Messari is a crypto data company. Their goal is to be the Bloomberg of Crypto. And if you’ve been following their CEO Ryan Selkis on Twitter (@twobitidiot), then you know he’s declared SEC Chief Gary Gensler as Crypto public enemy #1. And the reason why is synthetic assets. So today, we look at Messari’s Crypto Theses on Synthetic Assets.
Selkis calls Gensler ‘Goldman Gary’ due to his long-time ties to Goldman Sachs. Selkis believes those ties to legacy investment banking are why the SEC will not approve an ETF in the US. ETF or exchange-traded fund is just one type of synthetic asset. But it’s probably the most important synthetic asset in the Crypto Theses if crypto will ever get widespread adoption as an investment class.
And if you care about more people investing in crypto, regardless of country, then you want the US to approve an ETF too.
Among the synthetic assets this essay discusses besides ETFs are:
- The Grayscale ETFs
- Yearn Finance’s yVaults
- Wrapped tokens like WBTC and WETH
- Prediction Markets
- Synthetic Stocks
- Exchange Tokens
- On-Chain Indices
So let’s look at the assets.
As the only ETF available in the US, the privately run Grayscale ETF for institutional and accredited investors. Investors can create shares in the trust and then borrow against them almost like a flash loan. If you are curious where the downward sale pressure on Bitcoin comes from, this is one of the places.
And sadly, it will continue as long as Grayscale has a monopoly on ETFs in the US and the public is locked out of a Bitcoin ETF. Hopefully, the SEC will come to its senses if they are really looking out for the small investor as they say they are. If they do, expect Coinshares and Bitwise to be some of the first to market.
Yearn Finance’s yVaults
yVaults on Yearn allow liquidity providers to do their thing for yield. While the other side, the ‘strategy creator’ creates their yield gaining strategy. The strategy creator could be one person or it could be a fund implementing their own strategies in the market. Liquidity mining is earning more than $2 billion per year so it’s already big and getting bigger. Yearn has some of the highest fees in DeFi charging a 5% fee and a 0.5% withdrawal fee on yVaults on what could become a future direction for asset management in the cryptoeconomy.
Other than crypto-backed stablecoins like DAI, by far the most popular synthetic asset to the crypto public are wrapped tokens. WBTC and WETH specifically so you can use these assets as collateral on different chains. As of late 2021, 10 different synthetic assets had a market cap of over $100 million including:
- AAVE LINK
- TerraKRW and others
The idea of taking big cryptos or stablecoins, wrapping them, and using them across protocols is an idea whose time has come. BitGo is the clear leader here with others like TokenSoft trying to get a piece of this fast-growing market. It will be interesting to see what other networks including non-custodial ones do with these assets.
This used to be a fancy way to say gambling. Though derivatives like options often look similar to two-sided prediction market contracts like ‘Who will win tonight’s game?’ The example given in the essay of Augur and its REP token are examples of developing markets but growth has been much slower than people thought. Messari predicts that prediction markets will grow in the coming year as more people come to crypto generally. That said, with more adoption in 2021, that did not happen for prediction markets this year.
Imagine if you could own shares of Twitter or Apple or Amazon even though you aren’t eligible to open a US account to buy their stock. That’s synthetic or tokenized stocks. Binance offers this in some of their markets (but not the US) and FTX does too but for Americans……for now. There are going to be great opportunities for emerging market investors to go long or short these tokenized stocks. Also, lots of long/short or blended trading strategies for more experienced traders too. Messari doesn’t mention it but Mirror Protocol is in this market too.
Exchange tokens could be a good way to bet on specific markets. If you like Binance or Binance Smart Chain then you can buy BNB. If you like the outlook for Chinese investors in crypto, then you can buy the Huobi exchange token HT. Also, if it’s not already happening, soon, you as an exchange token holder will get to earn a piece of the trading fees the exchange charges.
This is a fun one. There’s no Dow Jones Industrial Average or S&P 500 or FTSE 100 in crypto so some people are making up their own indices. Anyone can create their own and if it gets a following you could make a fund out of it. Set Protocol’s DPI and PieDAO are two of the most popular. Bitwise is also getting into the index game and they would be one to watch.
DAO tokens are not exactly synthetic as they are crypto tokens with governance functions or other utilities. But some DAOs like MetaCartel are creating investment funds out of their DAO funds. Others are allocating a part of their Treasury for outside investments as voted on and approved by the token holders.
In gaming, we see this all the time with guilds and how they manage their Treasury from the DAO fees they earn from their player-members. Messari, and us too, expect DAO influence for investment to grow.
Messari is long IDOs just like most crypto is. The idea of an independent offering and you can get in and buy is awesome. It’s completely democratic when it’s not being front-run or botted to death.
The essay mentions fair launch type IDOs like Fairmint and didn’t mention the fairest launch we’ve seen so far Copper Launch.
What Messari is saying in this essay is that as crypto gains more mass acceptance, there will be more ways to tokenize it. And it won’t just be tokenizing Bitcoin or Ethereum. Stocks and investment funds will be tokenized too, giving more people more opportunities to invest their money in new and innovative projects.
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