coming soon: synthetic stocks?
decentralised finance aka DeFi has changed the game. it has become a tool through which people can earn interest on their crypto deposits, create fixed-term deposits using crypto, and do pretty much most other things they could at a bank. all without a bank involved. the question here is, why stop at banks? why not change the nature of all finances? and one early trend that has started to emerge is synthetic stocks.
some blockchain innovators are offering an alternative way to trade in stocks. over the past year, projects like Mirror Protocol and Synthetix have created fake versions of popular stocks such as Tesla, Apple, Amazon and even some exchange traded funds (ETFs). these are designed to reflect the prices of the corresponding assets and allow investors to trade them without actually buying or selling the real stocks or ETFs. that’s why they are fast gaining popularity as “synthetic” assets.
just like with many other projects in the crypto sphere, there’s close to no regulation currently in place over such trading. users can trade tokens anonymously 24 hours a day, without checks and balances of the traditional financial system. also, they function differently to typical stock exchanges and even centralised crypto exchanges such as Coinbase and Binance. these tokens trade on decentralised, automated markets like Uniswap and Terraswap, which allow users to buy and sell the assets directly on the blockchain using smart contracts.
synthetic tokens are very slowly becoming popular. The synthetic Apple tokens, for example, have a market cap of around $34 million compared to $2.3 trillion for the real stock. it will be interesting to see how this innovation evolves. if regulators and the blockchain community can get on the same page, synthetic stocks can open up access to assets across geographic borders and many other limitations. this is possibly the decentralised world of finance coming at us in a few years.