Microsoft and others tell crypto platform not to tokenize their stocks
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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.
Microsoft loses because all of that investment activity does nothing to help their valuation, but the middlemen in the crypto market take their share on each transaction.
This is just a different kind of middlemen with different trade-offs.
IE, if you buy and sell stocks on ETrade, most of the time the ownership with the dow doesn't change, instead the ownership within ETrade's database changes.
Because it safeguards against fraud and tax evasion.
> Paying 2-5$ fees on trades seem backwards this day and age.
Many brokerages don’t charge for buying or selling stock. They make their money elsewhere, likely with contracts on calls/puts. But to your point, having to pay a variable rate fee for moving my Ethereum from one wallet I own to another wallet I own also seems silly. I’m certain though that in both cases the charges cover the maintenance costs to keep the platform going. Everything comes at a cost.
The real-time trading independent of brokerages, the free information flow of trading volume/direction etc. all benefits and a true, real free market. Right now we have mountain of unneeded intermediaries, that sit and cash in on the data and access.
But complexities of any new system aside, what is an example of a cashing in of an unneeded example in terms of an activity?
Examples for cashing in: payment for order flow (was recently banned in the EU). They litterally sold their trading data of retail clients for money.
Not sure how you think brokers make money, but they get kickbacks from market makers and fund providers, or simply higher spreads. No one works for free.
Payment for order: what data was sold (or do you mean the orders as data)?
You mean broker as in a pure broker, not broker-dealer?
What about policing algorithms, for example? Who'd do that and how?
Who provides liquidity? Just natural supply and demand?
Sorry, I thought you just had some idea about basic financial services.
There's a lot of technical and other issues with blockchains, but framed as "a single shared database that allows stored procedures and shared data types, with no central owner" I'd hope devs here could see something interesting to mess about with there. If it wasn't for the fact that "a currency" is absurdly easy to make and then there was a lot of quick money to be made or lost, I think it'd be liked more as an odd shared network.
If nothing else, there's some interesting programming challenges involved given the compute limits.
For the issuer, same playbook on how stables issuers print money - you get cash that you can put into treasuries to earn “free” yield on. Works as long as rates aren’t zero.
I say that so definitive because there is no reason at all to do this other than avoiding the existing banking system.
But what is the crypto value here? Why not just a database row?
There are also a lot of examples of contracts with some centralization that would appear to remove the entire point of using a blockchain, but they're simple enough that the blockchain is actually easier than hosting their own API, dealing with auth, keeping ddos and hackers out, etc.
And decentralization here doesn’t mean a lot when you need to trust the broker with real stocks backing.
Blockchain tokenization is only for high risk negative reward people.
Why would you do this? Current stock trading often takes a day or so to actually settle - you execute a buy but it doesn't settle immediately. There is room for leverage and counter-party risk to live in that gap.
Tokenized stocks (or any asset) is building towards atomic on-chain settlement - you have stock in MSFT, I have stablecoins, we perform an atomic transfer where you send me MSF and I send you stablecoins. This speeds up the system and eliminates counterparty risk. We each must have the asset ready to trade at this point in time.
The benefit is faster settlement, not keeping capital locked up because of long settlement times and decreasing the space where leverage and counter-party risk can live.
Longer term - this potentially means it could be easier for non-US parties to buy US stocks. I can put my savings in the stock market, but a farmer in a developing country cannot. But with tokenized shares, they could invest in US equities - or even a fraction of a US equity if they cannot afford a full share. So this longer term vision could democratize global access to capital markets.
Another similar instrument is perpetuals, which are kept close to the price of the underlying by having people who hold long positions pay people who pay short positions, or vice versa, when the price deviates. (This is called funding.)
One of the primary benefits for traders is 24/7 liquidity and the ability to plug the token into other products onchain, like lending markets.
Stock broker customers have SIPC to reduce risk. Is there an equivalent entity for the crypto token space?
Sounds like the “blockchain” part of this is marketing, since it’s on a private blockchain controlled by the exchange. The real selling point is 24/7 trading.
Somehow every time I try to make this argument about stock buybacks, some people vigorously defend them as not just somehow a glorified Ponzi scheme.
The cash for buybacks comes from company operations, which they give to investors in exchange for destroying the outstanding security. The cash for Ponzi schemes comes from other investors, which they receive in exchange for issuing more securities and use to fund investors who want to cash out. They are in many ways opposites.
If the value of something is only "someone else will pay for it, and then later they will sell it", that to me is effectively the same as a Ponzi scheme. There's no inherent value in the actual thing being bought and sold other than the buying and selling of it. Maybe calling them "Pokemon cards for companies" would be a better way of describing why I find it nonsensical to claim there's any real link between the company and the stock unit when buybacks are the only way to make money off them.
Curious if you understand where the cash from a buyback comes from? That it's out of the corporate treasury, where it was previously accounted for as part of the profits of the corporation?
The issue to me is that the division between "money companies get from selling their shares" and "money companies get from selling their products" is artificial; whether it gets taxed differently is a procedural issue, not something that inherently defines what "value" is. When the value of something is only from selling it again in the future, it's inherently only valuable as long as there's someone else to pass it onto to sell it again later. Sticking the company in the middle of passing it along doesn't magically change whether it's sensible or not. That's what I mean by "effectively a Ponzi scheme", even if it's not strictly one in the definitional sense. The same arguments for why a Ponzi scheme is undesirable apply.
> Obviously it comes from the company; otherwise it's just a regular stock sale that doesn't need any additional descriptor.
This is incorrect. A buyback is when a company buys its stock. It is giving cash to shareholders, and taking the shares back. A stock sale is the opposite, when the company sells its stock and receives money from the new shareholders. The direction of cash flow is very important here, because a key difference between a Ponzi scheme and a buyback is that in a buyback, the company is distributing cash to investors, not taking cash in.
> The issue to me is that the division between "money companies get from selling their shares" and "money companies get from selling their products" is artificial
If you're collapsing these two, you're generalizing beyond the point of usefulness, and ignoring all of the reasons why people engage in economic activity in the first place.
There are many, many industries where the consumer does not even get to sell the object again in the future. When you go out to a restaurant, the meal disappears within an hour, leaving you with just memories and indigestion. When you go to an amusement park, you have fun while you're there and leave with nothing. When you pay rent, you have a roof over your head for the month and then nothing afterwards. When you go to a casino, you get your hopes and excitement up while you're there and leave with less than nothing. When you buy alcohol or tobacco, you're spending money on the privilege of poisoning yourself.
Almost everyone would consider these legitimate economic exchanges, though. They may be inadvisable on a time-preference basis because your money disappears and you end up with nothing durable in return, but few people would argue that a large part of our economy is made up of transactions like this.
You're right though that you can take the corporation out of the equation and they still make just as much sense. If you take the corporation, its accounting statements, and the corporate treasury out of the equation, then a buyback is taking money earned from providing goods and services, and distributing it to the shareholders. The difference from a dividend is which shareholders receive the distribution: in a dividend it is distributed equally across all shareholders (who continue to remain shareholders), while in a buyback it distributes the cash to the people who least want to own the business in the future, paying them out entirely and distributing future profits to a smaller set of shareholders.
How do you see that as a Ponzi scheme?
Buybacks raise the EPS/earning-per-share by lowering the denominator (number of outstanding shares).
EDIT:
If P/E stays the same, but the E (earnings) grows, the P (price) has to grow too.
I think it’s quite uncontroversial to equate buybacks with dividends. Personally, I prefer dividends, even if they’re suboptimal tax-wise.
Buying shares means you own some of that; that is the value.
These companies likely pay their employees, and as a shareholder you get to partake and harvest value, without having to work for it.
If the company earns more than last year, the stock should be worth more. But of course, valuation clouds the picture, where dividends are usually simpler to model.
It’s no more “a piece of paper”, than a deed over a piece of land is. Would you also consider that “a collectible”?
You’re entitled to have your opinion, but I disagree with you on this.
A collectible card doesn’t have paying customers; many publicly traded companies do. They are real businesses that make money. When they make more, the price goes up.
You seem to ignore that.
The economy is not based on the stocks, but on the value the underlying companies produce. E.g. Tesla makes cars, Google runs a search engine. Such companies impact the real world - Baseball cards collect dust.
It’s a broken comparison.
I struggle with the same initial impression as you, and have reached an uneasy peace with the status quo by telling myself that the stock price is about the amount of dividends the company could issue in a dividend-friendlier tax environment, once its growth plateaus and it goes into cash-cow mode.
Completely agree about this part. I find it unethical that capital earns more than labor.
I don’t think that will ever change though, as capital also buys political power (in many countries).
That was my initial motivation for getting into dividend investing: If you can’t beat ‘em, join ‘em.
However, if they're at parity then the incentive is to just squeeze your assets for as much income as possible until you run their value into the ground. Which seems like a pressure for business owners / shareholders to be even more short-sighted than they already are.
Which is also my objection to a wealth tax actually (incentive to tank paper value of all holdings).
IDK. Taxation is sort of a blunt instrument and seems woefully inefficient compared to nationalizing assets on a case-by-case basis.
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.
As someone who "held" multiple bitcoin on TradeHill I must say: this sounds exactly like how crypto works ...
asset tokenization doesn't have to be tied to crypto.
the legit use cases for crypto i.e people in poor countries etc are not exactly a demographic for VCs or investors to pump money into.
I see he still has trouble with the concept of "consent".
Do I need someone's consent to write 'msft' on a piece of paper?
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.
There are also memecoins which as they rise, buy the underlying stock.
Being totally naive and asking an honest question: who or are they protecting themselves from? These instruments in reality are at most paired assets but most times have nothing to do with the real stock.
No, they are not. You can trade a tokenized stock on top of a blockchain that happens to be permissionless, but you can also fully operate a permissioned protocol on top of a permissionless network. How many permissioned products run on top of TCP/IP (a permissionless protocol)?
Smart contracts enable any sort of logic that you can encode in a Turing-complete software language, including authorization controls, or awaiting offchain KYC checks, or whatever your heart desires.
Memecoins don't have anything to do with real stock, but tokenized stocks trend towards the underlying's price as long as they are redeemable for the underlying in a timely manner.
Isnt this offset by large taxes when you have to convert your coin back to real currency?
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.
Or you meant an argument for the person putting their money into it? No idea.
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.
I can say you need to be careful. It sounds like you've written in to the definition of a "token" that it is "meaningless", and that is a philosophical overreach, not an accurate statement. As the reply chain correctly tried to point out, nothing stops the same process that turns your abstract, "meaningless" number that represents your shares of stock into a meaningful number from being applied to a block chain token. Our entire economy is made from top to bottom out of "meaningless" things given meaning by convention, law, and other forces. Getting too reductionistic leaves you confused about not just tokens but a lot of things.
And on the flip side, if you actually dig in to what a "share of stock" that "you" "own" is, it is already not "some fractional ownership that carries legal rights and a claim on assets" and is already more complicated, abstract, and partial than you think. Just as the token advocates want you to think of a token as something more than it is, the stock system is not in a hurry for you to understand what it is you actually hold, but it certainly is not simply some fractional ownership in the simple way you probably have in mind, and there are more exceptions and caveats and legal ways you don't really own it as much as you think already in the system. It's already more a mere "token", in the sense you originally meant, then you realize.
At any rate, to the tokenized stock example, if you are purchasing a tokenized stock represented by a company such as Robinhood, it too is a debt in that the token is exchangeable for the underlying.
This is an even higher level of guarantee than, say, an options contract, in that the reserves are provable. It does, of course, involve trust in the intermediary, just as your bank balance does. But at any rate, this financial technology is an expansion of what isolated databases provide to the market.
If a company chooses to list its stock on a blockchain instead of the NASDAQ, then, sure that could have the same value as a traditional stock assuming it confers the same rights.
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.
Hot take: Given the state of wealth inequality and that the vast majority of capital gains go to a tiny fraction of people, why do we still have lower taxes for capital gains? Maybe it has out-lived its usefulness/purpose.
One thing that I wish more countries did to handle large inheritances: Make people pay a relatively high inhertiance tax (say 25-50%), but grant them a state-backed low interest loan to repay the inheritance tax over 15-30 years. My hottest take: Make there almost no exemptions (farms, family homes, etc.) and no minimum. Any well-run, but private business, should easily be able to pay this back within the timeframe. Also, it would protect family-owned businesses, which I know is an important cultural consideration in Germany, thanks to Mittelstand.
- 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.
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_...
Also the XYZ markets that the stock tokens "live on" is not managed by HyperLiquid as far as I know.
Running a node for HL takes a lot of resources too.
But yeah they are non-custodial which is great.
Where to issue, what are the costs and what system to use?
This would be like me printing out my own pieces of paper I call Munchkin Shares, and selling you Munchkin Shares in Google. Come buy shares in Google! 100% authentic munchkin shares!
Tokenization is and of the tech isn’t sketchy at all. That it’s mostly used to get around the regulations something like swap contracts are for is.
Crypto is a scam within a scam. It was created to act as a 'good cop' to the 'bad cop' which is the mainstream system. But they are two sides of the same scam. Same kind of game of Republican vs Democrat. Everywhere you turn, there is a scammer waiting to take your money.
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