VIDEO | Exchange-based trading in crypto markets is all based on pre-funding – at least so far. Is this a better model than in traditional finance? This question formed the starting point as Usman Ahmad, CEO of Zodia Markets, joined PostTrade 360° Copenhagen to discuss how the arrival of DLT is changing trading.
“The model around pre-funding exists because historically (and by history, I’m talking about the last five to eight years), there hasn’t been an alternative,” says Usman Ahmad, describing the landscape of crypto-assets trading.
“There are no central clearing counterparties that may sit at the middle and charge large membership fees, and for intermediation there’s no real infrastructure other than the fact that everything does transact on a distributed ledger that is available for everyone to see.”
London-based Zodia Markets, where Usman Ahmad is CEO, was created through a joint initiative by Standard Chartered and OSL. His 15-minute interview with the Copenhagen conference centred around the rift between practices of traditional finance, “TradFi”, versus DLT-based decentralised finance, “DeFi”. Financial institutions traditionally ship money for securities settlement only after a trade is made, else their trading across the world would tie up enough money to hurt them. With time, the infrastructure to enable this could emerge also in the DeFi markets, but so far, that is far from the case.
Poor management – crypto or not
Usman Ahmad mentions more examples of how new and traditional processes could support each other. While distributed ledger technology (DLT), such as blockchain, should be able to bring process efficiencies into securities operations, there is also great need in the cryptoasset space to take up traditional-finance practices – including structured risk management.
“We’ve seen Celsius, BlockFi and others blow up as a result of, basically, nothing to do with crypto but everything to do with uncollateralised lending – your basic poor risk-management practices.”
DLT-driven news in the area also includes “automated market-making apps” (AMMs), and crypto derivatives markets with automatic risk adjustments and new (pre-funded) principles around the margin requirements.
In the player below, watch the full 75-minute block of DLT-related sessions in one playlist. These are the sessions, each covering a part of the securities lifecycle:
• Introduction – Olaf Ransome, 3C Advisory [Article]
• Issuance – Naveed Nasar, Agora DCM [Article]
• Trading – Usman Ahmad, Zodia Markets [This article]
• Settlement and custody – Amar Amlani, Goldman Sachs [Article]
• The means of payment – Jonas Gross, Etonec / The Digital Euro Association [Article]
• News around PostTrade 360° Copenhagen 2022, on 20–21 September, is gathered here.
• The conference info site, with detailed agenda, is here.
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