As traditional finance converges with decentralized finance, there are some questions circulating within the crypto community
BlackRock $BLK’s co-founder and CEO, Larry Fink, is increasingly embracing cryptocurrency. In a recent interview, he affirmed that Bitcoin is legitimate and firmly believes that there is a place for cryptocurrency in the average investor’s portfolio.
While it may seem promising to many that cryptocurrency is gaining mainstream acceptance, the cryptocurrency community is also concerned that financial giants like BlackRock, Fidelity, and others may be undermining the idea of decentralizing finance.
Quartz explores whether the fear of the financial giants taking over the decentralized crypto industry is true or not.
Decentralized finance, or DeFi, is an integral part of the crypto world that aims to create an open, borderless, and decentralized financial system that operates without relying on traditional finance or centralized intermediaries such as banks or financial institutions. Ultimately, the objective is to limit the power of centralized institutions in determining who has access to financial services and to help billions of unbanked populations around the world.
Now, financial institutions such as Blackrock have entered the crypto space. After receiving approval from the Securities and Exchange Commission for spot Bitcoin ETFs in the U.S., BlackRock’s iShares group launched the iShares Bitcoin Trust (IBIT) earlier this year. It is the largest spot Bitcoin exchange-traded fund, holding more than $18 billion in assets. In the near future, the financial giant plans to launch an Ether ETF.
Noelle Acheson, crypto expert and author of the “Crypto is Macro Now” newsletter, believes that the blockchain ecosystem growth will continue whether or not large institutions are involved. That’s because “BlackRock and Fidelity don’t control the development of decentralized services; rather, they complement it,” she told Quartz in an email.
It is important to note that even though crypto is decentralized, it still relies on certain aspects of centralization, such as crypto exchanges, key players in mining, and core developers who often have control over the software. This kind of traditional financial system or centralization is viewed as necessary for the development of cryptocurrency and blockchain ecosystems.
For example, BlackRock’s BUIDL fund, launched in March, tokenizes assets like cash, short-term debt, and securities on the Ethereum blockchain network. This enhances transparency and liquidity and illustrates how traditional finance and the blockchain ecosystem are merging.
Peko Wan, the co-CEO of blockchain platform Pundi X $TWTR, is concerned about a different matter. In her view, decentralizing finance does not necessarily mean decentralizing ownership. That’s because BlackRock’s iShares Bitcoin Trust (IBIT), the largest spot Bitcoin exchange-traded fund, holds more than $18 billion in assets. Similarly, Michael Saylor’s MicroStrategy holds 1% of the total Bitcoin in circulation.
“If a large quantity of Bitcoin has been held by certain organizations, you don’t know what they will do with this huge holding and whether they sell to the market immediately,” she told Quartz in an interview.
She added that it’s a common fear because 70% of the world’s assets are actually held by maybe 5% of the population. Since crypto is built on a decentralized network, it’s more like an open world, but in her opinion, who holds crypto is becoming centralized. “If Bitcoin becomes too centralized [because of who is holding it], people may lose trust in that,” she said.
The evolving financial model is now a mixture of centralization and decentralization instead of exclusively one or the other. While DeFi has brought about some groundbreaking changes, it has also experienced several setbacks. To rebuild confidence in the system, the hybrid model is gaining popularity. Nevertheless, it’s crucial to consider the original purpose of decentralized finance and whether it is truly addressing the needs of the unbanked population.
Join 500,000+ readers who start their day with Quartz.
By subscribing, you agree to our Terms of Service and Privacy Policy.
