Stock token trading launches today on DeFiChain. We spoke with founder Julian Hosp about the decentralization of stock trading and the benefits of synthetic assets for retail investors.
The stock market is booming. Through online brokers and trading platforms, more and more retail investors are discovering securities trading for themselves. Pandemic inflation fears have further accelerated this trend. However, investors had to painfully realize in the course of the Gamestop affair that the gates to stock trading can also close quickly. As the Wallstreetbets movement mobilized on Reddit forums, the trading app Robinhood unceremoniously stopped trading shares of the troubled video game retailer – and has since faced accusations of being a stool-pigeon for hedge funds. The DeFiChain protocol aims to prove what a decentralized crypto-style solution can look like while not cutting off investors’ juice like centralized providers.
What are stock tokens?
It was only a matter of time that the crypto economy would embrace securities trading. The buzzword here is stock tokens, also called synthetic assets. These are tokens that replicate the real-time prices of stocks 1:1 and, like crypto assets, can also be traded on secondary markets. Investors can thus invest in tokenized stocks that match the underlying price of publicly traded companies like Apple, Tesla, Amazon or Google without having to own the stocks themselves.
The advantage is obvious. Stock tokens allow even investors with limited financial means to enter and access the lucrative stock market. Thus, the full price no longer has to be raised for a Tesla share. With the tokens, a share can be divided into as many parts as desired. In this way, investors who cannot afford a “full-fledged” share can also participate in securities trading on a small scale. Efficiency benefits are thus not the only ones on the side of tokens. Tokens are also a catalyst for financial inclusion.
DeFiChain: decentralization of stock trading
Unlike providers like Binance, where stock token trading has been shut down again due to pressure from regulators, DeFiChain is a fully decentralized infrastructure. This solves an existing trust problem, as Dr. Julian Hosp, CEO and co-founder of Cake DeFi, tells us.
Decentralized means it doesn’t deposit the stock, the ounce of gold, or the dollar bill, but it deposits a cryptocurrency represented by a price feed on the blockchain. Thus, the person is not entitled to a stock, but to cryptocurrencies equivalent to what that price ticker represents.
In this way, DeFiChain avoids the “custody and regulation” issue. Because unlike Binance or stablecoin issuers wtether, where the question of whether the USDT are actually backed 1:1 by US dollars is still a topic of discussion today, no “physical” assets are deposited. Moreover, unlike centralized providers – think Robinhood – users do not run the risk of their trades not being executed. Investors retain full control over their financial transactions. Or in the words of Julian Hosp, “decentralized tokens bring the power to the people, to the investors.”
For the excluded and frustrated
There are “two main groups that will be interested in these decentralized tokens,” Hosp says. The first group is the “excluded” who have no access to the financial market. For them, stock token trading should act as a door opener:
It is usually the case that you have to buy a bunch of shares. Most people can’t afford that at all. But now you can buy fractions, theoretically even broken down to Satoshi, right away.
The second group includes those who are “frustrated with certain centralized providers and just don’t feel like it anymore.” Since transactions are not handled by a provider and, moreover, no middlemen are needed for custody, decentralized offerings like DeFiChain are not only meant to build trust, but also want to avoid unnecessary costs. For die-hard decentralization advocates, this should be a deciding factor: “Suddenly you have an inclusive, an open system that is open source and natively based on the blockchain,” Hosp explains.
Stock token trading is about to start. Price feeds provided by several partners, including the world’s largest electronic exchange, can be viewed at defiscan.live.