The game is rigged and always has been that’s right. The rules in traditional finance have been crafted to only benefit a limited few at the expense of the many and then, when the many used these to successfully play the game.
Those with control try to change the rules now. The clearest example of this was, of course, the recent frenzy around gamestop, a tale where overzealous hedge funds lost billions by overshorting stock, while an army of retail traders drove up the price of said stock.
That was until apps, like robinhood, restricted their traders from buying more stock. So this, then got me thinking how can defy solve this. Are there any decentralized finance solutions that could allow these users to trade in a completely permissionless and censorship-resistant way? So this is exactly what i’m, going to be covering in this video.
I’ll, be taking you through some of the most promising trading protocols in the space and comparing them side by side. Believe me, if you want to make the most of this latest movement, then this is a video you can’t afford to miss [ Music ] hi.
I’m guy’s lawyer, and there is something i really need to disclose. Guy is not a financial advisor, which means that nothing he says can be considered financial advice. Everything in this video is for educational and entertainment purposes.
Only please consult your financial advisor before making investment decisions. He’s such a stickler for the rules anywho with that unexpected interruption. Out of the way i’d, like to take the time to welcome anyone new to the channel.
As mentioned. I’m guy and over here at the bureau, we cover everything crypto from hot coin, tips to protocol deep dives and everything in between. So if that sounds like something you just can’t miss, then i highly encourage you to gently tap that subscribe button.
It would be mighty swell if you ping that bell as well. That way, we can never be separated again and finally, if you direct your gaze to the video timeline, you ‘ Ll, see that i’ve placed a number of timestamps.
Those are there for your convenience, so feel free to use them. If you are pressed for time, although i do encourage you to watch as much of this one as you can alrighty folks, let’s dive into those defy waters.
Now i’m sure that most of you know all about the gamestop hedge fund, robin hood saga. However, if you’re slightly out of the loop, it’s important to know exactly what went down so it’s time for a bit of an overview over the past few years, millions of new retail traders that previously Had not been involved in the stock market started jumping in in a big way.
This was all thanks to a user-friendly and free trading, app called robinhood. This was already one of the most popular brokers in the us, but the pandemic caused user numbers to explode. Millions of people forced into lockdown decided to get involved in the stock market.
Many banded together on message boards, like reddit spalls street, bets to share valuable tips. These home trading wunderkinder were actually doing pretty damn well and were giving wall street analysts a run for their money, quite literally, that’s, because these guys quickly discovered that hedge funds had huge short positions on particular stocks in the case of gamestop gme.
They had shorted 140 percent of the shares now take a second to think about that they had short sold, more shares than were actually available and people say the crypto space is the wild west anywho. You can imagine the risks that come from shorting more shares than actually exist.
Those chaps were forced to cover their shorts and were hence buying the stock which led to an unprecedented short squeeze. It was the ultimate battle, an army of average citizens versus the billionaire hedge fund elite, and right in between these two was the robin hood, app helping the poor steal from the rich, of course, that’s until things got a bit too hot and Robin hood pulled the plug: they stopped their users for being able to buy gme shares and a number of other really volatile names.
Now to be fair, they were not alone. There were a number of other brokers that also pulled the plug, including td, ameritrade and interactive brokers. Now you can imagine the outrage this caused with the users just when the little guys were winning the platforms that they turned to pulled the rug from under their feet.
Robin hood went from being a hero to a villain in the space of a few hours. Now the exact rationale of why they did this is up for debate. They claim that it was because of liquidity constraints at the clearinghouse liquidity constraints that forced the likes of robinhood to raise 3.
4 billion dollars in emergency funds in order to meet these requirements. However, many traders viewed it as highly suspicious suspicious that the moment they were making money on smart trades, the gatekeepers closed the gate.
Now i don’t want to get into the weeds of why it happened, but i’m more concerned about the fact that it could happen at all. These brokers and trading platforms are nothing more than an extension of traditional centralized finance.
They may make snazzy apps that make you think you’re in control, but in reality they are constrained by clearinghouses market makers and other counterparties. You can put lipstick on a pig, but at the end of the day, all you’re.
Doing is polishing a turd okay, so that’s. My pretty bleak prognosis on centralized finance. It’s, something that i’ve, always known, but has clearly been elucidated by this particular incident. However, i do have a solution: decentralized, finance or defy – has been one of the most exciting crypto trends of the last year.
In early january last year, i made a video about how much potential there was in the space to shake up, centralized finance or c5. Since that video, the amount of capital in this space has swelled from just above 600 million dollars in capital locked to over 30 billion dollars today insane now, the most important thing to understand about defy is that it’s, decentralized, pretty obvious from the Name, however, what’s? Not so obvious is what this means.
It means that there is no central entity that can control what you do on it now. Another term for this is permissionless, moreover, because it’s, built on a public ledger. It’s completely transparent.
Everyone can see exactly what is going on defy is governed entirely by code. The rules of the code are clearly defined and open for everyone to see it’s, also open 24 hours a day. Seven days a week and every single day of the year it’s accessible to everyone, irrespective of their credit record background or creed.
It really is a great equalizing force in the world. Now there are a number of different use cases for d5. These range from lending to portfolio management and trading on decentralized exchanges or dexes.
The latter is in fact the most interesting as that relates to the functionality most stock traders are interested in while most dextrading is now done for crypto assets. There’s. Nothing! Stopping someone developing a tokenized representation of a stock commodity or currency heck any asset that has a price.
They can also launch decentralized derivative instruments tied to the performance of these assets. These tokens can then be traded peer-to-peer amongst all traders. They can be stored in your own personal wallet, called self-custody and can be sent to anyone all around the world.
There is no need for these decentralized platforms to post regulatory capital at a clearinghouse. The protocols themselves dictate the markets. If there is no liquidity for a highly valued trading pair, then liquidity providers are incentivized to supply it.
Okay, so i think that i’ve made the case for d5, more generally and dexes more specifically, but which dex protocols have the potential to be the real robin hood of defy. Well, i’m, going to take you through a few starting with.
Perhaps one of the very first synthetics is a decentralized synthetic asset issuance protocol that was built on ethereum. This basically means that users are able to mint synthetic representations of real world assets as tokens which track the value of said asset one for one.
A simple example of this would be the susd token, which is designed to track the value of the us dollar one for one, a stablecoin. However, unlike your traditional stablecoins, it’s not backed by fiat in a bank account, but by collaterized crypto debt.
Susd is just one example of the assets that are currently traded on the platform. You have numerous synthetic representations of other crypto assets such as bitcoin ether, link, xrp, etc. However, what’s really interesting about synthetics? Is that you can create these token derivatives on a number of real world assets as well? These include the likes of other fiat currencies, commodities indexes and, of course, equities.
Here you have the market for the synthetic assets tied to japan’s nikkei and the ftse 100 stock index. This means that traders can invest in the underlying performance of these indexes without actually investing in the stocks within the index.
The exact mechanics of how this works is beyond the scope of this video, but if you want more info, i encourage you to watch my complete synthetics video that’s linked to in the top right of the screen.
The main thing to take away here is that you can create synthetic tokens of other real world assets. This is all done through synthetics’s, unique minting process. These could even include penny stocks as favored by the robin hood crowd.
What’s even better about this, is that these are erc20 tokens. This means that they can be taken off of the synthetics exchange and held in your own wallet, no need to make any sort of requests from a broker.
Moreover, if these synthetic assets do become popular, then they can also be traded on other dex platforms. For example, there are already pretty liquid markets on sbtc susd and s eth on uniswap. So, for example, if there was a lot of demand to trade s ftse against usdc on uniswap, then the liquidity providers could easily provide a pool so that these could be traded there.
No market maker needed all automated that’s, the defy dream! Now there is a lot more to synthetics, which i won’t cover here, including their snx governance. Token, if you want all that juicy goodness, then that aforementioned synthetics vid is where you ‘
Ll find it now on to our next platform, though, and that is uma. Uma is short for universal market access, and the name says it all like synthetics. This protocol wants to give the user the ability to structure their own unique synthetic assets.
Essentially, uma allows its users to create trustless contracts on anything that has a price. These are all enforced through immutable, smart contracts that minimize the use of off-chain oracle price feeds.
This is done in order to eliminate the risk for oracle manipulation that we ‘ Ve seen in a number of other d5 protocols, what’s important to understand about uma, though, is that the protocol allows two counterparties to structure a trade without the need for any sort of clearinghouse or exchange.
The smart contracts will automatically adjust the margin of each party and make sure that the trade is always collateralized. They’ve, also built into it a governance component that’s, able to solve disputes.
So if ever there was a dispute as to the outcome of a particular contract, then this governance structure can be used. This is where that uma token comes into play. Now i don’t want to go too deep into the weeds on uma right here that’s, mostly because i’ve covered it extensively in a review that i did last year and that’s linked To in the top right, should you want a more extensive overview? Okay, but you may now be asking what this has to do with shares.
Well, given that uma has developed a protocol for structuring financial contracts, you can easily structure these based on share prices. You could create your own bespoke options. Contracts, for example, with defined payouts picture the scene wall street bets traders enter a contract with melvin capital on the price of gamestop.
The rules of the game are perfectly protocol defined. Everyone has equal information about the totally transparent and immutable contract they have entered into. There is nobody in between these two counterparties who can pull the plug on one or the other, as the youngans would say that’s, pretty lit jokes aside, uma is actually developing, really impressive technology.
That’s being used by a number of other projects. Looking to issue synthetic tokens, you can see the entire list over here so that’s uma. However, there is one concern that some may have for both uma and synthetics, and that is their ability to scale you see.
Both of these protocols are built on ethereum, which of course means that they’re at the mercy of the underlying network’s bloat. Indeed, any dex that’s, built on ethereum, will face the same issues that’s.
Why it’s important to take a look at dex solutions being built in other ecosystems, and the first of those that i want to look at is serum serum is a decentralized derivative exchange that’s, built on solana for those that Don’t know, solana is a highly scalable and performant blockchain that supports smart contracts and decentralized applications.
It’s currently able to process 50 000 transactions per second, with the ability to scale up to 710 000 pretty mind blowing. Moreover, given the unique nature of solana’s, blockchain fees for the transactions are minute.
We’re talking less than one hundredth of a cent, so by being built on solana, serum could perhaps be one of the fastest and cheapest dex protocols. Yet now feel free to watch my video on solana. If you want some more info on it, serum was built by the same team behind the ftx futures exchange, one of the most well-known futures exchanges in the crypto space.
They basically wanted to build a dex solution which could complement ftx, given that the latter is still centralized. Oh, and i think i should also mention that jump trading a market maker for robin hood has also invested in serum, so put that in your pipe and smoke.
It the serum decks, currently features around 30 different cryptocurrency markets, all of which trade against either usdt or usdc. Now, while these are cryptocurrencies, anyone can create their own market on serum, it’s completely permissionless and if you want to add a tokenized synthetic representation of an asset here, you could.
This would mainly be done through the serum ethereum bridge. So, for example, assume that someone has minted a tokenized erc20 representation of a stock. This can then be converted into a solana based spl token and traded on serum, essentially wrapped tokens, of course, as is the case with both synthetics and uma.
This does not have to be restricted to only stocks. You have the freedom to create a market in any erc. 20 token that you choose. You should also note that the ftx exchange has listed perpetual futures contracts on some of these hot stocks.
You can actually head on there right now and trade gamestop, tesla apple, google and a host of other assets. Now these are still on a centralized exchange. However, i think that, given that ftx is keen to offer these contracts, i’d, not be surprised.
If we see tokenized versions on serum at some point, we should also not forget that serum was partly funded by jump trading, which is actually in the business of equity market, making it’s. All speculation on my part though, but i would love to see tokenized equities, traded on serum.
Oh, i should also point out that serum has its own proprietary token with the ticker srm. This is used on the exchange in order to run a dex validator node. The longer term roadmap should also see the token be used for governance decisions, a decentralized system where the token holders will control the future trajectory of the decks, no brokers, market makers or other c5 charlatans.
Ah, that’s. The d5 dream anywho that’s, serum for you. Now there’s, one more dex platform that i want to look at, and that is injective protocol. Now, for those of you who’ve been following my channel for some time, you ‘
Ll have seen me cover injective protocol before and for good reason. It’s, a decentralized derivative exchange that’s, built on cosmos for those that don’t know. Cosmos has developed a decentralized internet of blockchains that will allow numerous different blockchain zones to be interoperable with one another.
This is all through the ibc communication protocol. Injective is a layer, 2 cosmos zone and hence does not have to put up with the congestion that other ethereum based dexes do. Hence it’s, much faster, more efficient and cheaper.
Of course, there is a lot lot more to cosmos than just this. Perhaps there are videos out there somewhere that can explain it in more detail back to injective. This is a dex protocol that will allow users to trade spot swaps and futures in a completely permissionless way.
They’ll, also be able to structure their own derivatives on the platform and create a market for it. So much like what we can do with synthetics and uma now injective is perhaps the newest dex protocol on this list and as such, they are still in the test net phase.
However, i’ve, been following the developments that have been taking place on their solstice test net and it’s really quite exciting. For example, they’ve, already launched equity contracts on the likes of tesla, amazon and gamestop.
This is the first decks that i’ve, actually seen launching single stock equity contracts, albeit in a test net mode, but the main net launch is likely around the corner. They’re in the final phase of their test net and assuming that its functionality is similar in a live environment, it could be a game changer, as is typical with d5 protocols.
There are decentralized governance mechanisms in place that give the power to users. In this case, the injective ecosystem is governed by their inj tokens, which i hold in my personal portfolio. This could include proposals like potential token instrument listings.
So if users were fed up with the fees over at robinhood, they could just vote to have amc listed. For example, and as is the case with all of these other dexes, there is no one that can stop them from trading it profit.
All you want from a short squeeze as you stick it to the man over in hedge fund land. I think it’s time to start wrapping this video up folks. Now, as we’ve, seen from the gamestop saga, finance can only be inclusive if it fits within the bounds of those who shape the rules, whether they be brokers, market makers or execution facilities.
They pull the streams. This inclusivity has been shown to be a facade, though whether the trading restrictions at robin hood at out were because of capital constraints or more nefarious purposes. They’ve left a sour taste in our mouths.
However, i’m certain that the sweetness of defy will cure that sour taste. There is a reason that so much capital has been locked in these protocols. There is a reason that protocols like uni swap did 30 billion dollars of trading volume.
This month, there is a reason that so many vc firms are diving into the space head. First and as i’ve shown, i think dexes really will be able to solve the problems that plague c5 trading platforms. They’re, permissionless censorship, resistant, transparent, inclusive and governed by the community through dexes like synthetics and uma.
We can structure synthetic tokenized equities that give us exposure to these stocks whenever and wherever we like. Yes, the ethereum network is currently quite slow, but ethereum 2.0 is around the corner and even if it is delayed, there are a number of non-ethereum alternatives.
Serum has the benefit of being built on the highly performance solana. Blockchain, add to that a strong team and powerful backers in the equity space, and you have an epic dex solution and injective really does have the potential to be a strong non-eth contender in the derivative deck space, interoperable and highly functional.
If its test net is anything to go by it, then that main net launch is going to be something to watch. Of course, it won’t, be a case of winner takes all the d5 space, is so young that there is market share for hundreds of dex protocols, and, unlike in the c5 space you don’t have to be part of an Exclusive club to join the ranks that’s, it folks my overview of the dexes that will transform finance.
Now i’ve done a lot of talking, so it’s time for me to listen. So what are your thoughts? Any other deck solutions that you guys are looking at fire, those comments below. Oh and while you’re down there, you may want to check out my dedicated social media page.
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