this won't really matter much because even if tokenization of stocks is banned you can just create perpetual futures that settle on the price of the real stock. so if you are a crypto only investor (due to your country preventing open capital markets or other restrictions) you will put your money there and then some intermediaries with access to both tradfi markets with actual stock and access to the crypto perpetual futures markets will provide the liquidity and keep prices in sync.
Perpetuals are OK for trading, but not good for holding as a long-term investments - usually you need to pay interest on any open position.
I guess the appeal of tokenized stock is to do things regulators don't want you to do (e.g. evade capital controls). Otherwise one can just access market directly through a broker.
I'd expect given all the counter party risk you are taking on that you should be paid a small rate to take on a perpetual future or tokenized stock.
Otherwise when the market goes bankrupt you'll be left with nothing and you won't have gotten compensated for the risk of holding the perpetual future or tokenized share.
I've looked at the xyz:SP500 contract on hyperliquid and it's funding rate seems to be negative most of the time. Currently the annualized rate is around -0 to -2%, so if you hold a long position over a year you will roughly earn 1% on top (negative funding rate means short positions pay funding to long positions). This makes sense because the no-arbitrage principle requires this to be roughly in line with holding an actual SP500 basket and receiving dividends. And you don't pay interest on open positions, you are just holding a derivative and need to meet margin obligations - but you can leverage as much as you are comfortable with.
Is there really some pricing going on with infinite dividend and funding legs and/or is there sort of supply and demand "cost of carry" thing in the perpetual world?
I don't think US investors are the target here. They can already make bets on the SP500 in a number of ways: ETFs, futures, options etc. - unless you wanna make a highly leveraged bet which traditional broker margin requirements will prevent. The tradfi venues are probably even a bit cheaper (though we are talking about a few bps difference).
I’m trying to understand what tokenized stocks actually mean. Where does the value come from? A stock is an actual percentage of a company’s ownership. A token of a stock is basically an NFT of a stock? The value is only from what other people are willing to pay for it?
Company A will accept funds to buy some stock like MSFT, then they will mint a token i.e. xMSFT that you'll own in a blockchain ledger. You can trade this for whatever you want but the company promises to buy any token xMSFT at MSFT price whenever you want[1]. So the tokenized asset remains pegged as long as there's trust in the institution.
Also, the company will grow a balance sheet out of the funds created by the owners of the tokens and they frequently will give you some sort of yield on your position.
[1] Open Market hours and usually accompanied by a fee.
So that people with off the books defi assets can diversify their holdings as if they bought into the non-defi world, without any of those pesky taxes or KYC requirements.
Which most governments will be strongly incentivised to prevent.
The ones that aren’t (basically rogue states under sanctions like Russia or DPRK) will have the rest of the governments very interested in preventing them from owning these securities.
My understanding is that it's possible there will be / is a country that you don't have low cost or easy access to US stocks, but can have access to tokenized stocks. If Coinbase and others are smart, they'll collect the KYC info the US requires, regardless of where the person is in the world. In fact, that seems like the other part of this line in the article: "provided the tokens carry the same rights and privileges as the underlying shares, including dividends and voting rights."
Like all cryptocurrency, it's optimised for evading laws and law enforcement. Fraud, evading sanctions, doing things with fake stock that would be prosecuted by financial watchdogs if it were real stock, grifting people into thinking they're buying real stocks, the list goes on.
I suppose it also allows for trading stock without paying brokerage fees (though you need to pay the network in other ways) and it permits trading for people who cannot get access to dollars or the market of origin because of local laws and/or corruption.
Honestly, it's kind of genius. All of the tools that caused the Great Depression combined with cryptocurrency grifting. Someone will make a lot of money off this.
- 24 x 7 trading is open to retail (no more waking up finding out the market moved out of hours and your stop loss didn't execute because the price moved 'though' it)
- Fractionalization (you can buy $12 worth of NVDA easily)
- Fundraising (you can raise public money without needing the large caps of traditional public markets)
- Distribution - smart people that know math publish a whitepaper and get investors into their strategy immediately rather than waiting for a hedge fund or bank to get them to market.
- Composability - eg, I invested in an app that let's people use the HNWI
'buy/borrow/die' technique as a wealth building strategy - talk into any shop, buy somethng, pay using as small loan taken out of your share holdings.
It's a growth play for financial services to find trading volume they otherwise cannot create. Young retail has no cashflow to speak of, so Coinbase and Robinhood target them for the house rake of trading meme stocks and crypto. The rest is institutional, broker dealer, traditional retail brokerages, etc but there's only so much revenue to be had moving existing securities around amongst those who can obtain exposure to them, managing pensions and 401ks, etc. ~93% of equities are held by the top ~10% of US households, for example.
Lots of cost inefficiency to squeeze out, but everyone is incentivized to not cannibalize other participants or their own business. "Its a big club and you're not in it" and "If you're playing a poker game and you look around the table and and can't tell who the sucker is, it's you."
If I recall, the most optimal equities market operating model is a short auction window at the open and the close to process order books, but again, no appetite for efficiency over revenue, I'll have to find the paper.
Most ideal equities markets operating model would be a short auction period at the open and the close
This is almost exactly aligned with real life trading experience with retail traders. Retail trader P&L map by weekday and time of day shows that the overwhelming majority of retail losses fall into one of two categories - either choppy hours during the day where liquidity is low (noise from overtrading) or 15 minutes after the NY open where the volatility spike happens and stop hunts take place.
Extending equities to 24/7 with tokenization only increases the amount of low liquidity chop, which is good for exchange fees, but not for retail expectancy.
Blockchain makes a ton of sense as a replacement for the NSCC which is the entity that actually keeps track of the ledger for ownership. But again whenever I say things like that the people that come out of the woodwork are crypto bros vs skeptics which this isn't about the cyberpunk antigovernment anonymous future but just a better cryptographically proven multiparty database.
I would probably make trade settlement faster and lower overhead costs.
Clearing equities trades with a blockchain between brokers would be beneficial in plenty of ways that are really only all that interesting to very large banks and broker services companies. (like Citadel for example)
Stocks are already tokens. "Tokenizing" stocks makes no sense, if one assumes quite reasonably that "tokenization" involves giving token-ness to something that was not already a token. What it is is wrapping what is already a token in another token, mostly so the second token can get around the limitations of the first. But some of those limitations are incidental and can be eliminated at any time by the underlying token provider, mostly because nothing stops a conventional stock market from being tradeable 24/7. They already are if you're in the club anyhow, per all the "aftermarket" and "pre-market" trading you hear about around quarterly release times.
The rest of the limitations are regulatory, and if the wrapping token can get access to regulatory approval to do their thing, so can the stocks.
The whole thing feels skeevy as all get out to me. It feels like someone telling me that they'll be happy to hold my mortgage between me and the current holder. There is no good reason for that. Frankly there is already a disturbing amount of indirection in the way you don't actually own the stocks you think you do, but they're held on behalf of you on behalf of your broker at the Depository Trust & Clearing Corporation. Adding another layer of indirection makes me worry about the motives of the people who are very excited about being that layer.
The whole raison d'etre of hyperliquid and defi in general is getting around "kyc or something". More realistic risk is poor opsec allowing govs to persecute people who use/host the service.
KYC definitely won't happen. But that aside the funny thing is, HyperLiquid isn't actually decentralized in a traditional sense. They have like 5 validating nodes and all operated by HyperLiquid affiliates.
Also the XYZ markets that the stock tokens "live on" is not managed by HyperLiquid as far as I know.
As much teeth as they want to have. If you're having to center your business model around using a VPN to avoid regulation, you're opening the door to a great white shark.
Stock is owned by Cede & Co anyway. So everything downstream is just ledgers. What differs is how much you trust the record-keeper, and what legal rights the entry gives you.
This is ridiculous. Every investment bank have been issuing wrapper instruments like 144a/regS notes/0 strike calls & warrants/swaps/fully collateralised performance notes etc etc against public equity since forever. This is not new and displays a large degree of illiteracy by large corporates and the public in general.
"Goldman Sachs doesn't know what they are talking about" in reference to a stock maneuver is pretty unlikely to be true.
Even beyond GS, some of these companies are among the most sophisticated financial institutions on the planet.
The article says 22 companies have commented, but more have commented since it was written, or maybe the original article missed a few. Those companies include the list below.
I guess the appeal of tokenized stock is to do things regulators don't want you to do (e.g. evade capital controls). Otherwise one can just access market directly through a broker.
Otherwise when the market goes bankrupt you'll be left with nothing and you won't have gotten compensated for the risk of holding the perpetual future or tokenized share.
Also, the company will grow a balance sheet out of the funds created by the owners of the tokens and they frequently will give you some sort of yield on your position.
[1] Open Market hours and usually accompanied by a fee.
I see he still has trouble with the concept of "consent".
The ones that aren’t (basically rogue states under sanctions like Russia or DPRK) will have the rest of the governments very interested in preventing them from owning these securities.
I suppose it also allows for trading stock without paying brokerage fees (though you need to pay the network in other ways) and it permits trading for people who cannot get access to dollars or the market of origin because of local laws and/or corruption.
Honestly, it's kind of genius. All of the tools that caused the Great Depression combined with cryptocurrency grifting. Someone will make a lot of money off this.
- Fractionalization (you can buy $12 worth of NVDA easily)
- Fundraising (you can raise public money without needing the large caps of traditional public markets)
- Distribution - smart people that know math publish a whitepaper and get investors into their strategy immediately rather than waiting for a hedge fund or bank to get them to market.
- Composability - eg, I invested in an app that let's people use the HNWI 'buy/borrow/die' technique as a wealth building strategy - talk into any shop, buy somethng, pay using as small loan taken out of your share holdings.
Lots of cost inefficiency to squeeze out, but everyone is incentivized to not cannibalize other participants or their own business. "Its a big club and you're not in it" and "If you're playing a poker game and you look around the table and and can't tell who the sucker is, it's you."
If I recall, the most optimal equities market operating model is a short auction window at the open and the close to process order books, but again, no appetite for efficiency over revenue, I'll have to find the paper.
(thoughts and opinions always my own)
This is almost exactly aligned with real life trading experience with retail traders. Retail trader P&L map by weekday and time of day shows that the overwhelming majority of retail losses fall into one of two categories - either choppy hours during the day where liquidity is low (noise from overtrading) or 15 minutes after the NY open where the volatility spike happens and stop hunts take place.
Extending equities to 24/7 with tokenization only increases the amount of low liquidity chop, which is good for exchange fees, but not for retail expectancy.
I would probably make trade settlement faster and lower overhead costs.
Clearing equities trades with a blockchain between brokers would be beneficial in plenty of ways that are really only all that interesting to very large banks and broker services companies. (like Citadel for example)
https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_...
The rest of the limitations are regulatory, and if the wrapping token can get access to regulatory approval to do their thing, so can the stocks.
The whole thing feels skeevy as all get out to me. It feels like someone telling me that they'll be happy to hold my mortgage between me and the current holder. There is no good reason for that. Frankly there is already a disturbing amount of indirection in the way you don't actually own the stocks you think you do, but they're held on behalf of you on behalf of your broker at the Depository Trust & Clearing Corporation. Adding another layer of indirection makes me worry about the motives of the people who are very excited about being that layer.
If it's not happening on a GPU, is it really a "token"? ;-)
Crypto tokens are just some meaningless entries on a blockchain.
Also the XYZ markets that the stock tokens "live on" is not managed by HyperLiquid as far as I know.
Do they actually have a legal say in the matter?
Even beyond GS, some of these companies are among the most sophisticated financial institutions on the planet.
The article says 22 companies have commented, but more have commented since it was written, or maybe the original article missed a few. Those companies include the list below.
Alphabet
AppLovin
Applied Digital
Applied Optoelectronics
Arm Holdings
Caterpillar
Cerebras
Cisco Systems
CoreWeave
Goldman Sachs
Intuit
Marvell Technology
McDonald's
Microsoft
Moderna
Qualcomm
Rocket Lab
UnitedHealth Group
Verizon
Wells Fargo