Fake seems like a strange choice of words here. These things arent attempting to deceive anyone into believing they are the real thing. They clearly label themselves as derivatives.
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.
Are these assets backed by legally binding contracts? If the answer is no it doesn't seem like a stretch.
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.
Unregulated would be a better description. This is a perfect example of the kind of financial asset that should be heavily regulated.
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.
Similarly, many crypto exchanges don’t give you access to a wallet and don’t let you actually transact on the blockchain, but they sell an asset that matches the value of a coin and those coins are held in reserve by the exchanges.
I don’t disagree, but the technical term is “synthetic” and substituting “fake” for “synthetic” in a headline and first paragraph doesn’t seem like that crazy of an editorial choice.
The basic idea is that bets are collateralized at a level of 150% of the starting price. If you buy a synthetic stock when it's at 100, and it goes above 150, your bet is cashed out at that point.
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.
This should not be legal. It’s not okay to conjure up some arbitrary scheme, consisting of five different cryptocurrencies, and sell the instrument as though it will always track the price of some stock. It’s not okay to say “well, we thought it would work” when the system crashes. This should be considered as negligence (in properly ensuring that your system will work as advertised before selling to consumers) by the courts.
How does this make sense? If they don't hold the underlying security, where does the value come from?
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.
How does this make sense? If they don't hold the underlying security, where does the value come from?
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.
It's a synthetic stock which is overcollateralized by stablecoins. So for example, if $100 dollars worth of the stock is issued, someone else had to lock up $150 dollars worth of USD to issue it. And when the price rises (and hence collateralization ratio drops), the issuer has to constantly top up collateral or run the risk of them being liquidated.
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.
They use oracles to get the trading prices of the various assets. The actual value is held in on-chain tokens and typically requires over-collateralization.
If the hedge funds and prime brokers are allowed to sell the unsuspecting public a bunch of counterfeit shorts, why not let the crypto market do the same?
> But to stop mirrored stocks and other synthetic assets from trading, you would have to shut down the underlying open-source software code that makes up the blockchain and is used by a global user base that includes many anonymous players, he added.
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?
That is, indeed, the week spot in these constructs.
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.
It seems like you wouldn't need an oracle if you created a mirror token in the same way USDT (supposedly) mirrors USD - issue one SynTSLA token in exchange for one actual TSLA stock certificate, and promise to redeem them 1:1 as well.
> 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.
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
Isn't it also weird that crypto enthusiasts assume that you obviously can't trust a central clearing house (or similar mechanism) when they have been working well for hundreds of years? In numerous cases humans trust institutions for certain things, and those institutions are usually strongly incentivized to act honorably, and do so. And when they don't, the court system works pretty well. At least in the countries where the vast majority of economic activity occurs.
These are two premise which... don't seem to hold water?
You're seeing this from a western, first world perspective.
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.
From personal Perspective: ALL scam I had as a seller was with credit cards. I always ate the costs by refunding with extra fees. Over Easter I could not transfer money for 5 days!! Because holidays. Also no transfers on weekends. European and American banks refuse to open a private account for me because money laundering laws. Even thought I have an EU passport but just living in Switzerland locks me out of this. And at last the fees. A few years back I paid well over 1000 dollars in banking fees within a year, mostly because I was getting transfers in Euro or dollars and withdraw in Eur on CHF account. Or how microtransactions are essentially non existent on the internet because of fees.
Say what you want, for me personally traditional banking is more of a burden than anything.
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.
Financial regulations are bad, because they criminalize honest fraudsters and scam artists. How are they supposed to make a living in our current system? /s
Ayn Rand libertarians and people with a massive Dunning-Kruger effect who didn't go past economy 101 form a significant part of cryptocurrency proponents.
It's because like other libertarian/anarcho-capitalist politics, which seem to be heavily tied in with cryptocurrency, it's based on some idea that every individual is super smart and rational and shouldn't be hindered by the regulations, combined with a fairly righteous mistrust of government and big institutions.
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.
>Binance may have violated securities rules when it issued the tokenized shares of Tesla, MicroStrategy Inc. and Coinbase, BaFin said in April.
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.
Looks like cryptocurrencies are not very innovative. They keep reinstalling all the features that have been there and improved in the regular markets.
Tether and stablecoins mimicking the USD, now this stuff mimicking stocks, how are the not getting in trouble with government institutions or Apple?
What are the loopholes? No existing laws yet? Or they operate and reside in far away jurisdictions?
Many people are asking: Why government should regulate finance?
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.
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?
Anytime I see a DeFi proponent saying something like this:
> 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.
> But to oversimplify, under the Mirror Protocol, the idea is to keep prices of the synthetic -- or “mirrored” -- equities in the ballpark of the real thing by offering incentives for traders to arbitrage price discrepancies and manage the actual supply of tokens. Users can create, or “mint,” new tokens when prices are too high by posting collateral, and destroy, or “burn,” tokens when prices are too low, driving the price up or down.
> 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?
Reminds me of HSX (Hollywood Stock Exchange). It's a trading game/predictive market (no real money) where you trade shares in actors, movies, forthcoming movies, and even funds, e.g. "all Marvel movies." Pretty fun. https://www.hsx.com
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.
Calling synthentic assets - something otherwise fully embraced by traditional finance - 'fake stocks' repeatedly lets me think they might have had some sort of an agenda on this one..
Disclosure: I have personally invested small sums in the mentioned SNX and MIR.
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?
Can anyone explain why regulators wouldn't just smack this down if got big? I can't imagine you can create a mirror stock market without going through some regulatory channels.
> the idea is to keep prices of the synthetic -- or “mirrored” -- equities in the ballpark of the real thing by offering incentives for traders to arbitrage price discrepancies and manage the actual supply of tokens. Users can create, or “mint,” new tokens when prices are too high by posting collateral, and destroy, or “burn,” tokens when prices are too low, driving the price up or down.
How does that work? What prevents me from "minting" tokens and running away?
[+] [-] ykat7|4 years ago|reply
[+] [-] anm89|4 years ago|reply
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.
[+] [-] quickthrowman|4 years ago|reply
/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...
[1] https://www.cftc.gov/
[+] [-] as_i_fall|4 years ago|reply
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.
[+] [-] grey-area|4 years ago|reply
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.
[+] [-] croddin|4 years ago|reply
[+] [-] bitxbitxbitcoin|4 years ago|reply
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] tfehring|4 years ago|reply
[+] [-] Animats|4 years ago|reply
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.
[+] [-] runeks|4 years ago|reply
[+] [-] nly|4 years ago|reply
> Terra combines the price stability and wide adoption of fiat currencies with the censorship-resistance of Bitcoin (BTC)
Yeah, the price looks really stable.
https://coinmarketcap.com/currencies/terra-luna/
[+] [-] ButtSpark69|4 years ago|reply
[deleted]
[+] [-] delusional|4 years ago|reply
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.
[+] [-] tablespoon|4 years ago|reply
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.
[+] [-] davidkohcw|4 years ago|reply
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.
[+] [-] rawtxapp|4 years ago|reply
As far as I understand it, in this case, it's essentially cash settled.
[+] [-] ZephyrBlu|4 years ago|reply
[+] [-] tylersmith|4 years ago|reply
[+] [-] donmcronald|4 years ago|reply
I’m only half joking.
[+] [-] cesarb|4 years ago|reply
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?
[+] [-] 3np|4 years ago|reply
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
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] caf|4 years ago|reply
[+] [-] abrookewood|4 years ago|reply
[+] [-] woah|4 years ago|reply
[+] [-] lilyball|4 years ago|reply
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
[+] [-] danielmarkbruce|4 years ago|reply
These are two premise which... don't seem to hold water?
[+] [-] puranjay|4 years ago|reply
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.
[+] [-] herbst|4 years ago|reply
Say what you want, for me personally traditional banking is more of a burden than anything.
[+] [-] barnabee|4 years ago|reply
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!
[+] [-] armada651|4 years ago|reply
[+] [-] ohgodplsno|4 years ago|reply
[+] [-] jayd16|4 years ago|reply
[+] [-] mmiliauskas|4 years ago|reply
[+] [-] antihero|4 years ago|reply
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.
[+] [-] ethn|4 years ago|reply
https://en.m.wikipedia.org/wiki/Contract_for_difference
[+] [-] Traster|4 years ago|reply
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.
[+] [-] yawaworht1978|4 years ago|reply
[+] [-] nabla9|4 years ago|reply
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.
[+] [-] jayd16|4 years ago|reply
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?
[+] [-] shkkmo|4 years ago|reply
> 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.
[+] [-] bko|4 years ago|reply
> 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?
[+] [-] nielsbot|4 years ago|reply
[+] [-] cs702|4 years ago|reply
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?
[+] [-] Tenoke|4 years ago|reply
Disclosure: I have personally invested small sums in the mentioned SNX and MIR.
[+] [-] _Nat_|4 years ago|reply
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?
[+] [-] dasudasu|4 years ago|reply
[+] [-] poorjohnmacafee|4 years ago|reply
[+] [-] gpt5|4 years ago|reply
How does that work? What prevents me from "minting" tokens and running away?