The penetration of blockchain technology into conventional financial markets and institutions is unfolding on a multi-pronged path. Notable developments include everything from tokenized assets like security tokens to the proliferation of digital assets custodians. However, there remains a disconnect between trading digital assets like cryptocurrencies and traditional financial assets like stocks and bonds within the same platform.
Regulatory paths not yet traveled and the hesitancy on the part of financial institutions have hindered the convergence of the underlying technology behind cryptocurrencies like Bitcoin and traditional financial structures. That’s where Morpher comes in, a project backed by VC Firm Draper Associates, designed to create a new standard for trading and investing.
“Morpher replaces brokers, exchanges, and index funds with software on the Ethereum blockchain,” details Co-Founder and CEO, Martin Froehler (Picture). Morpher has combined the best of both worlds, legacy finance and blockchains, by constructing a trading platform that removes the costly middlemen of financial markets and replaces them with a no fee and infinite liquidity investing experience.
The goal? Democratize access to trading and investment opportunities traditionally limited to institutions — at no cost.
Overcoming The Disconnect Between Blockchains and Financial Institutions
The prevailing narratives when it comes to the convergence of blockchains and financial assets typically involve regulatory developments around Bitcoin ETFs, tokenized assets, or somehow ingratiating digital assets into traditional trading and investment platforms. However, there is often significant friction between the two.
Tokenizing traditional assets is simply not enough. The barriers to entry may be slightly reduced, but tokenized securities are ostensibly still securities — burdened by the same regulatory processes and intermediary service providers charging fees. Retail traders remain largely precluded from more advanced markets and asking traders to navigate an emerging market for tokenized assets when traditional markets are already convoluted is an unrealistic supposition.
Fragmenting the market by building hybrid tokenized and conventional markets only serve to further complicate the ecosystem. The liquidity issues and lack of professional trading experiences that can reconcile the differences between conventional markets and digital assets reveal that much of the current focus on innovating professional trading is conducted through a deficient lens.
Digital assets are, for the most part, not widely recognized or understood by the mainstream, and many approaches to integrating the digital assets into conventional markets often miss a compelling aspect of smart contracts — functioning as a counterparty. How do you reconcile liquidity problems, middlemen pervasiveness, and complex trading experiences? Morpher proposes ‘virtualizing’ the trading experience with the Ethereum blockchain.
“The financial industry is full of middlemen who charge obscene fees for bad service,” says Morpher Co-Founder and COO, Denis Bykov. “In an ideal world, nothing stands between the investor and its product, all markets are available and liquid at any time, and trading does not cost anything.”
Morpher’s co-founders experienced the challenges with using the existing financial system first-hand and have turned to blockchain technology to democratize the investing landscape. Something as simple as getting exposure to local real estate prices can turn into an expensive and aggravating affair involving multiple intermediaries.
Their idea caught the attention of prominent investor Tim Draper, whose VC firm — Draper Associates — has ambitiously pursued innovative startups in the broader cryptocurrency space. Morpher raised $1.25 million in their series seed investing round from Draper Associates earlier this year in January and is striving to revolutionize the trading experience with its unique concept.
“Morpher has built a fundamental platform for smart contracts,” says Draper. “Morpher allows free access to all markets and trading with infinite liquidity”.
Morpher recognizes that smart contracts have the potential to ‘virtualize’ the trading experience, bypassing the problems of trying to integrate financial markets polluted with third-party service providers, remaining true to the cypherpunk maxim of ‘Trusted Third Parties Are Security Holes.”
How can a platform offer zero fee trading with liquidity and no middlemen? “Morpher’s users don’t trade with each other, but with a smart contract,” says Froehler. “Users can stake Morpher’s own token on the price of any market on the platform. The smart contract automatically accepts all bets and thus replaces the counterparty of a trade.”
Rather than integrating digital assets with existing exchanges, brokers, and funds, Morpher leverages the ability of autonomous smart contracts on Ethereum to mint and burn ERC-20 tokens that represent real assets. For example, if Alice wants to buy Apple stock, she would send a corresponding amount of Morpher tokens to the smart contract market — which tracks the price and adjusts the investment.
There are no middlemen; the smart contract acts as the counterparty, capable of facilitating any market. The precise return profile once Alice exits her position is accomplished via minting and burning of the Morpher token.
“If the bet is successful, the smart contract mints new tokens to settle it. If it is unsuccessful, staked tokens are permanently destroyed,” details Bykov.
The result is a virtualized trading experience that mimics the real assets themselves, without having to actually own them or go through costly brokers and service providers. However, the results are the same and additional value can be saved from the removal of fees.
“Morpher virtualizes trading and investing,” details Froehler in a Morpher blog post. “We create a new financial system on the blockchain, where trading does not require middlemen, trust, or custodians, it does not cost anything, and it is available to anyone.”
Morpher issues a crypto token that can ‘morph’ into any asset with no fees and unlimited liquidity. Ultimately, Froehler and Bykov believe that Morpher has the potential to become the next standard for price execution, liquidity, and access to exotic assets all within the same platform.
“With Morpher, you can short Apple on a Sunday with $5,” says Froehler.