Also, the company will grow a balance sheet out of the funds created by the owners of the tokens and they frequently will give you some sort of yield on your position.
[1] Open Market hours and usually accompanied by a fee.
There's a lot of technical and other issues with blockchains, but framed as "a single shared database that allows stored procedures and shared data types, with no central owner" I'd hope devs here could see something interesting to mess about with there. If it wasn't for the fact that "a currency" is absurdly easy to make and then there was a lot of quick money to be made or lost, I think it'd be liked more as an odd shared network.
If nothing else, there's some interesting programming challenges involved given the compute limits.
Microsoft loses because all of that investment activity does nothing to help their valuation, but the middlemen in the crypto market take their share on each transaction.
I say that so definitive because there is no reason at all to do this other than avoiding the existing banking system.
For the issuer, same playbook on how stables issuers print money - you get cash that you can put into treasuries to earn “free” yield on. Works as long as rates aren’t zero.
Because it safeguards against fraud and tax evasion.
> Paying 2-5$ fees on trades seem backwards this day and age.
Many brokerages don’t charge for buying or selling stock. They make their money elsewhere, likely with contracts on calls/puts. But to your point, having to pay a variable rate fee for moving my Ethereum from one wallet I own to another wallet I own also seems silly. I’m certain though that in both cases the charges cover the maintenance costs to keep the platform going. Everything comes at a cost.
The real-time trading independent of brokerages, the free information flow of trading volume/direction etc. all benefits and a true, real free market. Right now we have mountain of unneeded intermediaries, that sit and cash in on the data and access.
But complexities of any new system aside, what is an example of a cashing in of an unneeded example in terms of an activity?
Examples for cashing in: payment for order flow (was recently banned in the EU). They litterally sold their trading data of retail clients for money.
Not sure how you think brokers make money, but they get kickbacks from market makers and fund providers, or simply higher spreads. No one works for free.
Payment for order: what data was sold (or do you mean the orders as data)?
You mean broker as in a pure broker, not broker-dealer?
What about policing algorithms, for example? Who'd do that and how?
Who provides liquidity? Just natural supply and demand?
Sorry, I thought you just had some idea about basic financial services.
IE, if you buy and sell stocks on ETrade, most of the time the ownership with the dow doesn't change, instead the ownership within ETrade's database changes.
This is just a different kind of middlemen with different trade-offs.
But what is the crypto value here? Why not just a database row?
Blockchain tokenization is only for high risk negative reward people.
There are also a lot of examples of contracts with some centralization that would appear to remove the entire point of using a blockchain, but they're simple enough that the blockchain is actually easier than hosting their own API, dealing with auth, keeping ddos and hackers out, etc.
And decentralization here doesn’t mean a lot when you need to trust the broker with real stocks backing.
Why would you do this? Current stock trading often takes a day or so to actually settle - you execute a buy but it doesn't settle immediately. There is room for leverage and counter-party risk to live in that gap.
Tokenized stocks (or any asset) is building towards atomic on-chain settlement - you have stock in MSFT, I have stablecoins, we perform an atomic transfer where you send me MSF and I send you stablecoins. This speeds up the system and eliminates counterparty risk. We each must have the asset ready to trade at this point in time.
The benefit is faster settlement, not keeping capital locked up because of long settlement times and decreasing the space where leverage and counter-party risk can live.
Longer term - this potentially means it could be easier for non-US parties to buy US stocks. I can put my savings in the stock market, but a farmer in a developing country cannot. But with tokenized shares, they could invest in US equities - or even a fraction of a US equity if they cannot afford a full share. So this longer term vision could democratize global access to capital markets.
Another similar instrument is perpetuals, which are kept close to the price of the underlying by having people who hold long positions pay people who pay short positions, or vice versa, when the price deviates. (This is called funding.)
One of the primary benefits for traders is 24/7 liquidity and the ability to plug the token into other products onchain, like lending markets.
Stock broker customers have SIPC to reduce risk. Is there an equivalent entity for the crypto token space?
"SIPC protection generally extends to tokenized securities to the same extent that it extends to traditional securities, with protection limited to instruments that qualify as “securities” within the meaning of SIPA’s “security” definition. Thus, for example, if held by a SIPC member for a customer under the conditions established in SIPA, tokenized instruments that qualify as “stock” may be eligible for SIPC protection regardless whether those instruments are registered with the SEC under the Securities Act of 1933, whereas tokenized “investment contracts” are eligible for protection only if so registered."
Sounds like the “blockchain” part of this is marketing, since it’s on a private blockchain controlled by the exchange. The real selling point is 24/7 trading.
Somehow every time I try to make this argument about stock buybacks, some people vigorously defend them as not just somehow a glorified Ponzi scheme.
How do you see that as a Ponzi scheme?
Buybacks raise the EPS/earning-per-share by lowering the denominator (number of outstanding shares).
EDIT:
If P/E stays the same, but the E (earnings) grows, the P (price) has to grow too.
I think it’s quite uncontroversial to equate buybacks with dividends. Personally, I prefer dividends, even if they’re suboptimal tax-wise.
Buying shares means you own some of that; that is the value.
These companies likely pay their employees, and as a shareholder you get to partake and harvest value, without having to work for it.
If the company earns more than last year, the stock should be worth more. But of course, valuation clouds the picture, where dividends are usually simpler to model.
It’s no more “a piece of paper”, than a deed over a piece of land is. Would you also consider that “a collectible”?
You’re entitled to have your opinion, but I disagree with you on this.
Amazon currently has close to 11 billion shares of stock (https://www.macrotrends.net/stocks/charts/AMZN/amazon/shares...). Do you seriously believe that 1/11,000,000,000th control over Amazon in terms of voting rights is worth $240? A single vote is indistinguishable from meaningless.
I struggle with the same initial impression as you, and have reached an uneasy peace with the status quo by telling myself that the stock price is about the amount of dividends the company could issue in a dividend-friendlier tax environment, once its growth plateaus and it goes into cash-cow mode.
However, if they're at parity then the incentive is to just squeeze your assets for as much income as possible until you run their value into the ground. Which seems like a pressure for business owners / shareholders to be even more short-sighted than they already are.
Which is also my objection to a wealth tax actually (incentive to tank paper value of all holdings).
IDK. Taxation is sort of a blunt instrument and seems woefully inefficient compared to nationalizing assets on a case-by-case basis.
"Companies often act dumb, and therefore we should charge them less in tax" is not a particularly compelling argument to me.
Completely agree about this part. I find it unethical that capital earns more than labor.
I don’t think that will ever change though, as capital also buys political power (in many countries).
That was my initial motivation for getting into dividend investing: If you can’t beat ‘em, join ‘em.
A collectible card doesn’t have paying customers; many publicly traded companies do. They are real businesses that make money. When they make more, the price goes up.
You seem to ignore that.
The economy is not based on the stocks, but on the value the underlying companies produce. E.g. Tesla makes cars, Google runs a search engine. Such companies impact the real world - Baseball cards collect dust.
It’s a broken comparison.
The cash for buybacks comes from company operations, which they give to investors in exchange for destroying the outstanding security. The cash for Ponzi schemes comes from other investors, which they receive in exchange for issuing more securities and use to fund investors who want to cash out. They are in many ways opposites.
If the value of something is only "someone else will pay for it, and then later they will sell it", that to me is effectively the same as a Ponzi scheme. There's no inherent value in the actual thing being bought and sold other than the buying and selling of it. Maybe calling them "Pokemon cards for companies" would be a better way of describing why I find it nonsensical to claim there's any real link between the company and the stock unit when buybacks are the only way to make money off them.
Curious if you understand where the cash from a buyback comes from? That it's out of the corporate treasury, where it was previously accounted for as part of the profits of the corporation?
The issue to me is that the division between "money companies get from selling their shares" and "money companies get from selling their products" is artificial; whether it gets taxed differently is a procedural issue, not something that inherently defines what "value" is. When the value of something is only from selling it again in the future, it's inherently only valuable as long as there's someone else to pass it onto to sell it again later. Sticking the company in the middle of passing it along doesn't magically change whether it's sensible or not. That's what I mean by "effectively a Ponzi scheme", even if it's not strictly one in the definitional sense. The same arguments for why a Ponzi scheme is undesirable apply.
> Obviously it comes from the company; otherwise it's just a regular stock sale that doesn't need any additional descriptor.
This is incorrect. A buyback is when a company buys its stock. It is giving cash to shareholders, and taking the shares back. A stock sale is the opposite, when the company sells its stock and receives money from the new shareholders. The direction of cash flow is very important here, because a key difference between a Ponzi scheme and a buyback is that in a buyback, the company is distributing cash to investors, not taking cash in.
> The issue to me is that the division between "money companies get from selling their shares" and "money companies get from selling their products" is artificial
If you're collapsing these two, you're generalizing beyond the point of usefulness, and ignoring all of the reasons why people engage in economic activity in the first place.
There are many, many industries where the consumer does not even get to sell the object again in the future. When you go out to a restaurant, the meal disappears within an hour, leaving you with just memories and indigestion. When you go to an amusement park, you have fun while you're there and leave with nothing. When you pay rent, you have a roof over your head for the month and then nothing afterwards. When you go to a casino, you get your hopes and excitement up while you're there and leave with less than nothing. When you buy alcohol or tobacco, you're spending money on the privilege of poisoning yourself.
Almost everyone would consider these legitimate economic exchanges, though. They may be inadvisable on a time-preference basis because your money disappears and you end up with nothing durable in return, but few people would argue that a large part of our economy is made up of transactions like this.
You're right though that you can take the corporation out of the equation and they still make just as much sense. If you take the corporation, its accounting statements, and the corporate treasury out of the equation, then a buyback is taking money earned from providing goods and services, and distributing it to the shareholders. The difference from a dividend is which shareholders receive the distribution: in a dividend it is distributed equally across all shareholders (who continue to remain shareholders), while in a buyback it distributes the cash to the people who least want to own the business in the future, paying them out entirely and distributing future profits to a smaller set of shareholders.
When a company buys stock, the money comes from the company. You're literally saying the same thing as me and telling me I'm wrong. It's not worth it for me to read beyond that because it's not clear you're reading what I'm saying properly.