The Story of the SEC‘s Crusade Against Plastics. Reports have arrived on the opening day of Messari Mainnet 2021, New York’s long-awaited first crypto conference since COVID-19 began brilliant via a viral tweet that the US Securities and Exchange Commission (SEC) had served a subpoena for an event attendee at the top of an escalator later in the day. While it’s still not entirely clear who was served (or why), this isn’t the first time the SEC has come out into the open in the crypto industry. Come back in just two months.

On July 20, 2021, SEC Chairman Gary Gensler commented on the SEC’s area of ​​responsibility for cryptocurrencies:

“It doesn’t matter whether it’s a security token, a security-backed token with stable value, or some other virtual product that offers synthetic exposure to the underlying security. These platforms – whether in the decentralized or centralized financial sector – are subject to securities laws and must function within our securities regime. “

Just like the SEC’s bold appearance on the mainnet, Gensler’s comment certainly doesn’t seem unusual.

They came about because Gensler – along with his management entourage – finally came to the terrifying realization that crypto tokens, synthetic stocks, are like stocks, but better. .

Related: Powers On … Don’t worry, the Bitcoin adoption won’t stop

So what is synthesis?

Synthetic assets are artificial representations of existing assets, the prices of which are fixed in real time to the value of the assets they represent. For example, a synthetic share in the renewable energy giant Tesla can be bought and sold at any time at exactly the same price as a physical Tesla share.

Consider the average stock trader who prioritizes margins, accessibility, and privacy. To them, the apparent “practicality” of TSLA obtained from a broker-dealer will not hold up alongside several synthetic versions of the crypto version that can currently be purchased for a fraction of the cost. In addition, it is only a matter of time before traders can deploy a synthetic TSLA on a decentralized financial protocol to earn interest or take out a mortgage.

Related: Synthetic Cryptocurrency Assets Explained

The role of synthesis

Decentralized platforms built on blockchain and legacy financial systems are on the verge of clashing in one of the most tumultuous battles in economic history, and Gensler’s comment was just a shot. Make no mistake: decentralized finance (DeFi) and traditional finance (TradFi) have drawn their battle lines. They will remind powerful incumbents and newcomers alike that contrary to what contemporary wisdom might suggest, exchange systems add value to assets – not the opposite. The consequences cannot be reduced: Synthetic assets create a level playing field on which central and decentralized systems can compete for users and capital – a free market for markets.

Typically, digital markets support a variety of competing assets by trading with one another. But when the asset side is tight – that is, when identical assets exist on multiple platforms – it is the markets that compete for most of the daily trading volume of each asset. Ultimately, traders choose where assets live and which systems should die.

While Bitcoin (BTC) competes indirectly in this way with fiat currencies as the only form of money traded over a decentralized network, it is a series of stablecoins pegged to the new fiat currency by central bank executives. Unlike Bitcoin, which often turns out to be too volatile and exotic to outsiders, fiat-backed stablecoins reduce complicated tradeoffs and keep things simple: 24/7 access, international transfers, low-cost economy, kick-ass interest and 1: 1 redemption to Fiat.

Related: Stablecoins pose a new dilemma for regulators as mass adoption emerges

Stablecoins are a great bargain even for skeptics, and with a December 2020 bill for the Stability Act, the US Congress launched its own validator token, which has the same banking charter as its centralized counterparts at Chase, from stablecoin issuers, Wells Fargo and. would ask soon.

The established companies have a long history of finding, acquiring, and sometimes even undermining their competition. It’s not hard to see where the old bank’s aversion to aggregation comes from. As decentralized platforms become more user-friendly and move further into the mainstream, buy-side demand will move away from legacy platforms and their formerly proprietary assets.

Robinhood Saga: The Remix

Imagine what could happen if Robinhood users had access to GME and AMC composite stocks on Jan 28, 2021.

If even a small minority of buy-side demand for these stocks – say 10% – moves from Robinhood to Mirror Protocol Composites, it will increase the supply of outstanding stocks, work efficiently, and thereby drag stock prices. In return, GameStop’s C-level executives would get into a really tough call on the board.

Related: GameStop inadvertently paved the way for decentralized funding

And then, consider what it means for investors to put their aggregated GME and AMC in DeFi logs for mortgage and small business loans at significantly reduced interest rates, removing banks and other incumbents from the equation for good.

Such a scenario would cause GameStop and AMC to move a small portion of their holdings to blockchain-based platforms in order to restore a robust pricing mechanism. Meanwhile, retail-side investors who are just looking for a great user experience and the benefits of interoperability with DeFi protocols will eventually win – something you don’t ordinarily hear in modern financial markets.

From stocks to commodities, real estate instruments, bonds, etc., the emergence of synthetic assets will disrupt pricing mechanisms, catalyze unprecedented chaos in financial markets, and create unforeseen arbitrage opportunities the world has never seen before. Even if the consequences of such a drastic change are beyond expectations, centralized established companies will not voluntarily cannibalize their business models – the free market must be left to the winners.

The future of synthesis

As the demand for synthetic assets meets and exceeds the needs of their supposedly regulated TRAFI partners, the world’s capitalists and investors will be forced to ponder what is actually happening, only the direction of the free market, but their own constitution.

In the heat of an existing crisis, financial institutions and governments will inevitably get to work: the SEC will fight to get rid of synthetic stocks, Congress will pledge to subject regulators to issuing stablecoins that challenge the international banking elite, the commodity futures Trading Commission (CFTC) will be involved in taming derivatives trading platforms, and the Financial Crimes Enforcement Network (FinCEN) will continue to target platforms to protect user privacy.

Related: New episode on crypto regulation: the empire strikes back

Tough days are ahead – and it’s too late to return to the hands of innovation. Compound’s CTTokens, Synthetix’s Synths, and Mirror Protocol’s mAssets have opened Pandora’s box, while Offshift’s fully private zk assets are set to hit the market in January 2022, forever broken, and a new era of financial Freedom will begin.

Wish the best systems win.