Today I will share some thoughts on something I have wanted to write about for a long time. The time now seems more pertinent than ever, just after the controversial listing of Bytecoin on Binance — propelling the coin into the top 20 assets on coinmarketcap.com.

For those who didn’t witness what happened last week, immediately after Binance announced they had listed Bytecoin (BCN) the 24-hour volume spiked to over $600MM USD. You can read more about why this is controversial in your own time, but it serves as a good basis for the rest of this post.

I want to address a couple of questions that have been on my mind for a number of months. Let’s take them one by one.

What does value look like in a decentralised financial ecosystem?

Right now we find ourselves in a situation not dissimilar to an arms race. We have just come out of the back end of the ICO boom of 2017, which saw thousands of companies all over the world raising funds for startup businesses and speculative ideas. Many ICOs were so hyped they managed to raise $30MM USD for no more than an idea on a piece of paper. No detailed budgeting, no competitor analysis, no assessment of addressable market size — just an idea. Think about that for a second. How do these tokens justify their valuation in the long term?

The answer to me is simple, yet it’s amazing how few projects post-ICO are doing this. They should be focussing inward, looking at the business or ecosystem they set out to create, and asking how they can create income, profit and growth that can sustain itself into the future. Unfortunately, this is not what’s happening right now. All of these projects are competing against each other to obtain as many exchange listings as possible. In their eyes, exchange listings bring volume, and volume brings value to their token. This could not be further from the truth — they are actually bloating their valuations even more than they have already.

The elephant in the room is that these bloated valuations are twice as bad as most people think. The price of exchange listings is running into millions of dollars. By spending millions of dollars on exchange listings, they are pushing up their market cap whilst simultaneously draining their project of the capital they need to grow.

Weren’t we supposed to be removing centralised sources of power?

Let’s take a step back for a minute and ask ourselves how we got here. I have been passionate about decentralisation since I discovered Bitcoin in early 2011. I suppose you could say I’ve ‘been around the block’. The benefit of this is that I have perspective — something most of the names and brands out there today don’t have. I lost a number of Bitcoin when Intersango (one of the first Bitcoin exchanges in the UK) went into insolvency, I lost some more when MtGox got hacked. This gives me a unique perspective on the hundreds of cryptocurrency exchanges that we use today. I know more acutely than anyone that they will not be around tomorrow — they are centralised sources of power and they have no place in the decentralised world of the future.

With this consideration in mind, I have begun to think a lot more about the rationale of listing on a centralised exchange and handing over hundreds of thousands of dollars to someone who I have my personal doubts will be around in 2–3 years time. This is money I could use to grow the financial ecosystem I am working hard to build — why would I waste it today to create a bloated valuation in the midst of a bubble? It simply doesn’t make sense.

So what is holding us back? Why do we have so many centralised exchanges right now? We’re stuck with the status quo at the moment because of performance and scalability issues faced by blockchain applications and platforms. But don’t be shortsighted — there’s a lot of innovation going on in this space. EOS will launch in June 2018 and unlock the potential for 0.5s block times, with 1000s of transactions per second. They already plan to launch EOSfinex, the first high performance decentralised exchange, and many others will follow. These power structures will be dismantled over the the months and years ahead, and I can’t wait.

What is the difference between volume and liquidity depth?

By now I appreciate I have painted a pretty bleak picture, but don’t worry, it’s not all doom and gloom. Most people don’t understand the difference between volume and liquidity, so let’s take a moment to clarify what they mean first.

Volume

The definition of volume is simply the aggregated size of transactions that occur in a given period. It does not tell us anything about the desirability of owning an asset. What if the asset is very popular and nobody wants to sell it? If nobody is selling then volume will be $0.

Volume also doesn’t tell us how easy it is to buy or sell an asset. If there is one large transaction, then the volume will be very high for that period — how do we know if the transaction was executed at a favourable price and without lots of slippage? We don’t.

Liquidity Depth

Liquidity depth is a much more useful metric for determining how desirable a market is to trade. Typically markets with more volume have more liquidity depth, but this doesn’t have to be the case. One of the few useful dApps on the Ethereum platform is Bancor, which unlocks the potential for continuous liquidity of low-volume assets.

We can take a look at an example of an asset on Bancor with large liquidity depth to illustrate this. BNT tokens have a reserve size of $36MM USD, which means I can buy over $700,000 USD of BNT tokens with less than 1% slippage! That is simply amazing — you would do well to find this kind of liquidity depth on even the largest centralised exchanges.