Trading "paper US stocks" on the blockchain is unreliable

FTX launched Tesla, Apple and other equity certificates;

Uniswap launched the foreign exchange trading pair XSGD/USDC;

The asset management platform launched the DeFi Pulse Index (DFI);

MakerDAO is trying to introduce more physical assets as collateral for DAI;

......

secondary title

US stock tokens have little to do with US stocks

On Dec. 4, Terraform Labs, the team behind South Korean stablecoin project Terra, launched the Mirror Protocol project. This is a synthetic asset protocol similar to Synthetix. By tracking the price of the underlying asset, users can gain benefits from price fluctuations or suffer losses.

The emergence of Mirror has excited the industry, "US stocks can be traded on Uniswap!", but in fact the "US stock tokens" on Mirror have little to do with US stocks.

The "US stock token" on Mirror is a synthetic asset in the form of mAssets. For example, mAAPL is a synthetic asset based on Apple's stock price.

The generation of mAssets is based on the overcollateralization of stablecoins. Users need to purchase the stablecoin UST on Mirror first, and then generate the required mAssets by over-mortgaging UST or other mAssets assets. This process is the same as mortgaging assets to generate DAI on MakerDAO, and there is a risk of liquidation.

The intersection between mAssets and U.S. stocks is only at the price level, that is, to track U.S. stock prices, but as far as I know, Mirror has no mechanism to ensure that mAssets must be anchored or return to U.S. stock prices;

Holding mAssets does not mean owning the ownership of the corresponding stock, and cannot receive dividends;

In addition, as mentioned above, the value support of mAssets does not depend on physical U.S. stocks, so mAssets is a type of asset derived based on "U.S. stock prices" rather than "U.S. stocks".

Compared with US stock trading, mAssets allows users to speculate on "US stock prices" 7*24 hours without doing KYC and AML, and the trading volume does not need to be a whole stock, but can be split into small amounts for trading.

"Tokenization" seems to lower the compliance and transaction threshold for users. But in fact, the compliance channel between the traditional financial market and the blockchain world is not so easy to open.

- Before FTX supports equity token transactions, it must reach a cooperation with Digital Assets AG, a compliance investment company;

- Grayscale’s trust products such as Bitcoin and Ethereum need to be custodiand by Coinbase Custody, which has obtained regulatory approval;

-Paypal must first obtain a "conditional" BitLicense license before providing buying, selling, and payment services for 4 cryptocurrencies;

......

These facts show that the compliance requirements of the blockchain world are not lower than those of the traditional financial world, and even because of the risks involved in money laundering and terrorist financing, the flow of assets between the two worlds requires additional supervision.

secondary title

Add leverage to the underlying asset, and use one as multiple

Another feature of the evolution of the blockchain world is the addition of leverage.

After Ethereum 2.0 opened the pledge, many node service providers emerged in the market. Users will get pledge tokens after pledging ETH on some node service providers. Pledge tokens represent: first, the ownership of the pledged ETH; The right to handle ETH, such as allowing ETH to flow and selling ETH.

In this kind of pledge scenario, one share of the underlying asset is pledged, and at the same time, part of the equity of the underlying asset is minted in the form of Token. In addition, some third-party platforms may promise users a higher rate of return than depositing coins. These phenomena are all additional issuances of the underlying assets.

Incentivizing user behavior is a relatively common practice in the blockchain industry. For example, use the "secondary assets" mentioned above to motivate users to pledge, borrow, trade tokens, or provide liquidity for trading pairs.

At the end of May this year, Compound launched liquidity mining, and users can obtain the governance token COMP by borrowing assets on the platform. As a result, a large number of users began to self-loan and borrow on Compound, or lend tokens from Compound, and go to other platforms for liquidity mining to utilize assets n times.

During this process, pledged equity tokens may also participate in multi-level pledges or loans. For example, pledge USDC on platform A to obtain equity token aUSDC, and aUSDC can be used for liquidity mining on platform B to obtain equity token baUSDC, and baUSDC can participate in liquidity mining or lending on other platforms.. .....

Therefore, during the period when DeFi liquidity mining is popular, we can often see synthetic assets like yyDAI+yUSDC+yUSDT+yTUSD.

Whether it is "additional issuance" of the underlying assets, or repeated use of assets to generate multi-level "matryoshka assets", they are constantly increasing leverage on the underlying assets.

The more assets are derived, the more scarce the underlying asset becomes.

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