Trading stocks and crypto on decentralized exchanges (DEXs)
While traditional DEXs primarily facilitate crypto-to-crypto trades, the emergence of synthetic assets and tokenized stocks is bridging the gap between traditional finance and DeFi, offering exposure to the stock market on decentralized platforms.
Here’s how it works:
Synthetic Assets:
These are blockchain-powered financial products that mirror the value and characteristics of real-world assets (RWAs) like stocks, commodities, or even fiat currencies, but without actually owning the underlying asset.
They are created using smart contracts and are backed by crypto collateral, often overcollateralized to mitigate market volatility risks.
Platforms like Synthetix and UMA allow users to create and trade these synthetic assets.
Tokenized Stocks:
These are digital representations of traditional stocks, issued as tokens on a blockchain, according to Blockchain App Factory.
They represent equity shares in companies that have gone public, mirroring the price movements of the underlying stock.
While they grant exposure to the stock's price, they often don't confer traditional ownership privileges like voting rights, says Nasdaq.
Robinhood, for instance, is offering tokenized stocks in Europe, planning to expand to the U.S. in the future.Benefits
Global Accessibility: DeFi allows investors worldwide to access markets regardless of geographical barriers.
Enhanced Liquidity: Trading on DEXs can happen 24/7, increasing liquidity and trading opportunities.
Fractional Ownership: Tokenization allows users to buy portions of high-value assets, making them more accessible.
Operational Efficiency: Blockchain streamlines transactions, reducing costs and settlement times.
Decentralization and Transparency: Transactions are peer-to-peer, recorded on the blockchain for everyone to see. Risks
Smart Contract Risks: Vulnerabilities in the code could lead to hacks or loss of funds.
Collateralization Requirements: Users often need to overcollateralize synthetic assets, tying up more capital.
Regulatory Uncertainty: The regulatory landscape for these new asset classes is still evolving.
Volatility: Crypto and synthetic assets can be highly volatile, leading to significant gains or losses. Note: It’s important to differentiate between DEXs that enable the creation and trading of these assets (like Synthetix and UMA) and those that primarily facilitate crypto-to-crypto swaps (like Uniswap and PancakeSwap), although some DEX aggregators can help find the best rates across multiple DEXs. You can find extensive lists of DEXs on platforms like Alchemy.