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Fake Tesla, Apple stocks have started trading on blockchains

203 points by mgh2 5y ago

ykat7 5y ago
https://archive.is/W5PRQ https://archive.is/W5PRQ
bko 5y ago
> 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?
- tdhoot 5y ago
  > 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. This seems pretty similar to the authorized participant model used successfully with ETFs, so not sure if it's actually an issue.
  - ethn 5y ago
    It’s the redemption of the real underlying that allows ETFs to work.
    - arcticbull 5y ago
      Yes, its important for tracking that authorized participants are able to both create and redeem the ETFs for the underlying. This is why the Grayscale family does such a god-awful job of tracking the underlying. Check out the premium over time. [1] I suspect these are more like perpetual futures or CFDs? [1] https://ycharts.com/companies/GBTC/discount_or_premium_to_nav https://ycharts.com/companies/GBTC/discount_or_premium_to_na...
    - nly 5y ago
      Not always. There are synthetic ETFs backed by nothing but swap contracts. 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.
- nradov 5y ago
  Just about anyone is already allowed to buy Tesla stock.
- arcticbull 5y ago
  Who isn't allowed to buy TSLA?
  - tcoff91 5y ago
    people who live in countries that are under US sanctions i would presume? I'm not an expert on this stuff but I'd be surprised if buying or selling US securities was not heavily restricted for people in sanctioned countries like Iran.
    - arcticbull 5y ago
      There's a reason they got sanctioned, though, right? Broadly, attempting to develop nuclear warheads in unstable regions. So yeah, I'm ok with sanctioned people not trading TSLA to pressure the regime. Frankly, I can't think of a reason why that would be ok.
      - from 5y ago
        The sanctions affect everyone in Iran. The elites and people actually involved in the nuclear program in Iran have access to dollars/western markets via smuggling networks and other underground efforts (see https://en.wikipedia.org/wiki/Reza_Zarrab https://en.wikipedia.org/wiki/Reza_Zarrab, https://www.justice.gov/opa/pr/two-us-citizens-one-pakistani-national-charged-moving-us-currency-iran https://www.justice.gov/opa/pr/two-us-citizens-one-pakistani..., NIOC and ship-to-ship transfers, etc). The result is that unconnected people suffer and the elites continue on like before. Is it fair to deny a rug vendor in Tehran who wants to export some of their carpets to Europe their living because they live in a country with a terrible government?
        arcticbull 5y ago
        Is it possible to exert pressure on the regime without also exerting pressure on the people? It's obviously sad collateral but IMO avoiding the Iranians getting a nuke is worth the cost. Undercutting the effort seems the worst of all worlds with most Iranians continuing to pay a high price for longer.
nabla9 5y ago
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.
- ElViajero 5y ago
  > 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.
  - mrkramer 5y ago
    Investing in crypto projects is the same like investing in dot com companies back in the day. You invest in concepts not in the actual product or solution and ofc 99% of these projects are unrealistic or team behind them is incompetent.
    - dragontamer 5y ago
      No. There's a big difference. 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.
Traster 5y ago
>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.
- handmodel 5y ago
  I don't feel bad for Mark Cuban - a sucker who should have known better - but clearly if his team fell for it than its good evidence the entire system needs much heavier regulation. 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.
  - s1artibartfast 5y ago
    I think your worries are in the wrong place. I'm more worried about the FED bailing out the banks and companies too big to fail who have ventured into crypto
- arcticbull 5y ago
  This isn't about Mark Cuban's losses per se, I also have no issue with him (an accredited investor) getting bilked for some change between the couch cushions - the issue is even if an incredibly sophisticated investor like Mark could fall for such a rug-pull/failure then how can we possibly expect unsophisticated investors not to get bamboozled? Remember, those who wash out of trading end up beneficiaries of the state bankruptcy and welfare programs, so the state very much has an interest in this. 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.
Tenoke 5y ago
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.
- yreg 5y ago
  "Fake stocks" does make it sound like the users are being mislead into thinking that they are buying actual stocks. Which doesn't seem to be the case.
  - elevenoh 5y ago
    It's definitely not the case. "Fake stock" == "stock futures instrument" depending on the writers underlying motive. And the bloomberg motive is clear.
    - arcticbull 5y ago
      Equity futures are constructed around, on settlement date, delivery of the underlying shares to long contract holders from short contract holders. They're called SSFs for short. [1] 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/singlestockfutures.asp https://www.investopedia.com/articles/optioninvestor/06/sing...
      - elevenoh 5y ago
        Equity futures (e.g. perpetuals) exist in forms beyond the definition you've mentioned. example https://ftx.com/trade/FB/USD https://ftx.com/trade/FB/USD
        arcticbull 5y ago
        That's on FTX, I was referring to in real life.
yawaworht1978 5y ago
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?
- elliekelly 5y ago
  A crypto-token tracking the listed security of a company that is itself so heavily invested in crypto that the security price more or less tracks with crypto reminds me of the new new internet from Silicon Valley.
- delusional 5y ago
  I don't think there's any political interest in looking at them right now. It's largely just a bunch of nerds playing with pretend money. It hasn't really hurt anybody outside of it yet.
  - iseethroughbs 5y ago
    This pretend money is currently the main driving mechanism behind the unprecedented business hacking and ransomware wave.
    - yawaworht1978 5y ago
      And for things like paying for ddos attacks and money laundering in general. Ah yes, and the classic all things dark web. There is not one use case except speculation for people who are not amongst the non law abiding elements of society.
      - arcticbull 5y ago
        There's always speculation. But yeah, definitely nothing else.
ethn 5y ago
I think this is illegal. This is effectively a CFD, which are absolutely illegal in the US regulated or not. https://en.m.wikipedia.org/wiki/Contract_for_difference https://en.m.wikipedia.org/wiki/Contract_for_difference
- syrrim 5y ago
  Your reference says they are illegal only on regulated markets in the US.
  - arcticbull 5y ago
    Regulation S requires US persons no matter where they live to only trade at SEC regulated exchanges. [1] So broadly speaking it applies to all US persons - residents and citizens regardless of place of residency. I suspect accredited investors can do as they please though, but that's only a guess. [1] https://www.law.cornell.edu/cfr/text/17/230.903 https://www.law.cornell.edu/cfr/text/17/230.903
  - SideburnsOfDoom 5y ago
    > they are illegal only on regulated markets 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.
    - herbst 5y ago
      Because literally the far majority of the world is what you call 'unregulated' just because US people are excluded does not at all make this illegal for anyone else.
- anonymoushn 5y ago
  Does this mean that Archegos and all its counterparties were not permitted to trade CFDs?
  - rawtxapp 5y ago
delusional 5y ago
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.
- donmcronald 5y ago
  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? I’m only half joking.
  - munk-a 5y ago
    Well the goal is never to have more problems. The discussion of the good or evils of regulations in general is a pretty deep debate in America though.
  - dehrmann 5y ago
    > counterfeit shorts Do you have a reference for something that's had issues being naked shorted, recently? GME was a short squeeze, but that's different.
- tablespoon 5y ago
  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.
  - MathYouF 5y ago
    You should read up on the last decade in Venezuela, which used to be the richest country in Latin America, and having wealthy professionals see their savings evaporate due to 1,000,000% inflation because of the actions of a government they democratically elected. 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.
elevenoh 5y ago
Benefits: 24/7, lower fees, less financial incumbent insiders front running your trades, less retail traders giving data of their every move to financial incumbent insiders, privacy. 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.
- arcticbull 5y ago
  Not in America they won't lol, it's illegal. In fact it's illegal for US persons to trade securities out of a non-SEC regulated brokerage account. See Regulation S. 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. [1] https://www.investopedia.com/terms/n/nbbo.asp https://www.investopedia.com/terms/n/nbbo.asp
  - elevenoh 5y ago
    >Not in America they won't lol, it's illegal. In fact it's illegal for US persons to trade securities out of a non-SEC regulated brokerage account 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).
    - arcticbull 5y ago
      Why would we voluntarily give up the security afforded by the SEC? 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.
minikites 5y ago
Bitcoin enthusiasts are learning first hand why financial regulations exist. It's a shame we can't seem to learn from history.
nielsbot 5y ago
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 https://www.hsx.com
kgraves 5y ago
Why are we allowing this to happen? This blockchain madness needs to stop.
- andrewroff 5y ago
  Cryptocurrencies are a decentralised ecosystem, as such anybody can create a token. "Why" people are allowing this to happen, is that crypto enthusiasts build said decentralised ecosystem. Trust layers need to be built on top for it to become more useful, for instance, a trusted and auditable institution issuing tokens.
bdcravens 5y ago
Robinhood does the same for Bitcoin
dasudasu 5y ago
Matt Levine has a good write-up on the situation as usual: https://www.bloomberg.com/opinion/articles/2021-07-06/blockchain-lets-you-bet-on-stocks https://www.bloomberg.com/opinion/articles/2021-07-06/blockc...
- elliekelly 5y ago
  > Much of DeFi — crypto decentralized finance — begins with a sort of willing suspension of disbelief about securities regulation. Indeed.
anm89 5y ago
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.
- quickthrowman 5y ago
  > We don't call corn futures fake corn /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.contractSpecs.html https://www.cmegroup.com/markets/agriculture/oilseeds/corn.c... [1] https://www.cftc.gov/ https://www.cftc.gov/
  - H8crilA 5y ago
    Yeah, I would like to emphasize the fact that they're settled once individual contracts expire, be it cash or delivery. 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?
    - minitoar 5y ago
      Because there's some mechanism for arbitrage that allows you to effectively settle it. If the spot price is too low you can make a profit.
      - smabie 5y ago
        Well that mechanism for arbtrage usually occurs through settlement. ie at contract settlement, you trade one for the other.
Milkman128 5y ago
crypto seems to be mostly gambling. so this fits
cs702 5y ago
So we now have synthetic stocks on blockchains. 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?
- lmkg 5y ago
  If I understand Godel's theorem (which only 6 people do), the natural conclusion of this is an asset which is a derivative security of itself. Which could be the ultimate stablecoin, or equally a disproof of the self-consistency of the blockchain itself. Maybe both at the same time.
  - dboreham 5y ago
    Or tear a hole in the fabric of spacetime.
metalex 5y ago
I'm an investor in one of these (as a disclaimer and because I'm excited about the tech) -- https://structure.fi/ https://structure.fi/. 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.
- ZephyrBlu 5y ago
  Are you not concerned about this turning into a similar situation as Tether? I.e. the assets end up not being backed by money.
  - gomox 5y ago
    The way these work is totally transparent (open source smart contracts govern the issued tokens). There's no risk of hidden insolvency (there are significant technical risks, though).
    - metalex 5y ago
      Spot on. The risk here is all technical given the mechanics are public — no potential for a tether situation here.
- zeusk 5y ago
  While I agree democratized 24/7 stock settlement would be cool; It's hard to believe an investment seeking startup would want what's best for the common man - hopefully at least better than wall street does.
- antihero 5y ago
  Isn't this just trading internet magic beans? 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.
  - metalex 5y ago
poorjohnmacafee 5y ago
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.
- H8crilA 5y ago
  You can't. 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.
- logicchains 5y ago
  The world exists outside of the US. There isn't one set of global "regulators". Lots of smaller countries want to grow their own financial markets and take a share of the US's pie, and being friendly to crypto is one way to achieve that.
  - poorjohnmacafee 5y ago
    I can't think of very many countries that don't have regulatory channels for selling stocks to their citizens. Generally wouldn't want to launch something that breaks local regulations if you serve nationals of those countries. Puts directors at risk if they visit those countries.
cratermoon 5y ago
I spy, with my little eye, something that starts with P
nightski 5y ago
This isn't the same thing but I do think companies issuing stock for crypto is the next logical step and it will happen at some point. Not derivatives or any sort, just company stock directly listed on a crypto stock exchange. I imagine it's a long road to that point, but certain companies like Tesla just might be willing to do such a thing since they own a decent portion of crypto as is.
gpt5 5y ago
> 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?
- dkshdkjshdk 5y ago
  > “mint,” new tokens when prices are too high by posting collateral You can "run away", but the collateral stays.
cesarb 5y ago
> 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?
- abrookewood 5y ago
  Pretty sure you are correct. It's something of an Achilles heel for any smart contract trying to interact with information that is off-chain.
- 3np 5y ago
  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. 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 https://data.chain.link/ethereum/mainnet/commodities/xag-usd
  - 3np 5y ago
    I forgot to add, re Chainlink: Chainlink can, as a single party, remove and add providers to the oracle feeds. So in this case, they are the one SPoF here. Maybe that will change with the introduction of some governance system at some point as things mature and stabilize, but presently despite the smoke and mirrors they can be coerced or compelled to shut down individual price-feeds. In principle this could be "unstoppable", but as of right now it is not.
- woah 5y ago
  Hard to keep the price of Apple stock a secret
lilyball 5y ago
> 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
- armada651 5y ago
  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
- mmiliauskas 5y ago
  Not that it is bad, just useless, money always find the way around them.
  - root_axis 5y ago
    The same thing could be said about laws prohibiting theft and murder.
  - lottin 5y ago
    No, it doesn't. Obviously you don't have a clue about financial regulation.
- danielmarkbruce 5y ago
  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?
  - 5y ago
Animats 5y ago
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.
- ButtSpark69 5y ago
  This is...literally mostly false.
- runeks 5y ago
  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.
  - hef19898 5y ago
    This is causing flashbacks to CDOs from back in 2005-8.
  - ajkdhcb2 5y ago
    Seems ok for the 'existing financial system' to do it. Governments can just do a bailout when it collapses. 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.
jayd16 5y ago
So what generates these "synthetic" stocks? 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?
- gentleman11 5y ago
  Like the rest of the blockchain?
  - jayd16 5y ago
    So stocks are randomly awarded to miners? Like any stock or each stock is its own chain? The stocks are not backed in any other way?
    - mannerheim 5y ago
      My understanding is that they're smart contracts that are collateralised by cryptocurrency.
      - usrusr 5y ago
        Sounds like "stock collapses: I win, stock rises: you get the collateral or the gains, whatever is lower"
  - deleted 5y ago
    [deleted]
- ruuda 5y ago
  It's described here: https://docs.synthetix.io/litepaper https://docs.synthetix.io/litepaper 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.
yborg 5y ago
>"...Waiting for fragmented regulatory frameworks to crystallize before innovating is counterintuitive.” Scoring before the cops figure out a crime is being committed IS intuitive, in other words.
alfabetagamma 5y ago
All this is, like 95% of all blockchain „innovations“, is to confuse/inspire people long enough to make a fortune from investors/gamblers. Theres just AAA gigs like this and less sophisticated ones. I have yet to be proven wrong. Even Mark Cuban fell for something similar with great production value.
shkkmo 5y ago
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.
_Nat_ 5y ago
Sounds like an online [bucket shop](https://en.wikipedia.org/wiki/Bucket_shop_(stock_market) https://en.wikipedia.org/wiki/Bucket_shop_(stock_market) ). And seems like it's a much worse proposition than the actual stock-market. 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?
- delaaxe 5y ago
  Oh and how about contracts for difference, equity swaps, futures on stocks, etc? 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.
  - _Nat_ 5y ago
    This has nothing to do with what I was saying about negative cashflows leading to a negative-sum game. 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?
varjag 5y ago
A Tether but for TSLA?
m00dy 5y ago
Another negative news about blockchain and hacker news. It doesn't surprise me anymore.
davecheney 5y ago
It's like fantasy football, but for securities trading.

203 points by mgh2 5y ago

https://archive.is/W5PRQ https://archive.is/W5PRQ

bko 5y ago

> 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?

tdhoot 5y ago
> 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. This seems pretty similar to the authorized participant model used successfully with ETFs, so not sure if it's actually an issue.
- ethn 5y ago
  It’s the redemption of the real underlying that allows ETFs to work.
  - arcticbull 5y ago
    Yes, its important for tracking that authorized participants are able to both create and redeem the ETFs for the underlying. This is why the Grayscale family does such a god-awful job of tracking the underlying. Check out the premium over time. [1] I suspect these are more like perpetual futures or CFDs? [1] https://ycharts.com/companies/GBTC/discount_or_premium_to_nav https://ycharts.com/companies/GBTC/discount_or_premium_to_na...
  - nly 5y ago
    Not always. There are synthetic ETFs backed by nothing but swap contracts. 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.
nradov 5y ago
Just about anyone is already allowed to buy Tesla stock.
arcticbull 5y ago
Who isn't allowed to buy TSLA?
- tcoff91 5y ago
  people who live in countries that are under US sanctions i would presume? I'm not an expert on this stuff but I'd be surprised if buying or selling US securities was not heavily restricted for people in sanctioned countries like Iran.
  - arcticbull 5y ago
    There's a reason they got sanctioned, though, right? Broadly, attempting to develop nuclear warheads in unstable regions. So yeah, I'm ok with sanctioned people not trading TSLA to pressure the regime. Frankly, I can't think of a reason why that would be ok.
    - from 5y ago
      The sanctions affect everyone in Iran. The elites and people actually involved in the nuclear program in Iran have access to dollars/western markets via smuggling networks and other underground efforts (see https://en.wikipedia.org/wiki/Reza_Zarrab https://en.wikipedia.org/wiki/Reza_Zarrab, https://www.justice.gov/opa/pr/two-us-citizens-one-pakistani-national-charged-moving-us-currency-iran https://www.justice.gov/opa/pr/two-us-citizens-one-pakistani..., NIOC and ship-to-ship transfers, etc). The result is that unconnected people suffer and the elites continue on like before. Is it fair to deny a rug vendor in Tehran who wants to export some of their carpets to Europe their living because they live in a country with a terrible government?
      - arcticbull 5y ago
        Is it possible to exert pressure on the regime without also exerting pressure on the people? It's obviously sad collateral but IMO avoiding the Iranians getting a nuke is worth the cost. Undercutting the effort seems the worst of all worlds with most Iranians continuing to pay a high price for longer.

nabla9 5y ago

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.

ElViajero 5y ago
> 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.
- mrkramer 5y ago
  Investing in crypto projects is the same like investing in dot com companies back in the day. You invest in concepts not in the actual product or solution and ofc 99% of these projects are unrealistic or team behind them is incompetent.
  - dragontamer 5y ago
    No. There's a big difference. 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.

Traster 5y ago

>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.

handmodel 5y ago
I don't feel bad for Mark Cuban - a sucker who should have known better - but clearly if his team fell for it than its good evidence the entire system needs much heavier regulation. 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.
- s1artibartfast 5y ago
  I think your worries are in the wrong place. I'm more worried about the FED bailing out the banks and companies too big to fail who have ventured into crypto
arcticbull 5y ago
This isn't about Mark Cuban's losses per se, I also have no issue with him (an accredited investor) getting bilked for some change between the couch cushions - the issue is even if an incredibly sophisticated investor like Mark could fall for such a rug-pull/failure then how can we possibly expect unsophisticated investors not to get bamboozled? Remember, those who wash out of trading end up beneficiaries of the state bankruptcy and welfare programs, so the state very much has an interest in this. 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.

Tenoke 5y ago

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.

yreg 5y ago
"Fake stocks" does make it sound like the users are being mislead into thinking that they are buying actual stocks. Which doesn't seem to be the case.
- elevenoh 5y ago
  It's definitely not the case. "Fake stock" == "stock futures instrument" depending on the writers underlying motive. And the bloomberg motive is clear.
  - arcticbull 5y ago
    Equity futures are constructed around, on settlement date, delivery of the underlying shares to long contract holders from short contract holders. They're called SSFs for short. [1] 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/singlestockfutures.asp https://www.investopedia.com/articles/optioninvestor/06/sing...
    - elevenoh 5y ago
      Equity futures (e.g. perpetuals) exist in forms beyond the definition you've mentioned. example https://ftx.com/trade/FB/USD https://ftx.com/trade/FB/USD
      - arcticbull 5y ago
        That's on FTX, I was referring to in real life.

yawaworht1978 5y ago

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?

elliekelly 5y ago
A crypto-token tracking the listed security of a company that is itself so heavily invested in crypto that the security price more or less tracks with crypto reminds me of the new new internet from Silicon Valley.
delusional 5y ago
I don't think there's any political interest in looking at them right now. It's largely just a bunch of nerds playing with pretend money. It hasn't really hurt anybody outside of it yet.
- iseethroughbs 5y ago
  This pretend money is currently the main driving mechanism behind the unprecedented business hacking and ransomware wave.
  - yawaworht1978 5y ago
    And for things like paying for ddos attacks and money laundering in general. Ah yes, and the classic all things dark web. There is not one use case except speculation for people who are not amongst the non law abiding elements of society.
    - arcticbull 5y ago
      There's always speculation. But yeah, definitely nothing else.

ethn 5y ago

I think this is illegal. This is effectively a CFD, which are absolutely illegal in the US regulated or not. https://en.m.wikipedia.org/wiki/Contract_for_difference https://en.m.wikipedia.org/wiki/Contract_for_difference

syrrim 5y ago
Your reference says they are illegal only on regulated markets in the US.
- arcticbull 5y ago
  Regulation S requires US persons no matter where they live to only trade at SEC regulated exchanges. [1] So broadly speaking it applies to all US persons - residents and citizens regardless of place of residency. I suspect accredited investors can do as they please though, but that's only a guess. [1] https://www.law.cornell.edu/cfr/text/17/230.903 https://www.law.cornell.edu/cfr/text/17/230.903
- SideburnsOfDoom 5y ago
  > they are illegal only on regulated markets 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.
  - herbst 5y ago
    Because literally the far majority of the world is what you call 'unregulated' just because US people are excluded does not at all make this illegal for anyone else.
anonymoushn 5y ago
Does this mean that Archegos and all its counterparties were not permitted to trade CFDs?
- rawtxapp 5y ago

delusional 5y ago

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.

donmcronald 5y ago
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? I’m only half joking.
- munk-a 5y ago
  Well the goal is never to have more problems. The discussion of the good or evils of regulations in general is a pretty deep debate in America though.
- dehrmann 5y ago
  > counterfeit shorts Do you have a reference for something that's had issues being naked shorted, recently? GME was a short squeeze, but that's different.
tablespoon 5y ago
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.
- MathYouF 5y ago
  You should read up on the last decade in Venezuela, which used to be the richest country in Latin America, and having wealthy professionals see their savings evaporate due to 1,000,000% inflation because of the actions of a government they democratically elected. 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.

elevenoh 5y ago

Benefits: 24/7, lower fees, less financial incumbent insiders front running your trades, less retail traders giving data of their every move to financial incumbent insiders, privacy. 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.

arcticbull 5y ago
Not in America they won't lol, it's illegal. In fact it's illegal for US persons to trade securities out of a non-SEC regulated brokerage account. See Regulation S. 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. [1] https://www.investopedia.com/terms/n/nbbo.asp https://www.investopedia.com/terms/n/nbbo.asp
- elevenoh 5y ago
  >Not in America they won't lol, it's illegal. In fact it's illegal for US persons to trade securities out of a non-SEC regulated brokerage account 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).
  - arcticbull 5y ago
    Why would we voluntarily give up the security afforded by the SEC? 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.

minikites 5y ago

Bitcoin enthusiasts are learning first hand why financial regulations exist. It's a shame we can't seem to learn from history.

nielsbot 5y ago

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 https://www.hsx.com

kgraves 5y ago

Why are we allowing this to happen? This blockchain madness needs to stop.

andrewroff 5y ago
Cryptocurrencies are a decentralised ecosystem, as such anybody can create a token. "Why" people are allowing this to happen, is that crypto enthusiasts build said decentralised ecosystem. Trust layers need to be built on top for it to become more useful, for instance, a trusted and auditable institution issuing tokens.

bdcravens 5y ago

Robinhood does the same for Bitcoin

dasudasu 5y ago

Matt Levine has a good write-up on the situation as usual: https://www.bloomberg.com/opinion/articles/2021-07-06/blockchain-lets-you-bet-on-stocks https://www.bloomberg.com/opinion/articles/2021-07-06/blockc...

elliekelly 5y ago
> Much of DeFi — crypto decentralized finance — begins with a sort of willing suspension of disbelief about securities regulation. Indeed.

anm89 5y ago

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.

quickthrowman 5y ago
> We don't call corn futures fake corn /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.contractSpecs.html https://www.cmegroup.com/markets/agriculture/oilseeds/corn.c... [1] https://www.cftc.gov/ https://www.cftc.gov/
- H8crilA 5y ago
  Yeah, I would like to emphasize the fact that they're settled once individual contracts expire, be it cash or delivery. 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?
  - minitoar 5y ago
    Because there's some mechanism for arbitrage that allows you to effectively settle it. If the spot price is too low you can make a profit.
    - smabie 5y ago
      Well that mechanism for arbtrage usually occurs through settlement. ie at contract settlement, you trade one for the other.

Milkman128 5y ago

crypto seems to be mostly gambling. so this fits

cs702 5y ago

So we now have synthetic stocks on blockchains. 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?

lmkg 5y ago
If I understand Godel's theorem (which only 6 people do), the natural conclusion of this is an asset which is a derivative security of itself. Which could be the ultimate stablecoin, or equally a disproof of the self-consistency of the blockchain itself. Maybe both at the same time.
- dboreham 5y ago
  Or tear a hole in the fabric of spacetime.

metalex 5y ago

I'm an investor in one of these (as a disclaimer and because I'm excited about the tech) -- https://structure.fi/ https://structure.fi/. 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.

ZephyrBlu 5y ago
Are you not concerned about this turning into a similar situation as Tether? I.e. the assets end up not being backed by money.
- gomox 5y ago
  The way these work is totally transparent (open source smart contracts govern the issued tokens). There's no risk of hidden insolvency (there are significant technical risks, though).
  - metalex 5y ago
    Spot on. The risk here is all technical given the mechanics are public — no potential for a tether situation here.
zeusk 5y ago
While I agree democratized 24/7 stock settlement would be cool; It's hard to believe an investment seeking startup would want what's best for the common man - hopefully at least better than wall street does.
antihero 5y ago
Isn't this just trading internet magic beans? 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.
- metalex 5y ago

poorjohnmacafee 5y ago

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.

H8crilA 5y ago
You can't. 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.
logicchains 5y ago
The world exists outside of the US. There isn't one set of global "regulators". Lots of smaller countries want to grow their own financial markets and take a share of the US's pie, and being friendly to crypto is one way to achieve that.
- poorjohnmacafee 5y ago
  I can't think of very many countries that don't have regulatory channels for selling stocks to their citizens. Generally wouldn't want to launch something that breaks local regulations if you serve nationals of those countries. Puts directors at risk if they visit those countries.

cratermoon 5y ago

I spy, with my little eye, something that starts with P

nightski 5y ago

This isn't the same thing but I do think companies issuing stock for crypto is the next logical step and it will happen at some point. Not derivatives or any sort, just company stock directly listed on a crypto stock exchange. I imagine it's a long road to that point, but certain companies like Tesla just might be willing to do such a thing since they own a decent portion of crypto as is.

gpt5 5y ago

> 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?

dkshdkjshdk 5y ago
> “mint,” new tokens when prices are too high by posting collateral You can "run away", but the collateral stays.

cesarb 5y ago

> 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?

abrookewood 5y ago
Pretty sure you are correct. It's something of an Achilles heel for any smart contract trying to interact with information that is off-chain.
3np 5y ago
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. 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 https://data.chain.link/ethereum/mainnet/commodities/xag-usd
- 3np 5y ago
  I forgot to add, re Chainlink: Chainlink can, as a single party, remove and add providers to the oracle feeds. So in this case, they are the one SPoF here. Maybe that will change with the introduction of some governance system at some point as things mature and stabilize, but presently despite the smoke and mirrors they can be coerced or compelled to shut down individual price-feeds. In principle this could be "unstoppable", but as of right now it is not.
woah 5y ago
Hard to keep the price of Apple stock a secret

lilyball 5y ago

> 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

armada651 5y ago
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
mmiliauskas 5y ago
Not that it is bad, just useless, money always find the way around them.
- root_axis 5y ago
  The same thing could be said about laws prohibiting theft and murder.
- lottin 5y ago
  No, it doesn't. Obviously you don't have a clue about financial regulation.
danielmarkbruce 5y ago
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?
- 5y ago

Animats 5y ago

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.

ButtSpark69 5y ago
This is...literally mostly false.
runeks 5y ago
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.
- hef19898 5y ago
  This is causing flashbacks to CDOs from back in 2005-8.
- ajkdhcb2 5y ago
  Seems ok for the 'existing financial system' to do it. Governments can just do a bailout when it collapses. 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.

jayd16 5y ago

So what generates these "synthetic" stocks? 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?

gentleman11 5y ago
Like the rest of the blockchain?
- jayd16 5y ago
  So stocks are randomly awarded to miners? Like any stock or each stock is its own chain? The stocks are not backed in any other way?
  - mannerheim 5y ago
    My understanding is that they're smart contracts that are collateralised by cryptocurrency.
    - usrusr 5y ago
      Sounds like "stock collapses: I win, stock rises: you get the collateral or the gains, whatever is lower"
- deleted 5y ago
  [deleted]
ruuda 5y ago
It's described here: https://docs.synthetix.io/litepaper https://docs.synthetix.io/litepaper 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.

yborg 5y ago

>"...Waiting for fragmented regulatory frameworks to crystallize before innovating is counterintuitive.” Scoring before the cops figure out a crime is being committed IS intuitive, in other words.

alfabetagamma 5y ago

All this is, like 95% of all blockchain „innovations“, is to confuse/inspire people long enough to make a fortune from investors/gamblers. Theres just AAA gigs like this and less sophisticated ones. I have yet to be proven wrong. Even Mark Cuban fell for something similar with great production value.

shkkmo 5y ago

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.

_Nat_ 5y ago

Sounds like an online [bucket shop](https://en.wikipedia.org/wiki/Bucket_shop_(stock_market) https://en.wikipedia.org/wiki/Bucket_shop_(stock_market) ). And seems like it's a much worse proposition than the actual stock-market. 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?

delaaxe 5y ago
Oh and how about contracts for difference, equity swaps, futures on stocks, etc? 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.
- _Nat_ 5y ago
  This has nothing to do with what I was saying about negative cashflows leading to a negative-sum game. 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?

varjag 5y ago

A Tether but for TSLA?

m00dy 5y ago

Another negative news about blockchain and hacker news. It doesn't surprise me anymore.

davecheney 5y ago

It's like fantasy football, but for securities trading.