5 Lessons Web3 Developers Can Take From the World of Traditional Investing

Investor sitting at computer

By Jenny Q. Ta, Chief Executive Officer at by HODL Assets 

Cryptocurrency’s rise from the niche corners of the internet to a major force on the global financial stage has shaken up more than a few finance-adjacent sectors, transforming the way individuals and companies choose to invest. Given its relative novelty, virtual transacting and wealth-building can be opaque and intimidating, even to those well-versed in traditional markets and investment methods. 

That said, the investing methods used in traditional and decentralized finance spheres have more in common than people might initially assume. DeFi and Web3 developers and companies have both the responsibility and decent incentive to communicate how DeFi depends on and resembles already-familiar elements of conventional investing habits and techniques. In doing so, here are several tenets of traditional finance Web3 developers should lean on when developing their investing structures. 

1. Rethink the debt ceiling

A basic tenet of traditional finance is the debt ceiling, which regulates the amount of debt a country can take on. The United States debt ceiling is currently in the tens of trillions of dollars and growing. When a currency is only minted in a certain way (i.e., physical bills), and only a certain amount of it can be generated at one time, it’s easy for people’s ideas to become limited by the debt ceiling.

The physical US dollar is expected to switch over to its digital version, the Central Bank Digital Currency (CBDC) within the next three to five years. Since the US dollar is the world’s reserve currency, the rest of the world will take their cue from its movements. In a financially decentralized world, and as governments move toward the CBDC, people will no longer consider the debt ceiling a major limitation as they do now. They might rethink the debt ceiling altogether. It will be like taking off a set of blinders.

2. Credibility is king

Traditional finance has become increasingly personalized and streamlined as the app economy expands, especially with services like Venmo, PayPal and Wise. Even so, regulation by a mediator has been the norm. Transactions can take place directly between individuals but still rely on a central bank as a middleman. 

What distinguishes Web3 is the opportunity it presents to take that interpersonal transaction one step further and cut out this middleman – this is one of the  founding principles of cryptocurrency. Decentralized finance marks a user’s wallet on the blockchain, giving it credibility unto itself. Every individual user will become their own financial institution, eliminating the need for a bank. 

In the same way, while visual art as we know it in the physical world is subject to an appraisal (or several) to determine its authenticity and legitimacy, a work of art minted as an NFT will never have its legitimacy questioned – its very existence on the blockchain is a quality guarantee. 

3. Allow for flexibility in scaling 

Traditional finance institutions are obviously the measure by which we measure the scalability of Web3 investing solutions. The strength of Web3’s nascent financial structure doubles as its weakness: a total dependence on technology. 

Millennials and Gen Zers will take to Web3-based finance more easily than Gen Xers and Boomers. The digital generation gap isn’t going anywhere, and it won’t shift over this largely-untested means of wealth management. And because Boomers hold the majority of the wealth of the lower 99%, the scalability of these projects is going to suffer from their reluctance. 

That said, there’s enough skepticism among all generations to keep the growth of the Web3 industry gradual, so developers shouldn’t get too excited too soon. Think of it in numbers: with 3.6 billion social media users worldwide, what is it going to take to expand the 100 million Web3 users to that level of ubiquity? 

4. Some things will (probably) never change 

The crypto crash in early May 2022, in which the value of NFTs plummeted nearly 90% from an all-time high late last year, lent itself well to comparisons between how to handle a downturn in the Web3 economy and how we’ve traditionally handled crashes in the stock market.

The simple truth is that there should be no difference in how we handle them. They are, at bottom, largely the same event.

One classic refrain in Wall Street analysis is never to buy or sell out of panic. The market is volatile by nature. Gains are guaranteed not to last forever, and losses can sooner or later be recouped. This applies to the digital market as well. Bitcoin was the first major cryptocurrency on the market, meaning where it goes, other tokens will follow. Bitcoin may be down right now, but there’s a decent chance that the bear market will transform into a bull in time for November’s midterm elections. 

Crypto’s value will inevitably fall again at some point in the not-too-distant future. The same will happen to the stock market. Those in Web3 should monitor what happens if the crash leads to a recession – this would be the first recession with crypto as a major player, which could speak volumes of the currency’s long-term viability. Still, a certain level of volatility is inherent to the crypto industry, as to stocks, so businesses shouldn’t panic over downturns.

5. Don’t be (too) afraid of risk

Those involved in the early days of the New York Stock Exchange knew they were on the ground floor of a new way of looking at money, but they could not have predicted how the structure would grow and the lasting impact it would have on Americans’ notion of financial stability, security, and success. 

Along those lines, DeFi is a toolbox full of revolutionary instruments that Web3 developers can use to transform the future of finance. It allows digital files to be sold as works of art. It allows independent creators to make a comfortable living on a large scale for perhaps the first time in the gig economy. Although there is a not-insignificant level of risk involved, the rewards – which we will see well within our lifetimes – have the potential to be immeasurable. 

About the author:

Jenny Q. Ta, CEO of NFT aggregator by HODL Assets, is a Wall Street veteran, self-made millionaire, and seasoned entrepreneur. As founder and CEO of Titan Securities, a full-service broker-dealer and investment banking firm, she built and led the company until its acquisition in 2005. Prior to that venture, while still in her twenties, she founded Vantage Investments, another full-service broker-dealer and investment banking firm, and grew it to a third of a billion dollars in assets. Her most recent company, CoinLinked, achieved a $200M market cap in 18 months and was acquired by HODL Assets in August 2021; she drove the launch of its new NFT social platform GalaxE. Her book Wall Street Cinderella details her escape from Vietnam during the war and traces her path from welfare to Wall Street. Jenny holds a Master of Business Administration in Financial Management and a Bachelor of Science in Management Information Systems from CSU Fresno.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.