Crypto Exchange Figure Markets Wants to Make Finance More Open to Everyone

Figure Markets offers a unique blend of alternative trading system functionalities, allowing for the cross-collateralization of both crypto and traditional assets.

MPC wallets, which aim to achieve an utterly on-chain order book, align with CEO Mike Cagney’s vision of a decentralized exchange.

The Figure is utilizing approximately $100 million from its balance sheet as a catalyst to stimulate borrowing and lending activities.

Upon initial observation, Figure Markets, the newly introduced cryptocurrency exchange by serial entrepreneur Mike Cagney, appears to be yet another trading-and-custody platform targeting institutional investors. However, upon closer examination, a wide range of benefits emerges, encompassing both practical cost-saving measures and innovative disruptions.

Essential elements comprise a different trading system (ATS), a license as a broker-dealer, the capability to combine crypto and real-world assets as collateral, and the option to borrow and lend using Figure Technologies’ balance sheet to stimulate activity. This is supported by multiparty computation (MPC) wallets, a predominantly decentralized order book, and the support of market maker Jump Trading.

Indeed, the vast amount of assets stranded on FTX has undoubtedly sparked a reassessment of cryptocurrency exchanges. Figure Markets recognized the necessity of creating an exchange due to its sister company, Figure Technologies, development of a tokenization process for non-crypto assets. Since 2018, Figure Technologies has successfully tokenized over $30 billion worth of assets using the Provenance Blockchain, which is based on Cosmos.

According to Cagney, attempts to experiment with different approaches, like establishing a decentralized market for private company shares and trading Figure stock on the ATS, failed to gain popularity. Similarly, attempts to bring in influential players like Apollo to engage in on-chain transactions for fund interests proved unsuccessful.

Concentrate on the Structure of the Market

Cagney remains optimistic about this learning process. “These are two highly sought-after business models that individuals are currently advocating for in the realm of blockchain.” In an interview with CoinDesk, he expressed his dissatisfaction with both options, stating that neither of them proved effective.

Therefore, we chose to pause and analyze the market framework. It’s interesting to note that Binance and Coinbase operate similarly to FTX despite the events that took place there. They serve as custodian and clearing agent.

Using MPC, leveraging Jump Crypto’s Silo offering, was the correct approach. Silo provides a highly secure interest that is similar to self-custody, effectively realizing Cagney’s vision of a “decentralized exchange.”

Cagney’s rendition sets itself apart from a DEX in the realm of decentralized finance (DeFi), where unidentified participants engage in transactions through an automated market maker (AMM). Instead, it showcases a limited order book that closely resembles an on-chain system, utilizing the most advanced technology available for large-scale deployment.

“Scaling to a level that can rival Binance and Coinbase is not feasible,” he stated. Therefore, you need to implement an off-chain mechanism for matching orders, where updates are sent back to the main chain every five seconds. For a brief moment, you’re utilizing a centralized structure of directives, yet you’re still not acquiring ownership of the collateral, which is significant.

Regardless, Cagney holds the opinion that AMMs are unfavorable for consumers. “People often boast about AMMs, but the truth is that AMMs are frequently taken advantage of by market makers who strategically target retail clients that use them.”

The ultimate solution lies in obtaining the perfect blockchain computation. However, until that time comes, we must employ a series of off-chain matching episodes in order to achieve the necessary throughput. That aligns perfectly with the core principle of decentralization, or at the very least, it is not contradictory to it.

The Decentralized Nature of Figure Markets Is Important, but There Are Also Challenges

Jump and other market makers recognized the immense value of Figure Markets’ decentralized nature and the potential for cross-collateralization. However, Cagney pointed out another concern that was raised – the issue of liquidity when it comes to lending and borrowing and the challenge of accessing capital from a lending and borrowing perspective.

“Take a glance at the top brokers in the crypto market, and you’ll find that there is a limited amount of capital, amounting to hundreds of millions of dollars, available for lending. However, considering the immense capital requirements of the industry, which could easily reach billions of dollars on a daily basis, this amount seems quite insufficient.”

To address this issue, Cagney has allocated approximately $100 million from Figure’s financial records to initiate the lending process.

“It’s fascinating how prime finance can be made accessible to everyone without the requirement of an introducing broker,” Cagney expressed. Connect your wallet to the exchange and start trading. I have no use for Robinhood, Schwab, TD Ameritrade, or any other prime system. What you ultimately achieve is a complete transformation of the way financial markets operate in a highly disruptive yet incredibly innovative manner for all participants in the ecosystem.”