectors to invest in unique digital assets.
Liquid's Vision for a Better Financial Industry
Although Bitcoin Maximalists argue that one should just use Bitcoin, the world is still largely driven by legacy financial instruments. Liquid is a way to bridge that gap while offering a technically sound solution. Liquid provides issuers a user-friendly interface and technical support, allowing them to focus on what they do best.
Simply put, traditional finance is about as outdated as a cassette tape in the world of Spotify. However, Liquid is here with its advanced programmability and Confidential Transactions features, providing the cutting-edge solutions many seek in the financial sector. Furthermore, its lack of a native altcoin eliminates the crazy crypto rollercoaster rides for investors and avoids siphoning off the network effects of Bitcoin.
El Salvador's Volcano Bonds (and Bitcoin Bonds from other countries) are just the beginning of what's possible with Liquid, offering a tantalizing glimpse into a future where countries can break free from the chains of debt. So, buckle up and prepare to witness a seismic shift in the financial sector because Liquid is about to blow many minds and change finance for the better.
This article was originally published on the Liquid Network blog.