WallStreetBets Group Releases Synthetic Stock Trading Dapp
Image courtesy of Unsplash.

WallStreetBets Group Releases Synthetic Stock Trading Dapp

WallStreetBets has discovered synthetic assets. Is this the answer to the problems faced by retail investors?
Neither the author, Kai Morris, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

A group claiming to represent the WallStreetBets community has created a DeFi stock trading platform. The project offers blockchain-based stock assets, known as synthetics, providing investors the ability to trade without the need for any third parties.

Decentralizing Stock Trading

The WallStreetBets DeFi platform is the most recent project to come out of this community. Having been enraged by trading apps such as Robinhood limiting users during the GME-short squeeze saga, a group of Redditors decided to launch their own DeFi protocol as a more transparent alternative. 

As a result, the WSB DApp (decentralized application) was created. In their litepaper, they describe it as “a community-owned and operated decentralized version of r/wallstreetbets… created to openly encourage the free flow of public information and opinion into actionable results”. 

It is an entirely blockchain-based platform, running on the Ethereum network, with support for other blockchains such as the Binance Smart Chain and Polygon, currently in development. The DApp is essentially a suite of tools, letting users yield farm its own WSB token (which launched alongside the app), govern the project via blockchain-based voting, and now trade stocks. 

The app currently offers only seven stocks: Apple (APPL), Microsoft (MSFT), Amazon (AMZN), Alibaba (BABA), Tesla, (TSLA), Google (GOOGL), and Twitter (TWTR). Along with this, users can also trade Ethereum (ETH), and the Invesco QQQ ETF (QQQ), which tracks the Nasdaq 100-Index. All of these options (excluding Ethereum) are popular on the WallStreetBets subreddit.

Image of the WSB Synthetic DApp – courtesy of stonks.wsbdapp.com

The website explains they are “empowering investors to buy stocks without the intervention of a middle man”. To do this, the WSB DApp uses tokenized, or synthetic assets. These are blockchain-based assets that reflect the price of other assets, such as stocks and exchange funds. Synthetic assets have become a huge part of the DeFi landscape, especially since apps like Robinhood started restricting retail investors from engaging in certain stock trading activity earlier in the year.

Understanding Synthetic Assets

A synthetic asset is a tokenized representation of another asset, that can run on a blockchain. Commonly, synthetic assets are used to represent stocks, commodities, and precious metals. The fact they are blockchain-based means they can be used on DeFi platforms, such as the WSB DApp. This is what makes them so revolutionary– the lack of intermediaries means the users’ trust does not need to be handed over to another body, making the trading experience more open and transparent. 

However, when dealing with synthetic assets, you never gain ownership of the underlying asset. This is because a synthetic is only a representation, usually only replicating the price of that asset. This means holders do not gain shareholder rights, votes, or dividends.

This is likely why the WSB DApp does not list synthetics for GME or AMC, as most people in the community invested in these stocks not just to make profits, but to make a difference in the world’s existing stock trading infrastructure, which is fraught with conflicts of interest. Buying synthetic versions of these stocks would contribute very little to the (still ongoing) GME saga. 

To reflect the prices of the underlying assets, WSB’s platform uses the Mirror Protocol, powered by Terraform Labs. This allows for an asset to be tokenized on the Ethereum network, providing real-time prices of the assets in question. 

It is likely in the future, the WSB Dapp will add more synthetic stocks to its platform, possibly letting the community decide for themselves via its voting tools.

With the public wising up to the unfair tactics rampant in the traditional stock trading world, more and more people are looking for alternatives.

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What synthetic stocks do you think should be added to the WSBs Dapp? Let us know in the comments below.