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Comment by borrowcheckfml | Hacker News Reader

I think it's arguable what real investments are. How "real" is the stock price of Gamestop? Aren't most prices just driven by imaginary narratives? Investors rarely care about dividends.

There are also DeFi projects that are based what you call "real investments" such as stablecoins, synthetic assets for stocks and commodities, etc. When the backing/staking mechanism for these works as intended, they are just as real as any derivatives on these assets in the traditional financial markets.

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Let's say Gamestop is shutdown tomorrow. There is real estate, there is IP, and there are physical products that could all be sold to recoup losses. There is intrinsic value there regardless of whether the current stock price has greatly exceeded those values. The overwhelming majority of cryptocurrency investments have no intrinsic value.

And crypto projects that are derivatives on real world assets, like fiat currencies (stablecoins) or stocks (synthetic tokens), have equivalent backing. If the project were to dissolve, there would be assets backing that. Not suggesting this is the case here, but I keep seeing this worrisome trend where people are stuck in the Bitcoin and ICO world from 5 years ago and think nothing has changed and they don't really understand the technical details of how DeFi protocols work today.

In the case where tokens are not backed by anything they are often governance tokens, which are kind of like startup equity. Startups without much IP or real estate are commonly valued at millions of dollars. This is no different in that anyone is a VC investing in e.g. future governance rights.

A startup equity consists of the startup's net assets, so the owners have a claim on these assets. In the case of these "governance rights" what assets do the holders have a claim on?

Governance tokens are just a glorified twitter poll.

What percentage of cryptocurrencies are backed by real world assets? Who ensures that this backing is actually baked into the cryptocurrency and isn't just some marketing speak? For example there is Tether which claimed to be backed by USD. "[I]t turns out that the stablecoin that used to say it was 100 per cent backed by cash reserves is in fact . . . 2.9 per cent backed by cash reserves".[1]

[1] - https://www.ft.com/content/529eb4e6-796a-4e81-8064-5967bbe3b...

And Theranos claimed to have working machines...

Risk is risk - in stock, crypto, or life in general.

That's a false equivalence. Literally every share of a business is supposed to be backed by a business. Zero coins entitle the bearer to any right or interest whatsoever. Even those stable coins don't give you any claim on the backing instruments. Certainly not in Tether town. Says so right in their T&Cs.

The key word there is 'supposed'...

Theranos, B. Madoff, and others seemed to feel that was just a suggestion :-P

Also, businesses are not required to buy their stock back from you, so they are not 'backed' any more then crypto is.

If a company goes broke, and you hold common stock - you get nothing

edit:s/there/their/

In this thread, you're comparing crypto to Madoff and Theranos, and you think this is an argument in its favour.

> Investors rarely care about dividends.

This one statement reveals that you have zero idea what you’re talking about and are just presenting yourself as knowledgeable. Why do that?

I can see this being true in the stocks world. A lot of companies have IPOed without a plan for dividend payouts because their main business plan is investment in expansion. People who jumped onto amazon and tesla may have made fortunes but have gotten exactly 0 dividends.

Yet. Companies pay dividends when they no longer believe that they can provide a better ROI by investing it in themselves. Like AAPL. All it signals is there remains a growth story to be had.

However, any money the company invests in itself raises the intrinsic and shareholder value of outstanding equity, just like share buybacks, and dividends.

Companies have intrinsic value in their balance sheets and are also subject to accounting rules that give confidence (and value) to their cashflows. So, ultimately, a share in a company does map to something material that could theoretically be used for something other than speculation.

In the short term prices are driven by liquidity, but the fundamental value of a company's stock is the net present value of its future free cash flows. Anyone believing otherwise will, in the long term, lose money.

> There are also DeFi projects that are based what you call "real investments" such as stablecoins, synthetic assets for stocks and commodities, etc.

All these are examples of DeFi parasitising conventional finance products. Also none of these are decentralised or "trustless". Notice how all the main stablecoin issuers have to provide regular third-party attestations assuring that the coins have appropriate backing.

The GME stock price is a derivative.

GME stock is a valid contract with a proportional ownership share of all GME tangible and intangible assets.

What crypto has the rights to any tangible assets? Even stablecoins are unaudited.

Stablecoins do not offer claim on the backing assets anyways, if and when they exist.

The difference is that GameStop actually has a way to receive cash outside of an investor. They're a real business with revenue. GameStop is using the inflated valuation to raise money to pay off debt and expand its business. While it's unlikely, it's possible that they will eventually make enough profit to justify it's valuation.

True, a good chunk of trading and wall street in general is not doing anything real. But just like the dotcom bubble, the music stops eventually, and you don't want to be stuck holding worthless stocks or coins when that happens.

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