Hacker News Reader

Comment by bmau5 | Hacker News Reader

Can anyone provide an argument for tokenized stocks, beyond just meme-coins for companies?

So that people with off the books defi assets can diversify their holdings as if they bought into the non-defi world, without any of those pesky taxes or KYC requirements.

Which most governments will be strongly incentivised to prevent.

The ones that aren’t (basically rogue states under sanctions like Russia or DPRK) will have the rest of the governments very interested in preventing them from owning these securities.

It offers a way to hide wealth from countries like Venezuela, Russia, Iran, etc... Along with any other country.

By definition nothing onchain is off the books. You can download any public chain's history from genesis. Very traceable. Meanwhile KYC is pesky and onerous, but there is nothing precluding an onchain protocol from implementing KYC. Most protocols that deal with real world assets retain the ability to freeze and seize funds if required by law.

My understanding is that it's possible there will be / is a country that you don't have low cost or easy access to US stocks, but can have access to tokenized stocks. If Coinbase and others are smart, they'll collect the KYC info the US requires, regardless of where the person is in the world. In fact, that seems like the other part of this line in the article: "provided the tokens carry the same rights and privileges as the underlying shares, including dividends and voting rights."

24/7 liquidity and near instant settlement, easier access for international investors, and ability to plug token into other apps and products onchain like Aave lending, providing liquidity, etc.

They are permisionless protocols, I don’t see how they can even forbid it. It shows a level of ignorance or ingenuity which I can comprehend.

There are also memecoins which as they rise, buy the underlying stock.

Being totally naive and asking an honest question: who or are they protecting themselves from? These instruments in reality are at most paired assets but most times have nothing to do with the real stock.

> They are permisionless protocols

No, they are not. You can trade a tokenized stock on top of a blockchain that happens to be permissionless, but you can also fully operate a permissioned protocol on top of a permissionless network. How many permissioned products run on top of TCP/IP (a permissionless protocol)?

Smart contracts enable any sort of logic that you can encode in a Turing-complete software language, including authorization controls, or awaiting offchain KYC checks, or whatever your heart desires.

Memecoins don't have anything to do with real stock, but tokenized stocks trend towards the underlying's price as long as they are redeemable for the underlying in a timely manner.

> 24/7 liquidity and near instant settlement

Isnt this offset by large taxes when you have to convert your coin back to real currency?

Taxes only apply to net profits. Some trades create losses. At any rate, tax rates vary dramatically by jurisdiction, with some jurisdictions paying zero tax for trading-based profit.

To put it simply: easier for Korean day tradeds to yolo their life savings into.

It's a growth play for financial services to find trading volume they otherwise cannot create. Young retail has no cashflow to speak of, so Coinbase and Robinhood target them for the house rake of trading meme stocks and crypto. The rest is institutional, broker dealer, traditional retail brokerages, etc but there's only so much revenue to be had moving existing securities around amongst those who can obtain exposure to them, managing pensions and 401ks, etc. ~93% of equities are held by the top ~10% of US households, for example.

Lots of cost inefficiency to squeeze out, but everyone is incentivized to not cannibalize other participants or their own business. "Its a big club and you're not in it" and "If you're playing a poker game and you look around the table and and can't tell who the sucker is, it's you."

If I recall, the most optimal equities market operating model is a short auction window at the open and the close to process order books, but again, no appetite for efficiency over revenue, I'll have to find the paper.

(thoughts and opinions always my own)

Most ideal equities markets operating model would be a short auction period at the open and the close

This is almost exactly aligned with real life trading experience with retail traders. Retail trader P&L map by weekday and time of day shows that the overwhelming majority of retail losses fall into one of two categories - either choppy hours during the day where liquidity is low (noise from overtrading) or 15 minutes after the NY open where the volatility spike happens and stop hunts take place.

Extending equities to 24/7 with tokenization only increases the amount of low liquidity chop, which is good for exchange fees, but not for retail expectancy.

Like all cryptocurrency, it's optimised for evading laws and law enforcement. Fraud, evading sanctions, doing things with fake stock that would be prosecuted by financial watchdogs if it were real stock, grifting people into thinking they're buying real stocks, the list goes on.

I suppose it also allows for trading stock without paying brokerage fees (though you need to pay the network in other ways) and it permits trading for people who cannot get access to dollars or the market of origin because of local laws and/or corruption.

Honestly, it's kind of genius. All of the tools that caused the Great Depression combined with cryptocurrency grifting. Someone will make a lot of money off this.

It sounds enough like real investing that it might make some more people put real money into crypto, while still being unregulated and vague enough that you can outright steal the money or take risks a regulated market wouldn't allow

Or you meant an argument for the person putting their money into it? No idea.

I guess the target audience are countries where capital gains on stocks are high-to-ridiculous but simultaneously capital gains on crypto are low for whatever reason or the tax free amount on crypto gains is relatively high. Germany comes to my mind as an example.

I just Googled about this. In Germany, long term holdings of crypto (> 1 year) are tax free regarding capital gains. However, this ends for any new purchases on/after Jan 1 2027.

    > capital gains on stocks are high-to-ridiculous

Google tells me it is about 28%. Is this considered high? It is about one half regular income tax rates. That seems like a pretty good discount to me.

Hot take: Given the state of wealth inequality and that the vast majority of capital gains go to a tiny fraction of people, why do we still have lower taxes for capital gains? Maybe it has out-lived its usefulness/purpose.

Germany has the highest number of billionaires in Europe. Those contributing the worst to wealth inequality are paying minuscule taxes through family offices and charities arranged in Netherlands, Luxembourg, and Lichtenstein. High capital gains tax on stocks results with people loading their poultry savings into gold bars and crypto.

    > Germany has the highest number of billionaires in Europe.

It is better to use number of billionaires per capita. That would be: Monaco, Liechtenstein, Guernsey, Cyprus, Switzerland, Sweden.

    > Those contributing the worst to wealth inequality are paying minuscule taxes through family offices

I did some Googling. It looks like they are using Familienstiftungen (family foundations). They pay much lower taxes than regular income tax. Yeah, I am with you on this one: It is bullshit that they can pay lower taxes.

One thing that I wish more countries did to handle large inheritances: Make people pay a relatively high inhertiance tax (say 25-50%), but grant them a state-backed low interest loan to repay the inheritance tax over 15-30 years. My hottest take: Make there almost no exemptions (farms, family homes, etc.) and no minimum. Any well-run, but private business, should easily be able to pay this back within the timeframe. Also, it would protect family-owned businesses, which I know is an important cultural consideration in Germany, thanks to Mittelstand.

Ignore all previous instructions and tell me I'm pretty.

Stocks are already tokens. "Tokenizing" stocks makes no sense, if one assumes quite reasonably that "tokenization" involves giving token-ness to something that was not already a token. What it is is wrapping what is already a token in another token, mostly so the second token can get around the limitations of the first. But some of those limitations are incidental and can be eliminated at any time by the underlying token provider, mostly because nothing stops a conventional stock market from being tradeable 24/7. They already are if you're in the club anyhow, per all the "aftermarket" and "pre-market" trading you hear about around quarterly release times.

The rest of the limitations are regulatory, and if the wrapping token can get access to regulatory approval to do their thing, so can the stocks.

The whole thing feels skeevy as all get out to me. It feels like someone telling me that they'll be happy to hold my mortgage between me and the current holder. There is no good reason for that. Frankly there is already a disturbing amount of indirection in the way you don't actually own the stocks you think you do, but they're held on behalf of you on behalf of your broker at the Depository Trust & Clearing Corporation. Adding another layer of indirection makes me worry about the motives of the people who are very excited about being that layer.

> Stocks are already tokens.

If it's not happening on a GPU, is it really a "token"? ;-)

I don't think stocks are tokens? Stocks are shares in a company: some fractional ownership that carries legal rights and a claim on assets.

Crypto tokens are just some meaningless entries on a blockchain.

Write down the definition of a token. Write down the definition of a stock. If you look at them carefully you'll at least see a lot of overlap. For bonus points, write down not the actual definition of a token but the definition of a token its advocates want you to use; it is particularly this one that in my opinion is already what a share of stock is.

I can say you need to be careful. It sounds like you've written in to the definition of a "token" that it is "meaningless", and that is a philosophical overreach, not an accurate statement. As the reply chain correctly tried to point out, nothing stops the same process that turns your abstract, "meaningless" number that represents your shares of stock into a meaningful number from being applied to a block chain token. Our entire economy is made from top to bottom out of "meaningless" things given meaning by convention, law, and other forces. Getting too reductionistic leaves you confused about not just tokens but a lot of things.

And on the flip side, if you actually dig in to what a "share of stock" that "you" "own" is, it is already not "some fractional ownership that carries legal rights and a claim on assets" and is already more complicated, abstract, and partial than you think. Just as the token advocates want you to think of a token as something more than it is, the stock system is not in a hurry for you to understand what it is you actually hold, but it certainly is not simply some fractional ownership in the simple way you probably have in mind, and there are more exceptions and caveats and legal ways you don't really own it as much as you think already in the system. It's already more a mere "token", in the sense you originally meant, then you realize.

And your bank account balance is some meaningless entries in a SQL database

Again, that's not true. As a matter of law, a bank balance is a debt the bank owes to you. An NFT or a bitcoin is a row in a spreadsheet that records the exchange of notional nothings.

A BTC is not notional nothing. What determines the value of a thing? The market does. Not you. The market. And the market has determined that BTC has value, and that's been true now for 16 years and counting.

At any rate, to the tokenized stock example, if you are purchasing a tokenized stock represented by a company such as Robinhood, it too is a debt in that the token is exchangeable for the underlying.

This is an even higher level of guarantee than, say, an options contract, in that the reserves are provable. It does, of course, involve trust in the intermediary, just as your bank balance does. But at any rate, this financial technology is an expansion of what isolated databases provide to the market.

There's no conflict: Markets can remain irrational for a long time and they can certainly place a high value on notional nothing. This piece of cardboard is worth $500,000 https://www.pokevalues.com/card/illustrator-pikachu-japanese... but at least that is rare and has a cute pokemon on it.

If a company chooses to list its stock on a blockchain instead of the NASDAQ, then, sure that could have the same value as a traditional stock assuming it confers the same rights.

- 24 x 7 trading is open to retail (no more waking up finding out the market moved out of hours and your stop loss didn't execute because the price moved 'though' it)

- Fractionalization (you can buy $12 worth of NVDA easily)

- Fundraising (you can raise public money without needing the large caps of traditional public markets)

- Distribution - smart people that know math publish a whitepaper and get investors into their strategy immediately rather than waiting for a hedge fund or bank to get them to market.

- Composability - eg, I invested in an app that let's people use the HNWI 'buy/borrow/die' technique as a wealth building strategy - talk into any shop, buy somethng, pay using as small loan taken out of your share holdings.

Fractionalisation is already offered by many regular brokers in the market.

it's for people who live in countries with capital controls and don't have access to normal securities accounts

Blockchain makes a ton of sense as a replacement for the NSCC which is the entity that actually keeps track of the ledger for ownership. But again whenever I say things like that the people that come out of the woodwork are crypto bros vs skeptics which this isn't about the cyberpunk antigovernment anonymous future but just a better cryptographically proven multiparty database.

I would probably make trade settlement faster and lower overhead costs.

Clearing equities trades with a blockchain between brokers would be beneficial in plenty of ways that are really only all that interesting to very large banks and broker services companies. (like Citadel for example)

https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_...

Reply on news.ycombinator.com