Fake Tesla, Apple stocks have started trading on blockchains
bloomberg.com
bloomberg.com
We don't call corn futures fake corn, we don't call derivatives of other types fake those things and we shouldn't call these fake stocks.
I'm really not defending or not defending whatever these platforms are. I wouldn't be surprised if there is shady stuff going on here. But call it whatever it is. It isn't fake stocks.
/ZC is physically settled[0], so that’s not a great example.
/ES (S&P 500) or other index futures that are cash-settled is a better analogy. They’re also, yknow, regulated[1].
[0] https://www.cmegroup.com/markets/agriculture/oilseeds/corn.c...
I am yet to find a useful derivative that lacks a settling mechanism. How would you even price such a contract that lacks settling? Like why should it be worth anything at all?
I suppose you could construe that as some periodic partial settlement mechanism, though.
Of course, the amount of liquidity and spread available will depend on how popular the coin or specific contract is.
This would generally have the same effect as the blockchain user buying the stock directly, but through an intermediary collecting premium.
IOW, the buyer is still stuck relying on the issuer of the "real" shares to honour the blockhain sale, or on the seller not defaulting.
Edit: just to expound further on something I think most people miss: The primary innovation of Bitcoin was that it is provably scarce without relying on any legal framework. That's it, and it's pretty radical. If you start relying on the law to provide value, the blockhain idea tends to become extraneous.
settlement is always a mystery to me in crypto so i can't weigh in here. how do you guarantee delivery of the physical for units of the crypto that's inked on the blockchain.
Obviously these can't be physical, they have to be financial, but if you are allocating something financial with value on a liquid market you are just one step away from getting to the physical thing.
E.g. a software company might never pay a dividend, but the company might be bought by a company that wants to acquire it's products or customers, or it's technology team. These things have economic value that can be realised. So there are multiple ways a company can have value that can lead to share owners benefiting from the materialisation of that value.
The textbook answer to stock value is dividends. Many companies, most, I would argue, never reach that point.
In practice, the chief defender of fundamental value is M&A. Whole-company buyers can tap free cash flow in a way minority investors can’t. That is the arbitrage that sets a lower bound on the value of a company’s shares relative to its cash flow. (There is no similar mechanism for setting an upper bound.)
The S&P 500 disburses ~half a trillion USD in dividends each year, and performs another ~half a trillion USD in stock buybacks. You shouldn't discount that second half.
They are also used to sell unconventional services (being long corn in August and short corn in July is effectively selling the service of transporting corn back in time) and,
perhaps most importantly, to make commodity loans (being long corn in the cash market and short corn in the futures market is a loan of corn.) This helps explain why, after removing costs of storage and insurance and such, prices are almost always in backwardation.
I think most people believe this since every textbook I've seen explains them and implies that this is what they are for.
I can strongly recommend Williams' The Economic Function of Futures Markets[1]. It gave me a lot of those "ooh, now that makes more sense" experiences after having heard the faulty model used in textbooks over and over.
[1]: https://www.amazon.com/Economic-Function-Futures-Markets-Wil...
If I sold you a stock in my company that gave you none of the traditional shareholder rights I'd also call those shares "fake", which seems to be what's going on here.
But they're absolutely not fraud or "fake stocks".
So if what this is doing isn't any different than a bucket shop... I think we'll see the same outcome.
Esp for chain running evm compatible contracts that are more scalable than ethereum and can have millions of ephemeral validator nodes.
Of course this doesn't address contracts being written out of Russia or traditional financial havens, but how valuable is a vehicle which can't be used to move assets into or within the US or Europe?
I think the question of enforcement is the wrong one.
How do these assets track the price and what guarantees they will always do so? If the answer is trust us (like stablecoins, nfts, etc), people buying them are marks, not customers.
The mechanism behind Maker DAO simply doesn't work. That's why it lost the peg so badly, and for so long. There simply wasn't any working mechanism to deal with the situation where the price rises above one dollar.
When people create ETH-collateralized DAI and sell them they are basically doing so in order to go leveraged-long on the ETH/USD pair. So when you use ETH to buy DAI from one of these people, you're basically making a (collateralized) margin loan to somebody who wants to increase their leverage. In return you get something sort of like the ability to short the ETH/USD pair (not exactly due to liquidations, but it's pretty close). All of this actually works as advertised: Maker pairs up people who want to go long with people who want to short. But what if there aren't equal demands for both sides of that trade?
If there aren't enough people who want to make margin loans (i.e. go quasi-short) Maker can raise the margin loan interest rate (i.e. stability fee) to make lending more attractive.
The big problem is if there aren't enough people who want to increase their long leverage. There will be too few DAI-sellers and the DAI price (in ETH) will go up above the USD price (in ETH). That's what happened. And kept happening.
The solution was to capitalize Maker DAO with centralized stablecoins -- Coinbase's USDC and Tether.
As a result, Maker DAO is effectively no more than an "index fund" of centralized stablecoins. It absolutely is not trustless.
It is trust laundering.
..inflation?
To me, DAI going over USD just indicates supply not meeting demand.
No, in order to pull the price down you need to mint more of them and sell those new DAI into the market.
Doing this saddles the minter-seller with a long USD/ETH position: they have to lock up a bunch of collateral in order to mint new DAI, and if USD/ETH drops enough their collateral will be vaporized. If no sellers believe that USD/ETH is going to rise, none will be willing to take that risk.
DAI doesn't work like Tether. DAI aren't really "quasi-dollars". They're margin loans owed by other people. To bring them into existence, you need to find somebody who wants a margin loan in order to go long.
It wouldn't be any entity minting these new DAI, it would be the Maker smart contract giving out new DAI loans for collateral (ETH, WBTC, WhateverTokens).
If DAI is trading at $2, and I believe it will hit the peg again in the future, I'm very highly incentivized to borrow it and sell it for $2, pulling the price down! I then pay back my loan with DAI I buy for $1.
As usual, the big question is, what's the collateral? In this case it's their very own private stablecoin, Terra, which pays an annual percentage rate of 17%. That, in turn, is being paid by people who are borrowing that stablecoin to do - something.
The stablecoins are in turn collateralized by the LUNA token and something called Special Drawing Rights. There's also something called mAssets involved.
All this works as long as there's no net outflow. Whether it can survive a net outflow is questionable.
So far, three stablecoins have crashed all the way to 0. Supposedly because of "hacks". Whether or not those were inside jobs remains to be seen.
I think we will continue to see these parallels. The only reason people accept the existing financial system is that they don't understand it and/or it has become normalised. When people are seen trying to pull the same tricks with crypto, there is a justifiable but unfair negative response.
> Terra combines the price stability and wide adoption of fiat currencies with the censorship-resistance of Bitcoin (BTC)
Yeah, the price looks really stable.
This feel like it's another one of those "while money is flowing in it'll work, but if there's a run, it crashes spectacularly". If the liquidity dries up, i end up owning nothing. With a real security at least i end up owning a small part of apple, but here i literally own nothing.
I’m only half joking.
Do you have a reference for something that's had issues being naked shorted, recently? GME was a short squeeze, but that's different.
Come on, this is cryptocurrency. The whole point is to con people into thinking a fake thing is real because blockchain and cash in; with the off chance that if enough people believe, then their belief will make the fake thing real.
Belief is the only thing holding together a lot of the things that we rely on to keep society functioning the way it does.
I'm guessing (though not assuming) you're posting from one of the most historically stable countries in human history, but that isn't how most people experience planet earth, and it isn't guaranteed that that's the wya you'll always experience it either.
Which is why alot of people feel threatened by the ever shifting sands in the global financial landscape
The demographics of the crowd:
wealthy, living in the most stable country in history, with access to digital forms of banking worldwide, ability to emigrate wherever they'd like, able to transfer money as they see fit, and holding their savings in the global reserve currency for a country which they're a citizen of.
Doesn't help many empathise with why many people around the world can't trust their governments centrap bank, or open a bank account elsewhere, or convert their savings to a stable currency and assume it won't be seized or banned locally.
It's best to just build cryotocurrency and not bother explaining to Americans who aren't willing to listen why it's necessary.
It's like explaining public transportation to people at a country club.
> It's like explaining public transportation to people at a country club.
That's a good way to put it, and that's me saying that as some one who left the US 6 years ago, worked in finance as a dev (consumer and derivatives markets, emerging/developing and developed) and actively helping to build defi protocols and blockchain research/development.
My friend from Venezuela certainly would've benefited from owning a currency that wasn't regulated by his government, which made exchanging Bolivars for external currency illegal except for those with government connections.
Are you saying one should only be concerned about the state itself, that citizens ought to go down with the ship and be victims of the government they were born into?
I'm hoping you're simply ignorant of the very real personal problems of people born into corrupt and unfortunate countries have that are mitigated or solved by crypto currencies (even if it doesn't solve the problems of the state) rather than simply uncaring for their plight and unwilling to care about solitons for them that don't involve also fixing the entire corrupt nation they were born into.
Where does yours come from? Because what you're saying directly contradicts his reported experiences for both him and relatives and friends of his. I'm sure you have an equally credible source on the ground of at least a comparable market that informs your view on what does and doesn't affect the lives of people in those countries?
To your point, many Venezuelans do store their wealth in Crypto, and only convert the amount they need to spend that day to Bolivars. That is the use case.
For posterity, I have a github profile of this same name, and my venezuelan friend and I are doing a hackathon project to allow Venezuelans to use crypto in the exact way I've described. In one month that project and a youtube video will be uploaded for it.
The person above who assumes that people argue in bad faith and that first hand reports are meaningless is not someone you should emulate or consider reliable. He's lost to his ego and dogma, please safely ignore him.
Privileged people have no idea what struggles others face and don't have much to lose by being wrong about their bad assumptions anyway. Let the way he thinks serve as a cautionary tale.
I doubt the person above (lottin) would be willing to share his identity, and have the foul temper and bad faith arguments of his associated with his real persona. This should tell you all you need to know if true.
Anyway, I won't be responding to the above poster anymore, you know what Twain said about arguing with fools.
If you're really arguing in good faith you should start by disclosing your conflicts of interest. You didn't mention you were involved in a bitcoin project. You probably own bitcoin as well. For the record, I don't have conflicts of interest. I don't have any financial stake in bitcoin or in other crypto-currencies.
To summarise, and going back to the topic of the conversation... your entire claim is that a number of Venezuelans (don't know how many) invest their savings in bitcoin and this improves their quality of life because they're able to combat the effects of hyperinflation in this way.
Okay, so what? Does that contradict my original point? No, it doesn't. My point is that, considering the situation as a whole, having the opportunity to avoid the effects of hyperinflation by using a foreign currency, for example, is only a marginal improvement for these people. Even assuming that bitcoin can fulfil the role of an actual solid currency, which in my opinion it can't.
I'm well aware of the last decade in Venezuela. Hasn't cryptocurrency been so helpful there?
> and having wealthy professionals see their savings evaporate due to 1,000,000% inflation because of the actions of a government they democratically elected.
It's kinda weird that you focus on the fortunes of "wealthy professionals" in that disaster.
Digital forms of currency which aren't regulated by the state control of the banking system are the only safe way to get an alternative currency, since the Venezuelan government made exchanging Bolivars for stabler currencies like the USD illegal.
Im talking about solving the problems of individual Venezuelans, not the government or state. And if people with savings can't rely on them, then a country has no hope of attracting or retaining high talent professionals. Hence why it's so hard to find people left in Venezuela with highly sought after talents anymore.
As far as I understand it, in this case, it's essentially cash settled.
https://www.investopedia.com/ask/answers/052715/how-big-deri...
Now compare to the M2 money supply https://www.investopedia.com/terms/m/m2.asp
Crypto is still speed running the past 150-years or so of financial misadventures.
And pointing at how the NYSE is becoming more of a casino doesn't validate crypto doing it as well.
Crypto is starting to look more and more like the det wire that could set off the next financial implosion.
How do they get price to track the real stock? By simple incentives. If the synthetic stock is trading lower than the real price, people have incentive to buy it. If it is trading above, people can easily mint new stock and sell it.
There are lots of benefits to this: 1. It allows people who typically might not have access to the US market to get price exposure to US companies
2. It allows 24/7 trading
3. US stocks are just the start, before more innovative synthetic products can be built on top.
What could possibly go wrong!
Would be nice if every single FRBNY operation were able to be queried by anyone in the public in real time, had a fixed set of rules all holders of notes could see and vote on, and was redeemable for gold like they used to be before the rules changed underneath holders who couldn't take part of governance (foreign holders)…
> What could possibly go wrong!
We're stuck in bailoutistan globably, and now it will be more expensive for tradfi entities to get bailed out on chain (which will happen, but cant shut down the dex's, cant reverse trades unless contracts allow for that) which will benefit non tradfi entities that take the opposite side of their highly leveraged trades conducted on chain.
That doesn’t make using unregulated stable coins from terrible terrible people like those behind bitfinex a good idea, or mean that trustless distributed consensus is worth the massive downsides of a decentralised system like bitcoin, or that we should trust projects without the most basic financial controls.
We have laws and regulators controlling money supply and financial transactions for good reasons, most of the unregulated experiments ‘defi’ is trying have already been run in fiat and banned for good reasons, including massive leverage, unregulated banks and exchanges, money printing etc etc.
Good thing is, you personally don't have to, but others will, and you have no say over that. Heaven forbid a decentralized uncollateralized stable coin comes into existence, where its mechanisms for inflation and deflation are purely market driven, that won't be controlled by any single entity, used by people from all over the world without your (or regulators) approval… not like existing interbank eurodollar transactions have much of that approval anyways (than the same transactions, junk rated rehypothicated collateral backing that entities like bitfinex engage in, yet with lower cashflows; can't seriously sit here and tell me that regulators are in control of dollar denominated liabilities being swapped offshore everyday in non local currencies and usd deposits created from that are 1:1 backed and have FDIC coverage…).
Hell, we know more about bitfinex operations than we do of the a typical tradfi bank engaging in the same transactions overseas… what a joke lol
> or mean that trustless distributed consensus is worth the massive downsides of a decentralised system like bitcoin
Let's not pretend that there aren't any better trustless distributed consensuses systems out there that people are actively using because you would like to dismiss something you don't like/use.
> or that we should trust projects without the most basic financial controls.
Not too hard to use/build protocols that implement controls you wish and stay away from those that don't. Not everyone has to ape into shitcoins and shitchains with no research. Not everyone has to follow the whims of someone else.
> We have laws and regulators controlling money supply and financial transactions for good reasons…
That routinely fail to address (and as well as regulators failing to comprehend [at best])
> …massive leverage…
In the forms of ever novel derivatives cropping up in tradfi
> …unregulated banks and exchanges, money printing etc etc.
After talking with people who had to trade lehman positions out of administration and all the shit that went down behind the scenes… TBTF might as well be unregulated, when their positions are routinely bailed out at expense of others in many different ways and leads to people having
> … plenty of reasons to complain about fiat currencies…
That have long gone unaddressed because of the existing incentives that stand in the way. Plenty of kabuki theatre about it though from "regulators", worth about as much as the latest shitcoins cropping up.
You can take a look at USDC (https://www.circle.com/en/usdc) which is a Goldman Sachs backed start up. They publish reserve attestations very regularly (https://f.hubspotusercontent00.net/hubfs/6778953/USDCAttesta...) and its very easy to redeem the USDC (stablecoin) for actual USD dollars in your fiat banking systems.
Why? The synthetic stock isn't convertible, so there's no arbitrage opportunity.
I don't think there is a problem in this particular situation.
The place where there will be a problem is where MakerDAO had problems: when there aren't enough people willing to mint synthetics. The only reason to mint a synthetic is in order to sell it, in order to get a synthetic short position. If not enough people want to do this, but other people want a long position, this will generate excess demand for synthetics and the synthetics will trade consistently above the price of their real-world underlying.
This is precisely what happened to MakerDAO before it turned itself into a "stablecoin index fund". DAI was trading way above $1.00 for several months running. MakerDAO's goal was to provide a trustless stablecoin. If it costs $1.15 to buy one this week and $1.00 next week, it's not very stable. Those 15 cents didn't make DAI expensive -- they made DAI a failure at its goal of producing a stable coin.
Mirror's case is different. They're not trying to create a stablecoin. If the synthetics trade at a premium to the underlying, that difference is effectively a brokerage fee charged in order to open a long position. If the fee charged to open a long position swings around by 15% week-to-week that is certainly unattractive, but it doesn't make Mirror a failure.
This might actually work as expected. The likely failure mode will be annoyingly high fees for long positions, rather than failure to deliver on its promise (as happened with MakerDAO).
Don't these synthetic assets need an oracle to inject the price of the real assets into the blockchain? To stop these synthetic assets from working, couldn't they just go after the oracle provider, and make it stop providing the price?
Commonly, oracles are composed of an aggregate of multiple independent providers. So roughly a majority of them have to collude to manipulate the price and you would have to take multiple oracle providers down to stop the price updates.
Any token derivative that relies on one or a few providers are very risky.
ChainLink (the mainstream choice today) doesn't seem to be officially providing stock prices, but to give you an idea there are currently 16 providers for gold-USD prices: https://data.chain.link/ethereum/mainnet/commodities/xag-usd
In principle this could be "unstoppable", but as of right now it is not.
I find it really weird how crypto folks keep pretending that financial regulation is an obviously bad thing, as opposed to restrictions put in place in response to real problems
These are two premise which... don't seem to hold water?
Governments can arbitrarily censor legal payments at will, without legal cause.
One quite essential feature of a clearinghouse is the ability to correct the books in case of operational errors, in response to court orders etc.
People lose their passwords, get scammed, go bankrupt, die and leave their possessions to their next of kin... It's very hard to achieve the desired/expected outcome for any of these situations on a blockchain.
Cash doesn't have a built-in paper trail and dispute resolution mechanism, all of which are highly desirable when doing business with unknown/not yet trustworthy entities.
In many (definitely not all!) cases, transaction finality is a bug, not a feature.
And the one time I had a dispute, Visa claimed that the transaction was out of policy somehow (timeframe, region, etc)
So no, that better alternative doesn’t favor the customer
In the case of card payments, merchants incur a fee for every transaction reversed through the card scheme, whereas voluntary refunds are essentially free. They are accordingly incentivized to understand and follow the scheme rules.
> And the one time I had a dispute, Visa claimed that the transaction was out of policy somehow (timeframe, region, etc)
That's unfortunate, and mistakes or seemingly unfair decisions do happen – just like in a public legal system. But you are essentially basing your opinion on a sample size of one.
Practically, some banks just seem to be better (i.e. more consumer friendly) at dispute resolution than others. As an example, in the case of a high profile airline bankruptcy in my country, some banks have proactively reached out to their customers, letting them know they're happy to pursue disputes for them, while others were declining them outright due to a – likely wrong – understanding of scheme rules and bankruptcy law.
There is no such evidence. There are those who benefit from inflation (and only if it's predictable for them) but the majority of people don't. Unless you define economy as something only the wealthy can benefit from - no, inflation is not good.
In contrast, the rich are much more likely to have bonds or cash holdings. They are the ones for whom inflation is a real problem. Why else would all this political pressure for a 2% inflation target exist? It's because that's low enough for the rich, not because it's high.
Printing money and redistributing it would severely impact capital holders, like it did in the post WWII boom which created the middle class.
Here is an entire book on this topic :
https://en.m.wikipedia.org/wiki/Capital_in_the_Twenty-First_...
The wealth redistribution post-WW2 had more to do with the war itself than inflation though.
So back to the 21st century: what makes you think that those who have excess capital don't invest wisely? Compare that to lack of any excess capital for the majority.
1. The practical: It’s not that regulation is bad but that many existing regulations are bad. They make obviously useful things illegal or impractical, are often worded in such a way they are basically impossible to apply to, for example, peer-to-peer systems. It’s possible to imagine (and indeed we should, and some countries are!) good regulation that is less stifling. (Note also that no regulation of specific financial products is required to make fraud and mis-selling illegal.)
2. The political: Financial regulations as they stand enable a huge surveillance and censorship/control apparatus. Purportedly this helps prevent terrorism etc. but many people do not agree that this is the right trade off. Financial regulations currently also give a handful of countries (and one in particular) a lot of power over the global financial system. Many believe they have too much power. These are political arguments but it is not a completely inexplicable political position for someone to be against financial surveillance and censorship, particularly when it comes to the US and other countries using them to exert power outside their borders. In which case, the financial regulatory environment we currently have is “bad” in that it delivers those things.
3. The countercultural: Cryptography and cryptocurrency are intertwined with countercultural groups and thinking (most obviously, but not exclusively the “cypherpunks”) because they are tools that allow activists, anarchists, subversives, marginalised or oppressed groups, organised crime (which, yes, is a form of counterculture), and others to communicate and operate more effectively and with lower risk. This means those groups are more highly represented in crypto. Obviously they’re likely to think rules that make their lives harder are bad. (This may seem like the “bad group” and maybe you like them being shut out and suppressed, but much social and political progress started as persecuted countercultural movements and subversive ideas.)
So yeah… is financial regulation bad? No. Not always and not necessarily.
Are current financial regulations bad? Yes if you value innovation, have certain political beliefs, or are part of a group that is (intentionally or otherwise) shut out of the system by them.
Let’s try and have better rules!
If you're in a third world country, you likely don't have access to robust, transparent local stock markets. Whatever exchanges might exist tend to be rife with scammy companies, insider trading and poor regulation. If you want to invest in, say, the US stock market, you'd have to jump through a ton of hoops or have a ton of money, essentially locking out all but the wealthiest.
These crypto "stocks" essentially allow anyone living anywhere to "invest" in top-tier stocks like AAPL.
I don't see any reason why you'd buy these crypto stocks if you're living in the US. But if you're living in Somalia or Madagascar? Hell yes.
Again, all the crypto criticism is very myopic and first world. HN needs to step out of that POV to understand the value. Decentralized, global markets don't benefit first world citizens, but they definitely level the playing field for us third worlders.
https://paxful.com/buy/bitcoin/madagascar
How many more hoops do you then have to jump through to acquire fake stocks?
Second, you then have to make sure you avoid pyramid schemes (like OneCoin), rug pulls, exit scams, bad exchanges and bad "smart" contracts (like the Parity bug).
This is not easy even for highly informed tech workers in the Global North. Now if you happen to speak another language (as I do) I recommend you go and Google "how to invest in Defi" or whatever in it. In my case (French), you get just articles after articles that are sponsored content from very dubious sounding wallet and exchanges, especially if you add "Madagascar" or "Congo" or whatever to your search.
So frankly, I think the idea that "crypto markets are great for the Global South" is more of a convenient story.
I don't really understand the resistance about this - an imperfect process is always better than no process.
Could things be improved? 100% yes. But that doesn't mean this truly global, permissionless market is somehow a scam.
While decentralized permissionless markets can (and have) helped some individuals escape economic restrictions (capital controls, sanctions, etc.) it's not at all clear to me that they have had an overall positive effect, or ever will.
At the end of the day, the rise in the price of bitcoin, scams like AfriCrypt and OneCoin, the new Salvador laws etc are all just new means of extracting capital from the Global South. I'm of the opinion that the benefits to individuals are not balancing the overall societal harms, but I could see how someone with a more individualistic ideology would disagree.
I'm hoping this will change as the ecosystem matures.
The notion of having the money to invest in stocks is made from a position of privilege
Say what you want, for me personally traditional banking is more of a burden than anything.
It's a kind of arrogance that they personally don't feel like there's a colossal power asymmetry they need protection from and cryptocurrency proves this.
Perhaps some are clued enough to not get steamrollered by institutions and fraudsters, however they appear to have utter contempt and disregard for people who lack the time or ability or learning speed to protect themselves.
I suspect accredited investors can do as they please though, but that's only a guess.
How on earth would your take-away from that be that be "oh, in that case it's perfectly legal on all the _unregulated_ markets" ?
That not how regulation works, at all.
Microstrategy Inc. So just to be clear, they're created a synthetic crypto-instrument to track the performance of a share that is something like >90% correlated with BTC (since MSTR is basically a leveraged BTC bet now).
This is absolutely snake eating it's own tail kinds of insane.
>Dallas Mavericks owner Mark Cuban, an enthusiastic and influential investor in DeFi, recently called for regulations to address the cryptocurrencies after losing money when one crashed in value to zero.
Sorry but Mark Cuban is the most sophisticated of investors, it should not be illegal for him to lose money.
I don't want to have to deal with the societal problems/have my taxes go to a bailout when there's billion dollar scams affecting average workers, a pension fund, or minority first-time investors.
Crypto now is like trading stocks was before and leading up to the great depression: a bunch of hucksters, shills, snake-oil salesmen and unrestricted margin. And a few well-intentioned people. Before the Securities Act, the Securities Exchange Act, Regulation T and the SEC.
The great finance speed-run has reached mid-1929.
[edit] Seriously if the Fed has to cough up $60 billion dollars to bail out Tether, I'm going to be incredibly pissed off.
On one hand, the crypto-economy is still too small to represent the same kind of systemic risk that took down the banking system in 2007/8, so there's less urgency to do anything about it.
Additionally, both governments and regulators, in the US at least, tend to prefer to let new technologies incubate and evolve for a time before regulating it more strictly.
On the other hand, it's too small to have the armies of lawyers defending it that the banking system does, so it's an easier target for regulators looking for wins than Wall Street is.
The SEC, CFTC, Treasury are all looking at it in the US and doing some triage regulation, only going after the most blatant and worst problems atm. I'm sure they'll step it up if/when the crypto-economy continues to grow.
Let’s say the government outlaws Uniswap tomorrow and throws the entire team in Supermax prison for life. The protocol will just keep running forever. There’s nothing that can be done unless the government can shut down every Ethereum node in the world. Even “outlawing” Ethereum in the US wouldn’t work, unless they put in a Chinese style Internet firewall.
Not bad for the 1st decade of a long story.
Those AAPL tokens are not insured by the SIPC…
They are synthetic assets that track the price.
The fact that there are no dividends or voting rights means they should be worth less for anyone that can purchase the actual asset.
> Users can trade the tokens anonymously 24 hours a day, seven days a week, from anywhere, unhindered by capital controls, “know your client” rules imposed on broker-dealers, and other frictions of the traditional financial system.
These are certainly new innovations and features, be they good or bad.
In context, they also mention traditional markets being closed at certain days and times. This is also friction, but negative.
So yes, I understand where you're coming from, but my libertarian instincts to reflexively think of KYC/AML as excessive and annoying regulation and untrammeled exchange as a good thing, turn out on closer examination to be simply wrong.
And I'm not sure that it's all that effective, especially after seeing HSBC launder money for cartels and get away with it [2]. Oh and none of these regulations obviously stopped 2008 or any of the previous crises.
To me a lot of these regulations seem like the TSA security theatre, seems useful, but at this point, pretty outdated and inefficient.
1: https://www.cpomagazine.com/cyber-security/global-cost-of-fi...
2: https://www.investopedia.com/stock-analysis/2013/investing-n...
The question of whether it's worth it is a real one, and more honestly answered (whether positive or negative) if we admit these substantial costs.
I am not sure if the burden is worth it, when living in the right country makes cashing out without KYC kinda easy?
Sure no way to pull out millions, but I would argue most bad actors are rather on a 10k level.
People argue that voter ID is an unreasonable burden on vulnerable populations. If that's the case then how is it a reasonable burden for interacting with the financial system?
If cryptocurrency does anything useful at all it will be to make privacy invasions like that sufficiently toothless that the case can be made to eliminate them in the ordinary financial system as well. Arguably it already has and all that's left is to eliminate the pointless KYC requirements.
It astounds me how even principled civil libertarians wholesale accept an Orwellian level of surveillance on anything related to money. The Founding Fathers would have all revolted at anything even resembling modern KYC/AML law.
You might try reading the Federalist Papers before making claims about the founding fathers. Again, it is not surveillance by government anyhow.
> These are certainly new innovations and features, be they good or bad.
That's saying a car with its seat belts removed has an "innovative new feature." The usual word for that situation is "regression."
The usual phrase for your argument is "false analogy."
I quoted the full sentence, but I was mainly referring to:
>> unhindered by capital controls, “know your client” rules imposed on broker-dealers, and other frictions of the traditional financial system
While you can always find some little exceptions, most financial regulation has actually has good reason to exist and solves actual problems (though maybe not your problems, as in burglary laws do not solve burglars' problems). It's not much of a "feature" to do away with them, since then you just invite the re-emergence of problems that have already been solved or mitigated.
No seatbelts means it's easier to get out of the vehicle (if you planned to or not). Some seatbelts are uncomfortable. Seatbelts add to the materials and assembly cost of the vehicle, and add weight to the vehicle which increases fuel usage and wear on the tires and suspension and road. Maybe they wrinkle your clothes? Installing retrofit seatbelts on a vehicle without them can be difficult and the result may be really uncomfortable. Very ocassionally, it might be preferable to be flung from a vehicle rather than retained in a vehicle during a colission, although that would have to be a pretty specific set of circumstances, because being flung from a vehicle results in a lot of undesirable injury.
Not having seatbelts has minor benefits. All of them are outweighed by the benefits of seatbelts in my opinion (and I think there's broad consensus) but claiming there's no benefit to not having them or that there's no cost to having them is silly.
Where does all this HN hostility come from, I thought this crypto stuff would mesh so well with the Silicon Valley mindset. Trading should be instant, totally free, in any increment you choose, across borders! That’s the kind of mentality we apply to so much else in tech right? Is this really a bunch of hackers defending oppressive government regulations written by lobbyists for oligopolies?
Since when does Silicon Valley defend the old ways?
"dubloons"? Stock prices used to be in binary fractions. Barely over 20 years ago.
Obviously moving to decimals is going backwards, how many people program with BCD these days?
Might have something to do with the Spanish dollar being called "Real de a ocho" or "pieces of eight".
Also, I think it was silver based, not gold. Doesn't "silver dollar" in old books ring a bell?
I'm guessing you got your information from here:
https://www.investopedia.com/ask/answers/why-nyse-switch-fra...
It's poorly written and misleading, if not technically false.
"even before the decimal conversion, some ECNs permitted their customers to enter orders in penny and subpenny increments or their equivalents (e.g., in increments as small as 1/256 of a dollar)"
...from https://www.sec.gov/rules/concept/34-44568.htm
It appears that 8ths were the official minimum until mid 1997, which must be why I don't remember smaller fractions being very common. I feel like maybe it was mostly penny stocks that traded in smaller fractions?
The following mentions stocks trading in 32nds:
Crypto has become monstrous, filled up with fake stable coins and most of them ( i think) consider it a pyramid scheme currently, nothing more.
Move fast and break things is a slogan for your own company for growth. Not when you are playing with other people's money.
Crypto is filled up with pump and dump schemes. Not much of the original intentions remained by now.
For much or most of the world, that isn't true.
Even In the USA or EU, a significant proportion of people do not have access to something like buying some Apple stock legitimately. Just think of all the people who use those extortionate "cash apps" and payday loan services. Why not just use a bank? The same reason they're not going to be buying Apple stock the proper way.
Most obviously, perhaps no bank account, or no ID. They may not have legal status in the country they live in. They may owe child support. Or tens of thousands of unpaid fines for criminal convictions. Or they have a garnishment against them. Or banks simply won't open an account for them because of bad credit. So on and so on, reasons legitimate, and not, for not engaging with the formal financial system.
This adds up to something like 5 - 20% of Americans depending how you set your threshold. To those people, both cryptocurrencies and possibly-scam crypto-investments are attractive because they offer something otherwise not available.
20th century-Contract for Difference
21st century-Tokenized uh stocks
This is not a new idea
"In a form of what is now considered illegal front running and self-dealing, a bucket shop holding a large position on a stock, and knowing a client's vulnerable margin, might sell the stock on the real stock exchange, causing the price on the ticker tape to momentarily move down enough to exhaust the client's margins. Through its opportunistic actions, the bucket shop thereby gains 100% of the client's investment.
The term bucket shop came to apply to other types of scams, some of which are still practiced. They were typically small store front operations that catered to the small investor, where speculators could bet on price fluctuations during market hours. However, no actual shares were bought or sold: all trading was between the bucket shop and its clients. The bucket shop made its profit from commissions, and also profited when share prices went against the client.
Bucket shops were made illegal after they were cited as a major contributor to the two stock market crashes in the early 1900s."
FDIC & regulation kind of makes it so for most people most of the time it doesn't matter that banks are custodial.
Offering these services without being custodial is innovative though.
EDIT:
The other major (IMO) innovative piece is the permissionlessness. zapper.fi is a great example of being able to build something that adds lots of value (given you've already bought into crypto & defi) without needing anyone's permission to integrate into their systems.
Non-custodial means the owner is responsible for protecting the asset from theft and operational risks. Nobody wants that, especially not in the case of digital assets, which aren't governed by property rights and instead rely entirely on effective control of the asset to determine who "owns" it.
Decentralized, automatic trading that can route liquidity for direct asset swapping does not exist in traditional finance for retail investors.
Yes it’s far easier for retail investors to play the role of the market maker but the financial services themselves are the same. Also realize that if defi becomes mainstream retail will still be pushed out by institutions as yields approach zero.
OP says “nothing like uniswap exists” but the goal is literally to democratize lending, market making, and currency exchange. (All of which exist in centralized forms)
If I contact my bank, will they allow me to become a liquidity provider for USD-EUR pair and give me a cut of USD-EUR exchanges that they make? If not, which traditional financial institution do I have to contact for this?
Actually, I would be ok if you could point me to a bank that provides positive yield (or at least nonnegative yield) if I deposit my money there. Is there a traditional financial institution that can provide me with some sort of working "savings" solution... If there is, please let me know, because I'm looking for one.
The way I see it, entities like Uniswap/AAVE/etc. are surely emulating aspects of the traditional finance system, but are not exactly redundant. Perhaps if banks start offering positive interest rates on deposits (not even above inflation... just positive), I'll change my mind.
A quick google search will show you that lots of savings accounts have positive yields. Rates have been low cause of fed action but banks have provided positive returns in savings accounts since like forever ago.
The original discussion was whether or not defi protocols enable new financial services. I argue they do not, but instead attempt to automate/decentralize those services.
Speaking broadly, finance involves trades and loans and bets on future prices, and pretty much anything defi does will fit into those categories, even if it does it in a different way; anything that doesn't fit in those categories won't be called "finance."
The emphasized part is important. Most people either can't or don't know how to jump through these hoops. Is it even worth it to jump through these hoops, when I only have 100 USD to "invest"? Entities like Uniswap make the process much easier and widely-accessible, which makes a big difference (particularly if you live outside the developed world).
Furthermore, you did not respond to what I asked: which institution do I need to contact for this? My bank?
> A quick google search will show you that lots of savings accounts have positive yields. Rates have been low cause of fed action but banks have provided positive returns in savings accounts since like forever ago.
This comment is rather US-centric. My experience where I am right now (outside of the US) is that interest rates currently are either negative (yes, you have to pay money to the bank to park your money there; example: [0]) or basically zero (an interest rate of 0.01% might not even cover the "maintenance fees" of your account, let alone losses due to inflation, particularly if you are not rich... might as well just stash the cash under my mattress and keep the maintenance fees to myself).
So, yeah... this is what entities like Uniswap provide that traditional financial institutions don't. Among other things:
* Capacity to borrow, lend, buy and sell "crypto-assets" or whatever you want to call them (most traditional financial institutions will not touch them with a 10-feet pole, for obvious reasons);
* Capacity to do those things with minimum friction/overhead, from anywhere in the world, at any time (no KYC, no gatekeepers);
* Exchange and interest rates that are actually decided by the market, rather than centrally planned (by your bank and central banks), which leads to reasonable interest rates for borrowing/lending (i.e. positive rates).
Of course, you can argue that some of these "features" are "anti-features" (e.g. no KYC = no friction, but it also means that perhaps money laundering could take advantage of it). Either way, it seems clear to me that Uniswap et al. enable you to do things that you (or, at least, "most people") simply cannot do within the traditional financial system; you may not see too much value in these things, and even be generally suspect of "cryptocurrencies", but it seems complicated to argue that Uniswap does not bring anything new to the table.
The proof is in the pudding... if Uniswap was not useful (beyond what traditional financial institutions already provide), you wouldn't see so many people flocking to it.
[0] https://www.nationalbanken.dk/en/marketinfo/official_interes...
I think the conversation has diverged quite a bit from my original point. I’m not even trying to argue that uniswap is not useful or an improvement. Instead I’m pointing out that when we compare defi protocols to the traditional system, the core services are largely the same. Defi is an attempt to allow anyone to participate in the roles which are usually accessible only for institutions. That doesn’t mean those roles are just now being invented by uniswap/aave/whatever.
Unrelated Opinion: defi’s practical utility comes from circumventing regulation and adding leverage to a crypto position. (Eg no KYC, selling AAPL tokens, borrow tether against an ETH position to buy more ETH)
Sorry, I misread what you wrote, then.
> Instead I’m pointing out that when we compare defi protocols to the traditional system, the core services are largely the same.
Sure, I don't disagree. Why reinvent the wheel if it has already been invented? But... just because the wheel has already been invented, doesn't mean that inventing a "tire" is not novel (because a tire is just a fancy wheel, after all, no?).
My point: in many ways, defi is replicating "service-types" that already existed in the traditional financial system (as you say); on the other hand, it is not replicating the exact same services (note: my bank does not allow me to borrow BTC from them) and in the same exact way.
In a nutshell, defi is a "copy" of the traditional financial system the same way that "a tire is a copy of a wheel" (i.e. they are clearly not the same thing, and a tire is an innovation over a wheel, but they can also be thought as being "more or less the same thing", since they both are used to make cars move).
> Defi is an attempt to allow anyone to participate in the roles which are usually accessible only for institutions.
More than that. Even an institution cannot convince a bank to give them a USD loan using BTC as collateral.
> That doesn’t mean those roles are just now being invented by uniswap/aave/whatever.
Agreed. The same way that, when Dunlop and Goodyear invented tires, they did not try to claim that they had invented wheels. I am not sure you'll find anyone trying to argue that (e.g. that AAVE invented "loaning against a collateral").
> Unrelated Opinion: defi’s practical utility comes from circumventing regulation and adding leverage to a crypto position. (Eg no KYC, selling AAPL tokens, borrow tether against an ETH position to buy more ETH)
Not necessarily just that. Even if I have no problems with any regulation that needs circumventing (i.e. I'm not doing anything illegal), and have no need to borrow crypto-assets, the traditional financial system (currently) provides no way to lend crypto-assets. If, for some reason, you have 100 ETH, you're going to use Uniswap et al., and not the traditional financial system (since that's not even an option, currently).
By giving the contract both X and Y, you're providing liquidity. You get a new token Z, specific to that pair. Every exchange of X for Y (or vice versa) skims off a transaction fee, which is apportioned among holders of Z.
(This actually describes the first version of Uniswap. The new version 3 has more complex math that lets you do fancier stuff, but is the same basic idea.)
I'm not sure if this is impressive, but the US government must be glad that USDC is controlled by an American company (Coinbase) and an Irish one (Circle).
T+0 settlement seems pretty innovative to me, especially in light of the GME fiasco.
In the US you should look at the so-called free-banking era (1837–1864) or the crisis era (1782–1930). Btw. Free banking didn't mean no rules. It just meant that there was no charter or permission is needed to start a bank,
Finance was basically free for all. Easy to get in. Constant stream of economic recessions and banking crises harmed everyone. Wildcat banking increased incentives for risk-taking and fraud to high levels. It hindered economic growth, destroyed wealth of may hard working individuals.
The US has huge financial industry partly because the regulation is so extensive. People from all over the world invest their money in the US because they know what when liquidity crisis happens, they still get their money back.
And that is one of the reasons so many people invest in crypto-scams. They are used to the safety of traditional banking, and think that it comes for free. Not realizing that it is a hard earned situation earned thru the pain of a past era and enforcement of regulations. Sadly, people that has no understanding of banking are for a surprise when they realize in what are they really investing and how little recourse they have when the crypto-scamsscams explode.
When Webvan went bankrupt, they truly bought all of those warehouses / refrigerated vans. They were honest about their business idea.
When "Africrypt" (a recent Crypto group) stole $3.6 Billion from its customers, that's straight up fraud and would not stand even back in the dot-com boom in the 90s. That's the sort of thing US Regulators are trying to protect investors from.
----------
You still might invest into a bad idea (ex: Webvan or Theranos), but those CEOs are truly spending money on vans / warehouses / poorly designed blood tests and not just actively stealing it from their investors.
Even when companies criminally lie (ex: Enron or Worldcom), its a far lesser crime than what the Africrypt brothers did just a few weeks ago. The size and scope of the scams currently going on in the Blockchain world is far worse than what happens in US regulated markets.
The so called "Crypto" industry will mature when regulation happens and when real cryptographers and real computer scientists enter the scene and start innovating. Until then we have hyped up teens playing with the buzzwords like blockchain and decentralized finance.
>The size and scope of the scams currently going on in the Blockchain world is far worse than what happens in US regulated markets.
I somewhat tend to believe that governments all around the world are giving the "Blockchain world" grace period of not being tightly regulated so they can catch as many crypto criminals as they can because let's be honest if these guys were not stealing in the crypto world they would be stealing somewhere else. And I also tend to believe that current financial regulations are enough to regulate crypto as it is but governments are moving slowly as usual.
[0] https://www.zdnet.com/article/microsoft-is-shutting-down-its...
P.S. By quickly searching through the list there are around 900 papers of which around 30 are blockchain, cryptocurrency and electronic/digital cash related.
> P.S. By quickly searching through the list there are around 900 papers of which around 30 are blockchain, cryptocurrency and electronic/digital cash related.
If you just Ctrl+F'd for those terms, it is likely that you are leaving out some (many?) papers. For example: did you count these two...
"VCProof: Constructing Shorter and Faster-to-Verify zkSNARKs with Vector Oracles", by Yuncong Zhang and Ren Zhang and Geng Wang and Dawu Gu
"On Simulation-Extractability of Universal zkSNARKs", by Markulf Kohlweiss and Michał Zając
?
My point: it might not be 100% obvious whether a certain cryptographic primitive (or line of research) is "blockchain-related" or not.
As far as I can tell, whether you like the subfield or not, it does seem like there is some fundamental cryptographical research being done as a consequence of the "blockchain" craze (e.g. zero-knowledge proof systems, robust consensus mechanisms in adversarial settings, ring confidential transactions).
EDIT: if you Ctrl+F for "smart contract", for example, you'll get half a dozen more; if you Ctrl+F for "byzantine", you'll get some more; if you Ctrl+F for "zero-knowledge", you'll get 21 more; "cross-chain", "mining", etc.
Maybe there are real people working on crypto problems or maybe there is some sort of Crypto winter akin to AI winter[1].
Let's take Satoshi for example a top notch computer scientist and a top notch C++ programmer. Who is even close to him? Vitalik? Kid who dropped out of college and rediscovered Satoshi's smart contract scripting language that Bitcoin had way back in 2008. Is Gavin Andresen[2] still involved? A 3D computer graphics programmer who worked in the Silicon Valley back in the 90s. These are the kind of people I am talking about.
Yes, but their current popularity (and the reason why so much effort is put into this subfield of cryptological research these days) is most likely due to their use in the context of cryptocurrencies, as far as I can tell. If I'm wrong, please let me know.
> Maybe there are real people working on crypto problems or maybe there is some sort of Crypto winter akin to AI winter[1].
Most likely, both. Once the low-hanging fruit is picked, things tend to slow down a bit (at least for a while). As you pointed out, this is common in many research fields, and not something specific to "blockchain tech".
> Let's take Satoshi for example a top notch computer scientist and a top notch C++ programmer. Who is even close to him? Vitalik? Kid who dropped out of college and rediscovered Satoshi's smart contract scripting language that Bitcoin had way back in 2008.
Just because Satoshi is a better programmer than Vitalik (I don't know if it's the case, but I'll assume it to be true), and he decided to leave the field (allegedly), it still doesn't mean that there aren't capable people out there working in the field.
> Is Gavin Andresen[2] still involved?
From what I can tell, yes: http://gavinandresen.ninja/
> These are the kind of people I am talking about.
Fair enough. But then the argument should be that "most big-shots are not working in the field" rather than "there aren't any real computer scientists and cryptographers working in the field", as the person I replied to was saying.
I just responded because it sounded a bit like a "no true scotsman" fallacy (i.e. "a real computer scientist or cryptographer would be working on more serious things"). It's almost as if, if you are working in something blockchain-related, you must be a bad professional somehow (or, worse, a scammer).
I'm trying to argue that blockchain/crypto industry is amateur and infant and you think I work in such industry and scam people around. I mean c'mon!
I'll rephrase it: "It's almost as if, if one is working in something blockchain-related, one must be a bad professional somehow (or, worse, a scammer)."
I don't disagree that the field is filled with amateurs (and, yes, scammers). It still doesn't imply that there isn't any serious cryptological research being done within the (so-called) field of "blockchain", which was the argument I originally replied to.
It’s a leopards ate my face situation. And it’s beyond frustrating but I can also sympathize with them a bit. Who among us hasn’t stubbornly needed to see something for ourselves in order to learn a lesson we could have (and should have) learned by listening to the people with a bit of experience?
The evidence points out that it’s the current banking system that incentivizes risk taking because the international bankers know they’re getting a bailout every time when they mess up.
> The US has huge financial industry partly because the regulation is so extensive. People from all over the world invest their money in the US because they know what when liquidity crisis happens, they still get their money back.
I’d like to know how this massive regulation helped consumers during the GameStop events at the end of January.
Naked short selling is running rampant and the system is protecting these crooks who essentially resell the same shares repeatedly.
Stock trading must inevitably take place on a blockchain: it is the only means to publicly verify accurate data. The current system with self-reported data and slap on the wrist fines is completely ridiculous.
> Stock trading must inevitably take place on a blockchain: it is the only means to publicly verify accurate data. The current system with self-reported data and slap on the wrist fines is completely ridiculous.
I don’t know if blockchain tech is up to the task, but I agree in the context of non-negotiable, immutable transparency. It’s the only way we’ll ever find out just how corrupt Wall Street actually is. IMO the answer is very!
You can believe what you want, I find the current system very hard to trust.
With a blockchain, you don't have to trust anybody: you can just always get verifiable accurate real-time information with no possibility for manipulation or corruption.
> The current centralized clearinghouse system works fine
I don't understand how anybody could think that a system that can't even reliably and accurately tell you how many shares of real stock are in existence, requires self-interested self-reporting for vital stats with a slap on the wrist fine for "errors", and allows shares to be sold multiple times somehow is working fine.
> is highly scalable
T+2 time for trades to clear is highly scalable?
> No one cares if a handful of retail investors lost money on foolish GameStop trades.
The issue isn't that some people made or lost money on a trade: the issue is that there's different sets of rules for different people with the current system.
In a regulated financial environment, financial innovation creates bubbles and failures in those regions that are outside regulation and transparency.
The subprime mortgage crisis was able to grow because CDO's and MBSes were outside regulators' sight.
The next financial crisis is probably simmering in shadow margin and shadow banking – not well-regulated areas. When those risks actualize, then there will be more regulation.
Taking one of the largest DeFi exchanges for instance: Uniswap.
If the devs of uniswap decide to try and steal all of the funds that have been locked up in their contracts they can't[1]
That being said there are plenty of DeFi projects that claim to have no backdoor, but they do. And just because something is non-custodial doesn't mean that the value of the token won't go to zero, e.g. here's a good example of a project that went to zero even though there wasn't a known backdoor: https://www.rekt.news/iron-finance-rekt/
[1]: Assuming no one has missed a backdoor in the code
>Finance was basically free for all. Easy to get in. Constant stream of economic recessions and banking crises harmed everyone. Wildcat banking increased incentives for risk-taking and fraud to high levels. It hindered economic growth, destroyed wealth of may hard working individuals.
This is untrue; the US rate of growth was actually higher during this period (4%+) than it was during the 1900s. And there was way less wealth equality, as there was no central bank with the ability to transfer wealth from all currency holders to the banking and finance industry via printing money and the Cantillon effect.
It doesn't sound like futures or simple bets. From the article, its almost sounds like they're almost selling NFTs of a photograph of a stock created form whole cloth. That can't be right, can it? Surely its backed by something?
The stocks are not backed in any other way?
Some users, called stakers, put up collateral, and in return the contract mints a synthetic asset. Stakers can destroy ("burn") the synthetic asset to unlock their collateral. The exchange rate is based on price feeds that oracles publish to the blockchain. There is an incentive for stakers to mint or burn the synthetic asset until its price matches the one published by the oracle.
> is so powerful in unlocking financial services for disenfranchised people around the world
What I hear is "we have a new way to trick the unsavy and take all their money."
Without any actual connection to divedends / voting rights / IPOs, all the traditional excuses of stock trading vanish and you are left with straight-up gambling.
The guy quoted isn't the Robin Hood, he's the Sheriff of Nottingham stealing from the poor.
> Binance, the world’s biggest cryptocurrency exchange, has already drawn the attention of Germany’s financial regulator by offering tokens that are tied to the performance of popular U.S. stocks but backed by the actual equities. Binance may have violated securities rules when it issued the tokenized shares of Tesla, MicroStrategy Inc. and Coinbase, BaFin said in April.
Binance's version of this seemed relatively straight forward, although you had considerable third party risk. But I imagine if they were regularly audited or had a redemption mechanism for the underlying stock, this is much preferable to the more complex method used in the Mirror protocol.
So much of DeFi is focused on getting around regulatory barriers. I get that the state uses finance and money as a way to control nerfarious activity (illicit substance sales, tax avoidance etc), but it leads to giving up a lot in privacy and freedom. Maybe they should give up on trying to attack it at the money level and focus more upstream. Why shouldn't you allow just about anyone to buy Tesla stock?
This seems pretty similar to the authorized participant model used successfully with ETFs, so not sure if it's actually an issue.
I suspect these are more like perpetual futures or CFDs?
[1] https://ycharts.com/companies/GBTC/discount_or_premium_to_na...
For example, commodities ETFs typically work by throwing cash in to treasuries and purchasing the total return swap contracts between those treasuries and some benchmark of commodity future contracts.
The major difference with these blockchain tokens is that the collateral (the stablecoin) held against the stock benchmark is itself completely synthetic.
Not really. Every government ultimately draws their legitimacy from the consent of the governed. If enough people riot and/or strike, you're done. Even Rome had a grain ration to keep the people content.
Your options for pressure usually come down to making the people of that country uncomfortable, or military action. Neither of which are very comfortable for those on the bottom.
You can also bribe the government to clean up their act, but that has a mixed record. I also wouldn't really call it putting pressure on the regime.
I expect in short order we will see synthetic asset-backed securities that track the prices of real ones, synthetic macroeconomic indicators that track the real ones, and a full suite of other financial derivatives -- maybe even "synthetic NFTs" that track the prices of "real NFTs."
The number and variety of synthetic securities, AKA derivatives, that could be created on blockchains are limited only by human creativity and imagination.
And all these decentralized blockchain derivatives will be accessible to retail investors worldwide, without regulatory limits on leverage, and without regulatory oversight. Sort of like a massively distributed shadow banking system.
What could go wrong?
Disclosure: I have personally invested small sums in the mentioned SNX and MIR.
"Fake stock" == "stock futures instrument" depending on the writers underlying motive.
And the bloomberg motive is clear.
There are cash-settled futures too, but they're usually for things that don't sit well in a brokerage account like "a NASDAQ" or crypto, for instance.
[1] https://www.investopedia.com/articles/optioninvestor/06/sing...
example
With real stocks, shareholders buy/sell in a manner that might be compared to gambling for some. And if those were the only cash-flows, then the stock-market would be a zero-sum game. But they're not; the stocks entitle holders to other cash-flows, e.g. dividends or asset-distribution to shareholders -- so the stock-market isn't zero-sum.
By contrast, such gambling platforms would seem to have cash-inflows only from other gamblers. And additional cash-outflows to cover incentives to miners, etc., to keep the block-chain operating. So while the real stock-market might be better-than-zero-sum, seems like these would be worse-than-zero-sum.
So.. why? I mean, even if someone just wants to gamble, why not gamble in a net-positive system rather than a net-negative system?
(Also this sounds like it might be illegal in the US and perhaps elsewhere.)
---
To sketch a simple example:
Alice starts a company with $1,000 of her own money, creating 100 shares (valued at about $10/share). She sells some of her shares to others for ~$10/share.. let's say she sells half, so she gets back $500 while retaining a 50% stake in the $1,000 pot.
As CEO, Alice invests all $1,000 in US bonds, getting some interest. After 10 years of operation, Alice liquidates the company, which now has $1,000+(10 years of interest).
Now everyone who bought a share from Alice at the start (for ~$10) would get about ~$10+(10 years of interest), much like if they had invested $10 in bonds themself.
And Alice herself gets back $500+interest (in addition to the $500 she got from selling shares earlier).
Now what about people who gambled on Alice's company? This is, now that Alice's company has dissolved and the real shareholders got their cash+interest, what do the people with "synthetic shares" get?
Of course when traditional players do it's totally fine, but the moment the same thing is done on crypto rails, that's when we raise our value signalling pitch forks.
Are you trying to make the point that this is meant to appeal to a "fight-the-power"-type crowd who'd be willing to suffer losses for thematic reasons?
Indeed.
In case you've not been paying attention - for the most part the regulators are currently sitting scared in the corner, and not even Musk tweeting asinine stuff like "SEC = Suck Elon's Cock" is able to bring them to action. As always, you get serious enforcement actions only on the down leg, when the public opinion is again behind you.
How does that work? What prevents me from "minting" tokens and running away?
You can "run away", but the collateral stays.
Even Mark Cuban fell for something similar with great production value.
Scoring before the cops figure out a crime is being committed IS intuitive, in other words.
Personally, I think this is going to be huge over time. Trading on-chain tokenized stocks 24/7 is a powerful layer above the traditional financial markets.
As an investor, you have 100% a vested interest in this getting big at all cost, because otherwise, who's going to buy your magic beans from you? So anything you say about is kind of compromised.
I think this'll be adopted widely in the near-future by savvy traders.
It benefits the little guys.
And I look forward to the day companies preferably issue equity directly atop decentralized networks - under what legal framework and/or sovereignty is yet to be determined.
Isn't the new monetization strategy in crypto literally to reorder blocks and front-run transactions due to the massive time quanta?
How exactly do you think the NBBO rule is to be implemented? [1]
The little guys as always are the most likely to get hurt.
Is this comment referring companies issuing equity directly on-chain?
Of course it's currently illegal.
That doesn't mean it's illegal in all global jurisdictions or that savvy traders won't find a way to have financial liberty, even if it means moving countries/jurisdictions, opening up a corporation elsewhere etc..
>Isn't the new monetization strategy in crypto literally to reorder blocks and front-run transactions due to the massive time quanta?
What a disingenuous way to frame the concept of MEV.. That's quite an unobjective bias you have.
>The little guys as always are the most likely to get hurt.
The little guys are most likely to get hurt when there's a lack of transparency. In an internet age with transparent tools, the little guys should have freedom with accountability (e.g. they can't even invest in startups).
The front-running thing is literal observable fact. If you know what transactions are to be included in the next block, and you're in charge of ordering them on a multi-minute timeframe, and you know pricing on exchanges in real-time why would you not take advantage? Why would you not front run? There's no law stopping you is there?
> The little guys are most likely to get hurt when there's a lack of transparency. In an internet age with transparent tools, the little guys should have freedom with accountability (e.g. they can't even invest in startups).
Which is exactly the issue with the blockchain. You're given a peek at the chain but that's not what matters.
Check out time-lock encryption, auctioning transaction order rights, or Automata's conveyor service etc.
There's some powerful ideas floating around to bring MEV to negligible levels.
This is the beauty of crypto:
users will flow to the most efficient blockchain. If MEV is their primary concern, they'll flow to that which nullifies it :)
"stealing money from unsophisticated users" seems like a correct characterization of MEV
Sure, you can always move your trading to El Salvador, which plans to use bitcoin as official currrency.
What could ever go wrong with that?
[1] https://www.bbc.com/news/world-latin-america-57398274#:~:tex....
Benefits: no intermediaries and absolutely no money wasted on lawyers or due diligence. Drawbacks: you don't have a bridge, or even an option on one.
Optimal intermediaries emerge as a response to market conditions.
Some are fine with the current financial industry intermediaries. Some aren't.
Voice & exit.
In the near future we'll have other crypto-afforded options to 'exit' to.
The same can be said of monopoly money.