The march of tokenization continues to flirt with mainstream finance, as a trio of cryptocurrency projects are teaming up to create a token that will give traders synthetic exposure to the top 500 U.S. stocks.
Already live on Ethereum’s blockchain, USStocks was created through a collaboration between the Universal Market Access (UMA) project, the MakerDAO team, and the decentralized DDEX exchange.
UMA is a platform play designed to let users make their own financial products. MakerDAO are the builders behind the dual-token Maker (MKR) and Dai (DAI) ecosystem, where the former is a governance and fee token and the latter is a stablecoin for decentralized finance. Notably, DDEX is built on the Hydro Protocol — a fork of the 0x project.
Excited to announce @UMAprotocol + @MakerDAO + @ddexio2018 = USStocks, an ERC20 token representing synthetic ownership of an index of the 500 largest exchange-listed US stocks. https://t.co/B97KXYoQx3
— UMA (@UMAprotocol) March 27, 2019
Now, these crypto incumbents have come together to create something unprecedented in the space: a singular token offering sprawling access to the U.S. stock market. To start, USStocks tokens will only be purchasable on DDEX via Dai.
On the news, MakerDAO co-founder and CEO Rune Christensen said the tokenization venture was what the spirit of decentralized finance was all about:
“Dai exists to create an inclusive platform for economic empowerment — allowing equal access to the global financial marketplace. USStocks is an exciting example of how decentralized finance can unlock economic opportunities for people regardless of geography or income level.”
Per UMA, every individual USStocks asset is associated with “$1 x Stock Index level,” with that level being derived from the best performing companies listed on America’s top exchanges, the NASDAQ and the NYSE. Notably, the tokens will be settled on May 15th, meaning the initial issuances will expire and can thereafter be redeemed back into Dai.
Stocks Are Cool, But How About Some Tokenized ETFs?
The aforementioned collaborators aren’t the only ones tokenizing U.S. stocks.
Earlier this year, Estonia-based DX.Exchange made waves in the cryptoverse in offering access to tokenized versions of individual stocks listed on the NASDAQ. The crypto exchange began with 10 offerings, including tokens tracking the stocks of Apple (AAPL), Google (GOOGL), and Microsoft (MSFT).
At the time, DX.Exchange COO Amedeo Moscato said the development represented a maturing of the cryptoeconomy’s possibilities:
“Crypto investors who wished to hedge part of their crypto portfolio had only USD stable coins or limited options. Now they can invest in real world assets on the blockchain.”
Tokenized Stocks May Be Frictionless, But Not For Everyone
The potential for tokenizing mainstream assets lies in making them more accessible, more transactable, and more securable.
However, in the context of USStocks, these possibilities are open to everyone in the world but American citizens.
Why? Because its offering wasn’t registered with the U.S. Securities and Exchange Commission (SEC) and is thus undoubtedbly an unregistered security offering under current American law.
As such, the UMA team said in their announcement that U.S. citizens would be subject to legal penalties if they were found to be trading in USStocks:
“If it is determined that any United States person, as defined in the preceding sentence, has purchased or sold these products, such persons will be subject to actions for rescission of the transactions and for damages.”
So, unless the legal code changes there any time soon, American citizens will ironically be the only ones unable to use USStocks tokens. However, it’s not out of the question for a bill to eventually pass into law in the U.S. that would deem tokens as separate entities from securities and thus governed by different rules.