The evolution of crypto financial products: asset pass-through could be a key step

Whether it’s CeFi or DeFi, asset pass-through has become the next focal point.

The evolution of crypto financial products: asset pass-through could be a key step

In each round of bull market, the rise in coin price is only a resultant surface, behind which actually represents the substantial development of blockchain as an industry. If the formation of the last round of bull market was mainly due to the wealth creation effect brought by exchanges, then after 2019, one financial innovation after another brought by exchanges is an important driving force that propels the market from recovery to prosperity.

IEO, platform coins, futures, options, ETFs, DeFi liquidity mining and other crypto financial products have brought new liquidity to the market one after another, but most of these innovations still have the shadow of traditional financial products, and none of them go beyond the boundaries of the crypto world, addressing still the liquidity and incentive issues within cryptocurrencies. As blockchain technology is further recognized and applied, crypto-finance innovations will likely break through this boundary next, increasingly connecting real-world assets, which will not only expand tradable assets in the crypto world, but also increase the liquidity of real assets.

Asset pass-through is one of the main ways crypto-finance can connect real assets, now, which assets have been pass-through? What is the future growth potential of these pass-through assets? Which platforms have already seized the opportunity? This article will take a look back and forward to the journey of asset pass-through with these questions.

Crypto finance links real assets: asset pass-through is the key

In the past, the development and innovation of crypto financial products mainly took traditional financial products as the reference system. Through imitation and improvement, exchanges have brought users in the crypto world a variety of ways to play such as playing new, futures, options and ETFs. Although these products are not yet “out of the loop”, they have greatly improved the liquidity of the crypto market and expanded the market scale, which has laid a good foundation for the next development. Data shows that in the past year, the trading volume of BTC futures alone has surged from about $37 billion to about $369 billion, up 987.30%, and the position has grown from about $3 billion to about $20 billion, up 566.67%.

However, the growth in liquidity from any one product can face diminishing marginal growth rates, and in such a context, continued innovation is particularly important. So, where will the next innovation in exchanges come from?

The recent explosion of NFT may offer new ideas for innovation in crypto financial products. The combination of NFT and crypto art has earned a lot of attention so far this year, with the highest auction sky-high price of $69.34 million showing investors the huge potential of NFT. The slogan “Everything can be NFT” is not just a wild idea, but also reflects the core of the industry’s development, which is to connect the crypto world with the real world through asset pass-through.

Simply put, asset pass-through means mapping real assets onto the blockchain and generating a pass-through (mainly tokens here), which represents the ownership of real assets and can circulate freely in the blockchain network. If more and more real assets enter the crypto world through pass-through, the scale of tradable assets in the crypto world will be greatly expanded, and the liquidity of real assets will be greatly increased. At that time, blockchain will become the underlying network of daily life. It is no exaggeration to say that asset pass-through will be the core imagination of the next stage of crypto finance development.

Early Experiments of Asset Pass-Through: Equity Pass-Throughs Have Already Been Launched on Multiple Exchanges

While a variety of assets have already been tried out for pass-through, equity pass-throughs are the most noteworthy, given their liquidity and application potential. As the name implies, equity passes are the pass-through of shareholder rights, and since stock is the proof of shareholder rights, equity passes can simply be understood as tokens corresponding to stock.

After the Coinbase IPO, equity pass-throughs have once again become the focus of market attention. This is because many investors, especially domestic investors, found that they could not freely share the dividends of Coinbase’s IPO due to geopolicy. This is actually the reason why equity pass-throughs are necessary to exist.

In traditional financial markets, domestic investors face more problems in the process of account opening and deposit and withdrawal when investing in US stocks due to our financial management policies. In addition, during the trading process, investors may also face the obstacle of U.S. stock trading rules, such as investor protection rules that restrict T+0 trading for small and medium-sized investors, and then tax requirements such as capital gains tax, dividend tax, and personal income tax. These rules differ greatly from A-shares, objectively increasing the difficulty for domestic investors to invest in U.S. stocks.

To address these pain points, FTX launched its equity pass-through product as early as the end of October 2020.FTX’s equity pass-through is a product launched in cooperation with CM-Equity, a German compliance securities provider, and allows users to trade equity pass-throughs on FTX after passing CM-Equity’s KYC audit. These passes can be redeemed for the underlying stock through CM-Equity and may also be able to be transferred directly from the FTX in the future. FTX’s equity pass-throughs also have some obvious advantages over trading U.S. stocks directly, such as trading anytime, 7*24, allowing small and medium-sized investors to purchase pass-throughs for less than one share, paying dividends in full, and supporting cryptocurrency trading.

Currently, FTX has gone live with equity passes for 46 underlying stocks, including premium assets such as Coinbase, Tesla, Apple, Amazon, Bari Baba, Twitter, ZOOM, Google, MicroStrategy, Netflix, PayPal, Robinhood, and more. These assets have opened a total of 48 trading pairs, with USD, which is anchored to a basket of USD stablecoins, as the main trading asset, with Tesla having been the first to go live with BTC and DOGE cryptocurrency trading pairs.

Although the equity pass-through market is still relatively small, with daily trading volume in a single market at around $1 million, this new track has already attracted the attention of other exchanges. on April 12, Binance announced the launch of an equity pass-through product, also based on a partnership with CM-Equity, with only 2 underlying stocks, Coinbase and Tesla, currently live. In the future, more exchanges are expected to participate in the equity pass-through market.

After asset pass-through: derivatives will become an important increment

Asset pass-throughs are just the first step to link the crypto world to the real world. To make this link work as it should, it is more important to improve the liquidity of asset pass-throughs after pass-throughization. At present, asset pass products are still relatively single. Taking equity pass-throughs as an example, spot is the main trading product. Referring to the product development logic of the crypto world, derivatives will definitely become the next growth point.

FTX sees this opportunity before Binance and has already launched quarterly futures on equity pass-throughs, covering 44 underlying stocks, including Tesla June 2021 contract, Amazon June 2021 contract, Apple June 2021 contract, Alibaba June 2021 contract, Grayscale Ethereum FTX’s innovation is also reflected in the Pre IPO product, which was launched before Coinbase’s official listing, FTX launched Pre IPO equity pass-throughs, which provides investors with a new arbitrage window.

In the future, equity derivatives in traditional financial markets, such as equity tranches, equity pledges, equity indices, option contracts, etc. will likely extend more deeply into the crypto world. When the trading assets are rich enough, the allocation of derivatives to each other’s portfolio will also become possible. As an exchange that focuses on derivatives trading, FTX has more advantages in terms of derivatives “Lego combinations”.

The successful launch of equity pass-throughs and their derivatives also signals the potential for more real assets to be pass-through, and connecting real-world assets such as commodities, real estate, and bonds to the crypto world is the key to ultimately realizing the vision of serving the world’s unbanked population. Recently, Maker DAO has issued its first real-world asset loan, and six other multi-asset originators are currently in the governance process phase of Maker DAO, and the assets offered by these originators may include invoices, real estate, music royalties, and more. As you can see, asset pass-through has become the next focal point for both CeFi and DeFi.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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