For many years, those in power on Wall Street have been thinking about whether it is feasible to transfer the stock market to the blockchain (the basic technology behind cryptocurrency). They do not wait to see how these discussions unfold. Instead, they created a synthetic version that tracks the stocks of some of the largest companies in the world.
In essence, the anti-establishment spirit of the cryptocurrency world is being applied to a simple copy of the stock market: fake versions of Tesla, Apple, Amazon, and other large stocks, as well as some popular exchange-traded funds, are being used by mirroring agreements and The Synthetix project was created in the past year. The tokens and the procedures that allow them to trade are designed to reflect the price of the securities they track, without actually buying or selling the actual stocks and ETFs involved.
So far, trading volume is only a small part of the volume of regulated exchanges. But for crypto enthusiasts, the upside potential is huge: synthetic stocks are joining a strange world of new assets, such as digital art now traded on the blockchain and highlights of NBA games. However, unlike modern art and irreplaceable token universe mathematics, these tools raise questions about how they fit into the global stock market and brokerage industry governed by thousands of pages of rules from dozens of countries.
An innovative case far ahead of regulation, which is exactly what Do Kwon likes. As the co-founder and CEO of Terraform Labs, a Korean company that created a mirroring agreement on its Terra blockchain, Quan imagined himself as a Robin Hood of modern finance, with the style of Vlad Tenev or Chamath Palihapitiya. He said in an email that Defi is “very powerful in providing financial services to underserved people around the world, and it’s best to act quickly and break the norm. It’s counterintuitive to wait for the decentralized regulatory framework to be concretized before innovation.”
For Kwon and other proponents of these new synthetic assets, avoiding the various rules and obstacles of the financial world is a feature, not a mistake. He said that it provides a chance for only a few lucky people to create wealth. Users can exchange tokens anonymously 24 hours a day, 7 days a week, free from capital controls, “know your customer” rules, and other frictions imposed on brokers in the traditional financial system.
It will not generate any revenue from the fees charged in the mirroring agreement. These are designed to incentivize users to provide liquidity. Instead, the company makes a profit from the cryptocurrency it creates, and as projects such as Mirror become more popular, the value of the cryptocurrency tends to increase. So how do these synthetic actions work? Well, it’s complicated, but in simple terms, according to the mirroring agreement, the idea is to keep the price of synthetic or “reflecting” stocks at the real stock stage, providing traders with incentives to arbitrage price differences.
The actual supply of tokens. Users can create or “mint” new tokens when the price is too high by issuing collateral and destroy or “destroy” the tokens when the price is too low, causing the price to rise or fall. Track the prices of assets in the real world,” Quan said. “But they are still just tokens on the blockchain, providing clear price exposure. “
tokens are traded on decentralized and automated exchanges such as Uniswap and Terraswap, allowing users to buy and sell assets directly on the blockchain, which is a different model from the centralized crypto exchanges managed by Coinbase Global and Binance. So far, the trading volume may not be enough to make Nasdaq or New York Stock Exchange executives sleepless. For example, according to data from Coinmarketcap.com, the reflected Apple token has a market value of approximately US$34 million (approximately 250 million rupees).
In comparison, the actual stock value is approximately US$2.3 trillion (approximately Rs 1,717,134 crore), which is approximately one thousandth of the fledgling Dogecoin cryptocurrency. The price of Dogecoin in India is Rs. July 7th from 5:52 pm to 3 pm Eastern Time. Comparing the prices of various reflected stocks with the actual values at different times in the past week, it can be seen that the difference between the two can range from a penny to a few dollars.
For example, in the transaction on the afternoon of June 30th, the price of Mirrored Tesla on CoinMarketCap.com was nearly $6 (approximately Rs 450) higher than the actual stock transaction of US$684 (approximately Rs 51,050). However, given some ambitions in the Defi field, these projects deserve the vigilance of traditional financial institutions. As the digital asset management company, Arrington XRP Capital said in a report analyzing and describing its support for Mirror, Defi’s goal is not only to improve the user experience of the banking system but to completely dismantle it.
The company wrote that these new synthetic stocks “are one of Defi’s most obvious Trojan horses in the traditional market.” A spokesperson for the US Securities and Exchange Commission and a representative of Nasdaq, the stock exchange with the largest volume of synthetic materials, declined. Comment. Joseph Saluzzi, the co-head of stock trading at Themis Trading, testified before Congress on market themes. He said: “Since these synthetic products are not regulated and are not traded on national stock exchanges, I think the SEC will oppose Them.”
According to the US Securities and Exchange Commission, its mission is to protect investors, maintain fair, orderly, and efficient markets, and promote capital formation. In my opinion, this is like an investor protection issue. “Binance, the world’s largest cryptocurrency exchange, has attracted the attention of German financial regulators by offering tokens linked to the performance of popular US stocks but backed by real stocks. BaFin stated in April that Binance The issuance of tokenized shares of Tesla, MicroStrategy, and Coinbase may have violated the securities rules.
After some amazing explosions in stablecoins and designed digital currencies, regulators may also begin to study the field of Defi carefully. Close. The value of the national currency. (And the value that Mirror traders use as collateral to mint new tokens). Mark Cuban, the owner of the Dallas Mavericks, is an enthusiastic and influential investor in Defi. He recently called for regulations to address the issue of cryptocurrency losses when its value plummets to zero.
If participants in the Defi market do not start to comply with the so-called “know your customer” and anti-money laundering rules, they may regret it. He wrote: “Invest in a cape of accomplishment now, or pay for the piper later.” “If we want this ecosystem to grow, we must realize that we must operate within the rules set by society. Kwon said that Terraform Labs has not discussed the actions reflected with regulatory agencies in the United States or elsewhere.
The company also did not communicate with exchanges such as Nasdaq or companies that manage mirrored ETFs. But he added that in order to prevent mirrored stocks and other synthetic assets from being traded, it must shut down the underlying open-source software code is made on the blockchain and used by a global user base including many anonymous players. He said: “As long as there are fanatical believers who have a greater understanding of the possibilities of technology, it is Sisyphus’s job to turn off encryption, Defi or synthesizers.”