Fake Apple, Tesla and Amazon stocks are the newest blockchain fad after NFTs and cryptocurrencies
- A new crypto fad lets investors trade in
fake Apple, Tesla and Amazon stocks called ‘ synthetic shares’.
- These financial assets only track the price of stocks. There are no actual shares to support their digital value.
- Makers of fake Apple, Tesla, and Amazon crypto stocks say avoiding financial regulations is a feature — not a bug.
Fake Tesla, Amazon and Apple shares are seeping into the decentralised finance (DeFi) world of crypto. After non-fungible tokens (NFTs) and cryptocurrencies, these synthetic stocks are the newest blockchain fad trying to establish themselves as a financial asset.
They may not have any real value backing them up, but those in support of the new synthetic assets believe that avoiding regulations to make the stock market more accessible is a feature — not a bug, according to a report by Bloomberg.
Fake tokenised stocks — or ‘synthetic shares’ — only track the price of stocks. There are no actual shares to support their digital value. Two of the biggest companies operating in this space are Synthetix and Mirror Protocol, and they don’t want to risk missing the bus as regulators figure out where they stand.
“Waiting for fragmented regulatory frameworks to crystallize before innovating is counterintuitive,” Do Kwon, the co-founder and CEO of Terraform Labs — the South Korean company that created Mirror Protocol — told Bloomberg.
Being able to trade the shares of giant companies like Tesla, Amazon and Apple around the clock is a dream come true for many investors — especially those living on the other side of the world from the US.
However, it also means that if something goes wrong tomorrow, the local securities watchdog won’t be able to step in and help just because you’re holding crypto tokens for Google or Microsoft.
The asset is indexed on the blockchain through a process called tokenisation. It involves a token or digital certificate representing the real-world asset issued to the investor to signify ownership.
How does a synthetic stock work?
In the case of synthetic stocks, Synthetix and Mirror are Ethereum compatible protocols for the issuance of synthetic assets. Each smart contract is called a 'synth' or ‘mAsset’, and they're easily tradeable.
Because they’re issued on Ethereum, one can deposit them on other DeFi platforms such as Curve and Uniswap and use them to provide liquidity and earn interest.
So far, the trading volume has been extremely low, with Coinmarketcap showing Apple stock's market capitalisation of less than $35 million on Mirror.
The assets maintain their pegs using price data feeds generated by Chainlink oracles. At the same time, synths have an automated mechanism to stop trading when the stock market is closed.
Users can form or create new tokens when prices are too high by posting collateral and burning them when prices are too low, driving the price up or down.
Minters retain a reward for minting and creating liquidity for exchange-traded assets paid in the protocol's native asset ($SNX). Similarly, Mirror runs on Terra's blockchain, and holders are rewarded via ($MIR).
Since a centralised authority does not exist, investors are empowered with the autonomy to instantly access, trade, and transfer assets with ease. Currently, it's a complicated process for a non-US citizen to buy stocks listed in the US, which can be seamlessly done if it's floated on a blockchain and the access to it is universal. Unlike derivatives, they have the potential to earn rewards or yield by staking or holding on to an asset for an extended period.
Why are synthetic stocks touted to be gamechanger?
Crypto exchanges also offer real tokenised stocks, but they're fundamentally different. Instead of mirroring the price of stock directly from the conventional exchange, the issuing company has actual underlying collateral and approval from regulatory authorities. They kind of work like stablecoins, where the value of the digital asset is pegged to an external reference that is kept in reserve.
AdvertisementApart from simple market buying/selling and derivatives trading, synthetic assets create possibilities for seemingly infinite markets and combinations for new sources of value.
While the crypto community is actively trying to incorporate traditional financial instruments within a blockchain, governments and regulators are also scrambling to find a middle ground.
The two worlds are constantly clashing, but a few companies believe there could be a middle way.
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