Picking a winner .... All Aboard!
As mentioned in "Power to the People" the financial world has long sort and salivated over getting a chance (not to mention its grubby paws) on a piece of the luxury closed markets catering to fine art, gems, jewellery, and antiques.
Why wouldn't they as these markets represent hundreds of billions of dollars in annual turnover, of which financial corporations enjoy next to none. Entering or reinventing these markets has been the equivalent of seeking the holy grail and just like the hunt for the grail, it has been historically fruitless. As we frequently note, for change to be substantive, the appropriate structure and full use of the technology available must be employed. Disruption of the status quo is required, which is the catalyst for unlocking and realizing tangible benefits for users together with new entrants in the virtual as well as real-world markets The developments in the crypto world to deepen its offerings, and reduce its volatility with the creation of new investment vehicles, and interesting asset amalgams, offers opportunity and change.
Unfortunately, many of the new hybrid offerings can be described as cosmetic, or a reinvention of what already exists.
The optimist and the detractor can both see an analogy between crypto offerings (especially stablecoins) and one of, if not the genre’s greatest successes in the investment field – ETFs.
Indeed stablecoins have been termed glorified ETFs, which in many cases mirror the standard ETF creation/redemption system; thus in theory have a glide path to increased regulation and acceptance (Source: 2019 paper by Luciano Somoza and Tammaro Terracciano, PhD holders from the University of Lausanne and the University of Geneva respectively).
The main difference with stablecoins is the distribution. ETF units are bought and sold on public exchanges and stablecoins/tokens are distributed over permissioned blockchains.
As the FT noted:
“(The stablecoin) creation/redemption mechanism works beautifully in theory, but it’s increasingly clear that the mechanism is vulnerable to choppy markets or situations when authorized purchaser risk appetite is abruptly reduced. When the flash crash occurred in 2010, it was ETFs that were disproportionately impacted, highlighting how important it is to have a committed dealer of last resort always present in the market to keep it working properly.”
The other obvious problem is a disparity in regulation. Despite the professed risk-free nature of the basket underlying most stablecoins, unlike ETFs, their key feature is their bearer nature; they are money-like. As a result, many stablecoins face a redundancy risk if and when there is a major Central Bank Digital Currency (CBDC), beyond the digital yuan which with China’s capital controls is but a hybrid form.
Another issue with stablecoins, potentially (given a lack of regulation) is how free or not they are to earn extra revenue by lending out the securities/assets they hold to the market or using unhedged cheap (usually Yen) based borrowing to secure their assets.
Despite the preeminent success of ETFs concern remains that in certain market niches these investment vehicles superimpose liquid markets on top of illiquid, inefficient markets. They are a mirage, and thus a risk.
“Narrower funds, especially those with relatively few constituents — such as the ones flagged in the metals and mining, silver, and nuclear and renewable energy sectors — may present larger challenges in finding willing buyers for their portfolio securities. Likewise, authorised purchasers may have fewer options for hedging these specialised portfolios,” (Source: Elisabeth Kashner, director of ETF research and analytics at FactSet).
The argument that ETFs in such commodity and niche markets bring a functioning effective framework, installing not only order but regulation has merit but is disingenuous.
Our argument is that ETFs, stablecoins, and other convoluted hybrids, though merited, have clearly proven not to be the right vehicle for the purpose.
As we detailed in our WP: "NFTs, on the other hand, are the appropriate technology to employ, offering not just the most precise and effective investment tool but also the potential to add a more transparent, and liquid alternative to the current underlying gem market structure. BOTTOMLINE ETFs fundamentally changed the investment industry, but they did not destroy it or all of its players. Early adopters have only expanded their reach and thus strengthened their position. The same will be true in the gem market and other luxury niches – Tokenisation/NFTs will be a boon for those who embrace and adjust to this new vehicle, on both sides of the market, while demonstrating the true benefit of the technology and widening the crypto-verse and its offerings." The fact NFTs or more particularly the F-NFTs offers such a malleable investment vehicle will, we fully assume, to adopted and promoted by the financial community moving forward as they once again look to make moves in closed, highly lucrative markets that they remain on the outside looking in. The investment community has understood and bankrolled so many industry-disrupting companies/projects that it would be naive in the extreme to assume they will not see and seize the opportunity we are demonstrating - that simply means change is coming, and coming fast (prices will move accordingly).
Giddy up ...... get in early and enjoy the ride.
For a short overview of the FIX00 project 🙂 please use this link: The Start of something new
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