DeFiChain are intriguing – a fully decentralised platform offering investors the ability to gain exposure to stocks and other assets, domiciled on the Bitcoin network.
The area of tokenised stocks, in general, is one that really interests me. I find the bureaucracy and regulatory barriers which often surround purchasing stocks in the trad-fi world very frustrating and unfair. Through tokenised offerings, accessibility to investing in assets is greater, levelling the playing field and allowing more investors to act upon their desires.
What’s more, the tokenisation of these assets often offers the ability to trade 24/7, as the blockchain never sleeps. This is contrast to the stock markets, where only the big institutions and Wall Street heavies tend to have access pre-market. I specifically remember wanting to take a punt on GameStop amid the meme-mania last winter, but being locked out pre-market. Sitting by idly while it rose 150%, I felt cheated.
Finally, do you like tax? Probably not. Well, there can be certain tax benefits too, depending on your jurisdiction. And while the clampdown on crypto companies offering sort-of-securities who the SEC deems as, well, securities is a concerning trend, DeFiChain have quite a novel way they are solving that issue – but I’ll leave that for the interview below.
So, tokenisation and decentralised platforms open up access to more investors, a nice way to democratise the financial sector. DeFiChain is one of these platforms, announcing yesterday that they had launched four new decentralised assets (aka dTokens) following a community vote:
$dDIS – Walt Disney Co
$dMCHI – iShares MSCI China ETF
$dMSTR – MicroStrategy Incorporated
$dINTC – Intel Corporation
No surprise to see a certain Michael Saylor company appear on that list, although I do wonder if the vote took place a week later would Twitter have made the cut, possibly over Intel? The pulling power of Elon knows no bounds.
The foursome joins many other assets already tradeable on the platform: including GameStop (of course!), Amazon, Microsoft, Netflix, Meta (do people still buy that stock?). There are also ETFs tradeable, which is a nice feature – including dTokens which track the S&P500 and Nasdaq, if you’re feeling boring.
It’s important to specify that you do not physically buy the equity, these are merely tokenised assets that track the price exposure of the underlying. Therefore, there are no voting rights, dividends or other shareholder benefits which accrue to investors. As for the price tracking, this is maintained via oracles – however there can be deviations per supply and demand, which is delved into more below. In addition to simply sweeping up that price exposure, the tokens can also be used to liquidity mine on the DEX.
Obviously, I find this whole area very interesting, so naturally I had a bunch of questions I wanted answering. Interviewing Prasanna Loganathar, Lead Engineer at DefiChain, I got to dig a bit deeper:
Invezz: What do you think would motivate investors to invest in these dTokens on your platform, rather than tokenised stocks elsewhere?
Prasanna Loganathar: Even though DeFiChain’s technical approach is unique, most users will be interested in the return on investment and the user experience. DeFiChain delivers both.
Currently the returns in the liquidity pools of the tokenized stock are significantly higher than similar protocols, while at the same time the use of DFI is not limited to being just a token that you sell directly if you received it as a reward. You can use it for loans to mint tokens and it also acts as a pair in crypto pools. When it comes to liquidity mining with tokenized stocks users can expect lower volatility and neglect the impermanent loss.
Moreover, users will be immediately aware of tokenized stocks when they interact with DeFiChain, as the functions are directly integrated into the wallet and easy to use.
Invezz: Do you have any other assets you are working to offer, following this announcement?
PL: New shares and other assets are added every four weeks. The voting happens within the community and everybody can make suggestions.
Invezz: Who do you think your main competitors are?
PL: There are currently only 2-3 first-to-market protocols offering tokenized shares and certainly the strongest is Mirror, a protocol of the Terra Blockchain. Synthetix is certainly also worth mentioning, although this protocol is further away from the user experience and variety of listed stocks than Mirror and DeFiChain.
Invezz: What are the advantages to gaining exposure to stocks on the blockchain, such as with DeFiChain, rather than in a conventional manner (such as online via companies such as Robin Hood)?
PL: There are many interesting aspects that can be listed here and we also want to highlight that most people who are invested in dStocks are not completely giving up their traditional brokers. A better approach is to benefit from both systems – centralized and decentralized.
A few things to consider:
First of all, decentralized shares are not real shares. This can offer regulatory advantages in many areas, from taxes to the possibility that central institutions can more easily offer such share tokens on their platforms compared to real stocks.
When it comes to expanding “DeFi”, stocks, commodities and indexes are essential. People can now build an entire investment portfolio on the DeFiChain in a completely decentralized way.
They can diversify from BTC or other cryptocurrencies into stocks within seconds without even entering the fiat world. This not only saves time and nerves, but also fees.
And even though these features add incredible value, many investors will take a simpler look at the investment and go for it, as the combination of stocks and liquidity mining, can beat traditional dividends many times over.
In a world where privacy and independence gets more and more important, it’s awesome to have the choice and to manage all of your investments in the palm of your hand.
Invezz: Do you think there could be implications here for investors or yourselves, with regards to regulators analysing whether these investments fall under securities?
PL: This is an important point. As soon as the decentralized tokenized shares algorithmically reflect exactly the same price as the real shares on the stock exchanges, it is highly likely that this case will occur.
Therefore, DeFiChain has positioned itself in such a way that when the tokens are minted the price is linked to the price of the real share, but the actual price determination takes place on the decentralized exchange of DeFiChain later on. So the price can actually deviate based on supply and demand.
With the upcoming future contracts (starting 11th April) this range is set between +/- 5%.
Invezz: Do you think tokenised stocks can begin to pull capital away from stocks within the trad-fi sector?
PL: Once people understand that tokenized, decentralized assets really work, are sustainable, secure and offer benefits they don’t have in the traditional financial world, it will definitely happen. The first driver will certainly be the high returns, but once you get deeper into the topic, you’ll see benefits you didn’t see before – like taxation, flexibility and simplicity. You basically only need one app for all your investments.
Invezz: TVL on your platform is now over $1.1 billion – to where do you believe you can continue to grow this platform?
PL: Within a year, we have already managed to climb up to rank 60 on CoinGecko. We are showing constant growth and DeFiChain is developing fast. We offer more than most DeFi protocols out there and we have a completely different technical approach. There are still some important steps missing, like a proper listing on CoinMarketCap and also a listing on Binance. But we are working on all of them. We are confident that DeFiChain will be seen in the top 20 within the foreseeable future, with a market cap of well over $10 billion and a TVL of more than $2.5 billion.
Invezz: In order for you to achieve the above target, what are your plans?
PL: The DeFiChain ecosystem is growing constantly and we are focussing on blockchain development, partnerships and marketing. We are seeing more and more companies who want to build on top of DeFiChain. Big companies that have been part of the ecosystem for a longer time now, e.g. CakeDeFi or DFX are recording tremendous growth. Recently CakeDeFi announced having more than 600.000 customers in 191 countries + they are also launching a 100 million dollar venture arm. Also, partnerships will be a big topic of 2022.
Besides that, technical developments are crucial. Many exciting things are on the roadmap like bridges and the DeFi Meta Chain that will bring Web 3.0 and EVM to DeFiChain later this year. Once the interfaces to Ethereum and other blockchains are fully open, we expect additional capital flow to DeFiChain.
Invezz: What are the biggest risks for you as you look to achieve the above goal?
PL: The biggest risk every project faces is the technical risk. However, DeFiChain is built on Bitcoin for this very reason and features non-turing-complete smart contracts to maximize security. DeFi applications are connected to the core of the blockchain and are therefore strictly monitored by all developers.
Invezz: Do you see a lot of arbitrage, be it via bots or manually, on your platform as the demand and supply for dTokens varies, causing slight deviations compared to the actual stocks? If so, what kind of deviation do you tend to see on average?
PL: Most of the assets are in a range of 5-10% deviation around the real value. With the introduction of future swaps on 11th April, this will be limited to +/- 5%. There are always arbitrage opportunities on DeFiChain and with futures this will continue.
However, the fact that there is a price difference between the real stocks and the decentralized assets is very important for them not to be considered securities.
Invezz: Terra has been in the news a lot recently as LUNA has surged to an all-time high. Do you have any thoughts on Mirror, who offer tokenized stock exposure and currently have a TVL of $687 million?
PL: Mirror is interesting and offers a technically clean solution for tokenized stocks. However, we see Mirror’s weakness in its own token MIR. Even though LUNA is celebrating a new all-time high, MIR is down about -80% from the all-time high. Instead of giving each protocol its own token, DeFiChain’s idea is to make all DeFi applications native on the blockchain, so that all DeFi applications also use DFI as their native currency. This adds value to the token and ensures that a token is not exploited and dumped just for farming. It also gives investment stability since you are not constantly forced to exchange your reward token with something more stable.
Invezz: Do you find there is a certain demographic or geographical lean from investors on your platform, given the fact certain jurisdictions make it challenging for investors to purchase stock in a conventional manner? Are you targeting certain regions?
PL: Currently, DeFiChain is very strong in Europe and Asia. We have a particularly strong community in the DACH region and in Singapore. America is certainly the next big key market for us, however we are also looking into promoting DeFiChain where traditional investing is more difficult like Africa and South America.
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