The debacle around Robinhood and GME short continues. Redditors collectively destroyed a hedge fund short on GME. After that, regulators threw down the hammer by blocking retail accounts and seizing their funds.

The gap between Wall Street and Main Street is wider than ever, making people question whether they can opt-out of a broken system while maintaining exposure to the stock market.

Fortunately, Crypto Street is inviting everyone to enjoy a fair game where the community is at the wheel. Some startups in the blockchain space have spent years creating the necessary infrastructure to enable anyone with an internet connection to trade almost anything from oil futures to Tesla and Apple stock.

It goes without saying that the current solutions are raw due to the industry’s infancy, and the risks of trading stocks on the blockchain are substantial. However, as more builders join the space, the potential for improvement becomes tremendous.

Today I’ll review some of the currently functioning crypto platforms that allow stock trading and outline what you should expect when moving to Crypto Street.

How Crypto Enables Stock Trading

The crypto space has two types of companies: centralized and decentralized. The former include exchanges like Coinbase, Binance, and FTX; the latter are projects like Aave, Compound, and Synthetix.

The approach of centralized vs. decentralized companies to providing access to stocks is different. Centralized companies have to play by the book. Otherwise, regulators will take them down. Decentralized startups don’t have to care about regulators as soon as they reach a certain maturity level.

FTX Exchange

FTX is a centralized crypto exchange being run by one of the uprising crypto stars, Sam Bankman-Fried. It’s one of the top-10 exchanges by trading volume both in spot and derivatives categories.

In October 2020, FTX partnered with US-based Digital Assets AG and Europe-based CM Equity AG to add tokenized stocks. CM Equity AG holds the traded equities, while the tokens work like depositary receipts or ETFs. If a trader wants to hold an actual stock, they will need to do it through CM Equity AG.

An essential advantage of the tokenized securities is that the platform allows fractional ownership. Fractional ownership allows retail traders to make smaller deposits. Moreover, traders won’t have to pay for custody; FTX will only charge trading fees.

FTX took advantage of the recent debacle around Robinhood by recently adding GME and WSB index to its offerings. The exchange’s team has been nimble in making steps in the right direction and marketing attractive, new trading products.

Interestingly, US citizens can’t get access to tokenized stocks on FTX. This is the disadvantage of coping with regulations, which platforms like Synthetix can potentially overcome in the long run.

Synthetix

Synthetix is one of the top decentralized exchanges in the DeFi space. The project is even pushing the boundaries of the Ethereum blockchain by implementing new scalability mechanisms.

What’s interesting about Synthetix is that there’s no asset trading a literal sense of the word.  As its name suggests, Synthetix enables price exposure to assets without the need to hold or trade them.

In simple terms, ‘trading’ assets on Synthetix means creating debt denominated in some asset. The inner workings of the platform are beyond the scope of this newsletter. All you should know is that the platform can enable exposure to anything as long as there is a price feed to track.

Importantly, Synthetix has been making substantial efforts towards decentralization. In July 2020, the platform’s governance was split across three decentralized autonomous organizations.

The more decentralized a platform is, the less it can care about the regulations, especially if it doesn’t require holding underlying assets. If there’s no one holding the off switch, the platform becomes unstoppable, even if its website gets taken down.

Still, Synthetix only has NIKKEI and FTSE indexes, which shows developers don’t want to test regulators and are cautious about adding new Synths. It seems decentralization doesn’t completely remove regulatory risks.

Risks of Trading Tokenized Stocks

It’s essential to always keep in mind that cryptocurrencies are still mainly in the grey despite recent advancements in regulations. Hence, service providers may one day become unable to offer crypto versions of stocks.

Due diligence on the platforms is the key. You need to know what vehicles blockchain companies use to offer equities if they’re centralized, who are they partnered with, and what jurisdictions they serve.

For decentralized platforms, there’s always a risk that the underlying platform gets hacked, exploited, or will just perform poorly under adverse market conditions. Moreover, Ethereum fees are currently prohibitive for many retail players.

Nevertheless, the migration from Wall Street to Crypto Street is undeniable and for a good reason. The blockchain space is more transparent, accessible, and technologically advanced. Software is eating the world, and this time that software is the blockchain.