Blockchain technology, with its new economic models disrupting traditional equity exchanges and the world's legacy financial systems. Currently, proprietors of this technology have their sights set on the stock market exchanges.
Have you heard of synthetic stocks? Big-name companies and even ETFs or exchange-traded funds are being offered as synthetic securities on blockchain technology platforms. Two examples of these blockchain trading platforms include Synthetix and Protocol.
The actual stocks for these companies are not traded on the blockchain exchanges. The digital assets changed merely track, represent and reflect the current share price of the underlying company or ETF. No shares are exchanged. These synthetic representations of securities, however, are considered accurate.
Blockchain technology exchanges provide incentives to traders to instigate arbitrage trading, just as the traditional system's arbitrage functionality provides investors with opportunities to take advantage of various securities' price fluctuations.
Investors are rewarded for helping to both create and destroy tokens based on market volatility. What this arbitrage process does is help line up the price of the synthetic security with the asset it represents.
Technically, this is financial engineering; however, the financial incentives provide adequate functionality as long as there is enough liquidity.
The blockchain technology industry is tokenizing equities without waiting for consent from the legacy system. Tomorrow's economic solutions are being developed right here and right now.
Real-time settlements on trades are enticing to investors and represent a victory over traditional trading. You cannot sell shares with a brokerage account and transfer those funds out of your account immediately afterward. The transaction must settle, and the settlement time is usually three business days.
When trading synthetic securities, transactions settle right away in real-time, which means your funds are available immediately. Investors also have access to the blockchain technology data, enabling them to know the amount of any tokens available on the market at a given time. People can determine a company's worth or market capitalization and see who owns what in the digital asset market.
The accurate accounting of outstanding equity shares is a problem with equities and the legacy system in today's world. The short-selling situation with Game Stop earlier in the year is a prime example. These hedge funds were selling Game Stop shares that did not even exist.
Naked short selling not only disrupts the system, but the act is illegal. Price manipulation is a huge problem, and blockchain exchanges could eliminate this issue.
Naturally, this new blockchain technology is going to be developed further over time. No financial advisors are currently recommending purchasing synthetic securities at this time.
More liquidity is necessary for this type of trading to be efficient and reflect actual price representation. The truth remains, however, that the synthetic equities market is being created. The forecast shows that this move is just the beginning of the disruption of the legacy financial system and its equity exchanges.
Does the thought of synthetic equities excite you as an investor? Are you already invested in technology and any available tokens? What about synthetic stocks? Blockchain technology is going to change the way the legacy financial system operates in many ways.
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