Volatility is one of the biggest challenges facing emerging markets. By fueling political and economic instability, reliance on a limited number of industries and limited market access, these conditions are exacerbated by weak or absent regulation. Although many of these elements do not appear to be changing anytime soon, there are economic and technological advances that can be made to ensure stability. Cryptography – a relatively new validation of blockchain-based crypto assets – could be a way to achieve this vision.
What emerging markets lack: participation and liquidity
More asset movement is important for a successful and mature market. In other words, the markets need liquidity, which is partly provided by participation. If there aren’t enough people, the odds that security is liquid are slim. As a result, the market remains more sluggish, investors see higher risks, and the economy becomes dependent on several strong industries for compensation, while foreign and domestic players alike cannot generate wealth from within with other market funds. Ultimately, greater participation will increase liquidity, but political and economic systems can impede progress.
Many, but not all, emerging markets also operate under political systems that discourage participation in economic life, when certain segments of the population do not have remote access to a bank account or investment, which limits social mobility and liquidity and widens the wealth gap.
Related: Economic integration, cryptocurrencies, and developing countries
In some oligarchies, which make up a large part of emerging markets, a lack of access to finance can be persecuted to limit political progress and maintain political repression.
In other cases, social and economic mobility is not technically limited, but internal problems somehow limit opportunities for the poorest people. Blockchain technology has stimulated the possibility of a true economic revolution with great potential for participation and opportunities.
About this topic: Cryptocurrency is a revolution that is driving developing countries towards economic integration.
Blockchain: A Democrat to the Economy
The basic concept of blockchain development stems from the familiar system and sentiment people experience in emerging markets: the central force and has little to do with it. The idea was to get central power out of the hands of a few wealthy people on Wall Street, whose passions had consequences on the global market.
Instead of directing markets through old financial institutions, the blockchain will drive them through people, thereby eliminating middlemen and empowering people. Ultimately, empowering people with a blockchain-based economy should theoretically lead to greater accessibility and then participation, especially for nonbanks or people with financial disabilities.
While basic blockchain technology is able to decentralize finance, digital capsules that operate with so-called “tokens” are the real reason behind the increase in market participation. In fact, tokens can represent any form of marketable asset, be it digital or tangible. In a 2018 report, Deloitte expressed strong confidence in the true potential of coding:
The process of converting assets into symbol threatens to undermine many industries, especially finance, and those who are not prepared to risk being abandoned. […] We expect tokens to make the financial industry easier, cheaper, faster and easier, possibly opening trillions of euros in illiquid assets and increasing trading volumes. ”
These ideas have appeared in a variety of applications, from securities to unique assets such as works of art, which have taken advantage of this unique coding opportunity.
Building a framework for sharing with coding
Combined with cost-effective blockchain technology, the token provides an entirely new type of flexibility that is sorely lacking in the traditional mainstream economic ecosystem. As a result, assets have been coded, ranging from traditional financial tools like securities to unique tangible items like artworks.
Many developing countries cannot invest in traditional assets due to their high cost. But with tokens split, assets are split between groups of people, so investors can start with fewer investments.
Instead of someone buying a property – a typical $ 500,000 non-liquid asset – a very large group of retail investors can purchase a home as an asset through markup. Each investor will be able to trade their tokens easily without any legal hassles. This means that not only individuals have been previously excluded due to the high value of assets.