Messari is a crypto data company. Their goal is to become the Bloomberg of Crypto. If you follow their CEO Ryan Selkis (@twobitidiot), you will know that he has declared SEC Chief Gary Gensler Crypto public enemy #1. The reason is synthetic assets. Today, we will be looking at Messari’s Crypto Theses about Synthetic Assets.
Selkis calls Gensler ‘Goldman Gary’ due to his long-time ties to Goldman Sachs. Selkis believes that those ties to legacy investments banking are the reason the SEC won’t approve an ETF in America. ETF, or exchange-traded funds, is only one type of synthetic asset. It is, however, the most important synthetic asset in Crypto Theses. If crypto ever becomes an investment class, it will be.
If you care about crypto investing, regardless of where they are located, you will want the US to approve ETFs.
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.
The Grayscale ETF is the only US-based ETF. It is available to accredited and institutional investors. Investors can purchase shares in the trust, and borrow against them like a loan. This is the place to look if you’re curious about the source of Bitcoin’s downward selling pressure.
Unfortunately, this will continue so long as Grayscale holds the US ETF market and the public is not allowed to access a Bitcoin ETF. If the SEC really cares about the small investor, it will be a sign that they are open to reform. Expect Coinshares and Bitwise, if they do, to be the first to go to market.
Yearn Finance’s yVaults
yVaults on Yearn allow liquidity providers to do their thing for yield. The’strategy generator’ is the one on the other. One person could be the strategy creator, or a fund that implements their own strategies on the market. Liquidity mining makes more than $2 billion annually so it is already big. Yearn charges the most fees in DeFi, with a 5% fee for registration and a 0.5% withdrawal charge on yVaults. This could be a new direction in 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, WETH are specifically designed to be used as collateral on various 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 in this market, with TokenSoft and others trying to grab a piece. It will be fascinating to see how other networks, including non-custodial ones, use these assets.
This used to be a fancy way to say gambling. Although derivatives such as options can look like two-sided prediction markets contracts like “Who will win tonight?,” the example of Augur and its REP token is an example of developing markets, growth has been slower than many people expected. Messari predicts that prediction market will grow as more people get involved in crypto. 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. These are synthetic or tokenized stocks. Binance has this option in some markets, but not in the US. FTX also offers it for Americans ……. These tokenized stocks offer investors in emerging markets great opportunities to either shorten or long them. There are many long/short and blended trading strategies available for experienced traders. 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. The Huobi exchange token, HT can be purchased if you like the outlook for Chinese crypto investors. If it isn’t already, the Huobi exchange token HT will soon be available for purchase. You, as an exchange token holder, will also get a share of the trading fees that the exchange charges.
This is a fun one. There’s no