The fast-moving world of decentralized finance — or DeFi — isn’t waiting around to see how discussions over trading stocks on blockchain unfold. Instead, the decentralized financiers have built synthetic versions of equities that track some of the world’s biggest companies, including the world’s most valuable company. Yes, fake Apple stock (mAAPL) is here.
Fake versions of Tesla Inc., Apple Inc., Amazon.com Inc. and other big stocks, as well as a few popular exchange-traded funds, have been created by the projects Mirror Protocol and Synthetix over the past year. The tokens, and the programming that allows them to trade, are engineered to reflect the prices of the securities they track without any actual purchases or sales of the real stocks and ETFs involved. So far, volumes are just a tiny fraction of those on regulated exchanges. But for crypto enthusiasts, the potential upside is huge.
The synthetic shares join a strange new world of assets such as digital artwork and highlights of NBA games now trading on blockchains. Yet, unlike the modern art and dunks of the non-fungible token universe, these instruments raise questions about how they fit into a global stock market and brokerage industry governed by thousands of pages of rules from dozens of countries.
At the moment, it’s a case of innovation that’s way ahead of regulation… 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…
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.
MacDailyNews Take: Currently, mirrored Apple tokens have a market cap or around $32 million, according to Coinmarketcap.com, versus a $2.39 trillion market cap for the real thing. So, the SEC should take a look at this while it’s nascent, if they ever happen to wake up.