TLC: THE LONG CON:
The markets are frothing with liquidity.
AN APES GUIDE TO CRYPTO PART 2How Wall St. conquered the wild west of crypto by laundering funds obtained from illegal naked short selling practices through stock market exchanges worldwide.
——————————————————————–CHAPTER 3:
The Long Con begins;
LEVERAGE IN CRYPTO
“They mistook leverage for genius” – Steve Eisman
The industrialization of crypto currency and adoption of crypto wealth creation by the shadow banking sector:
On April 24, 2018 the DTCC submitted new filings that essentially gave shadow banking free reign to have their cake and eat it, quite literally (Cake LP tokens).
Please find below a press release submitted by the DTCC which was enacted by 1 may 2018,
April 24, 2018 ‒ While significant progress has been made during the last eight years towards establishing a global reporting framework for over-the-counter (OTC) derivatives transactions, substantial work remains in the areas of data consistency, aggregation and access in order to be able to effectively monitor and reduce systemic risk, according to a white paper published today by The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry.
In its latest white paper, ‘A Progress Report on OTC Derivatives Trade Repositories: Many Miles Travelled, More Yet to Go’, DTCC calls for continued focus on the definition and adoption of data standards and the exploration of opportunities to leverage new and emerging technologies.
Enter the use of DeFi crypto currency & LP (Liquidity provider) token yield farming.
- Stablecoins
- The use of Liquidity Provider tokens & smart contracts
- Crypto synthetic assets. (hol’ up say whut now!?)*
STABLE COINS IN A NUTSHELL:
Stablecoins try to tackle price fluctuations by tying the value of cryptocurrencies to other more stable assets – usually fiat. Fiat is the government-issued currency we’re all used to using on a day-to-day basis, such dollars and euros, and it tends to stay stable over time.
Usually the entity behind the stablecoin will set up a “reserve” where it securely stores the asset backing the stablecoin – for example, $1 million in an old-fashioned bank (the kind with branches and tellers and ATMs in the lobby) to back up one million units of the stablecoin.
This is how a digital stablecoin and a real-world asset are tied together. The money in the reserve serves as “collateral” for the stablecoin. A user can theoretically redeem one unit of a stablecoin for one unit of the asset that backs it.
There is a more complex type of stablecoin that is collateralized by other cryptocurrencies rather than fiat yet still is engineered to track a mainstream asset like the dollar.
And thus there lyeth the problem………
LETS GET ACQUAINTED WITH TETHER:
- Tether’s total consolidated assets exceed its consolidated liabilities
- Tether’s total consolidated liabilities exceed the quantity of tokens in issue
- Therefore Tether’s reserves exceed the quantity of tokens in issue
Following this logic, “reserves” must equal total consolidated assets.
The fact that Tether’s reserves are cash equivalents doesn’t matter. But what does matter is capital.
For banks, funds and other financial institutions, capital is the difference between assets and liabilities. It is the cushion that can absorb losses, from asset price falls, whether because of fire sales to raise cash for redemption requests or simply, from adverse market movements or creditor defaults.
Tether has very little capital. The gap between assets and liabilities is paper-thin: on 31st March 2021 (pdf)
Stablecoin holders are thus seriously exposed to the risk that asset values will fall sufficiently for the par peg to USD to break – what money market funds call “breaking the buck”.
The money market fund Reserve Primary MMF broke the buck in 2008 due to significant losses from its holdings of Lehman paper. Its net asset value (NAV) only fell to 97 cents, but that was enough to trigger a rush for the exit. Reserve Primary became insolvent and was eventually wound up.
Asset price falls could similarly result in Tether “breaking the buck.”
But unlike Reserve Primary, stablecoin holders wouldn’t be able to get their money out if asset values fell. They would either have to try to sell their stablecoins on exchanges or sit tight and hope that asset values recovered
It’s the risk of asset price falls that is the real problem for holders of Tether stablecoins, not lack of cash for redemptions. Tether’s asset base consists almost entirely of assets that are exposed to the risk of default, illiquidity and sudden price falls.
I will demonstrate how stablecoins are being used for liquidity later on with my introduction of NSCC 802.
Tether’s asset base consists almost entirely of assets that are exposed to the risk of default, illiquidity and sudden price falls. We don’t know how serious this risk is, but it’s reasonable to assume that the worse the rating of the assets, the greater the likelihood that the par peg will break.
Tether : 17/06/2021
Arbitrage:
In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices at which the unit is traded.
It is a chain of transactions whose purpose is to make a profit on the difference in crypto prices on different exchanges. In other words, we buy for less in one place then sell for more in another place. The main thing is not to confuse yourself with all the movement of funds.
The most common reason for the difference in price is a lack of liquidity on one exchange vs another.
Pic: Visual on a traders approach to arbitrage.
NOTE: Hedge fund prolificacy & their usage of HFT(High Frequency Trading) in Wall St. constantly scouring all markets using AI searching for arbitrage (price differences) to profit from.
The addition of crypto to the financial world therefore would be no different. It simply just increases the size of the pool of liquidity for the fish to swim in
ANOTHER QUICK EXAMPLE OF AN UNSTABLE STABLECOIN:
On May 20th @ 1.00am UK GMT you can see a deviation, “Breaking the Buck”
This coin also has synthetic assets in the form of tokenized coins tied to it.
Arbitrage ref: $0.88 when it is supposedly tied to the $USD 1:1. More than a 5% deviation indicates a “Breaking of the buck”
On May 19th – Wall St had liquidity tests – this is ARBITRAGE in an UNSTABLE stablecoin.
Ask the question; Who is authorizing a currency to be created out of thin air backed by the federal reserve in $$$s? Where is the money going to?
It’s an under the counter form of shadow inflation. Physical Dollars get printed, eDollars get minted. 1:1
Tether is minting 1 bil UST at a time but understand this, it is also a private entity NOT in US jurisdiction but even more, it’s anonymous WTF?!?
Now let’s look at what can be built on the back off Tether / UST
SYNTHETIC ASSETS:
Despite sounding confusing and kind of sci-fi, synthetic assets aren’t all too difficult to wrap your head around.
To understand synthetic assets, the first thing to know is that they’re derivatives & derivatives are LEVERAGE
Let’s define what derivatives are. A derivative is any asset that derives its value from an underlying asset or index.
Suppose a derivative’s value is tied to the value of another asset via a contract. In that case, we can trade the movement of that value using trading products like futures and perpetuals.
Instead of using contracts to create the chain between an underlying asset, the derivative product, synthetic assets tokenize the relationship. This means that synthetic assets can impart exposure to any asset in the world — all from within the crypto ecosystem.
A synthetic asset is simply a tokenized derivative that mimics the value of another asset.
Imagine that you want to trade Gamestop stocks without holding the $GME asset itself. Using a synthetic, you can trade $mGME (synthetic mirroredGME) instead, which behaves like the underlying asset by tracking its price using data oracles such as Chainlink.
Q: Who could potentially go long on an anonymous mGME when they know the brakes may be applied on a short sale for example?
A:
Advantages of crypto synthetic assets vs. traditional derivatives
Traditional derivatives were once groundbreaking in their ability to unlock additional value from assets like equities. However, crypto synthetic assets are taking liquidity access to a whole new level.
Here are just a few advantages synthetic assets have over traditional derivatives:
- Anyone can issue them: Blockchain-based synthetic assets can be minted by anyone using open-source protocols like Synthetix and Mirror.
- Worldwide liquidity: Synthetics can be traded on any crypto exchange in the world, including unstoppable decentralized exchanges.
- Borderless transfers: Synthetic assets are blockchain assets like ERC-20 tokens; you can send and receive them between standard cryptocurrency wallets.
- Frictionless movement: Switch between equities, synthetic silver/gold, and other assets without having to hold the underlying asset.
Generally speaking, synthetic assets enable far more liquidity across global exchanges, swap protocols, and wallets than traditional derivatives are even remotely capable of.SYNTHETIC ASSETS MAKE TOKENIZING AND TRADING ANYTHING A REALITY:
The sheer power of crypto synthetic assets becomes more obvious the closer you look.
Imagine that anything — not just assets like equities — can be represented as a synthetic asset token and, therefore, be brought onto the blockchain.
By enabling anything to be tokenized and brought onto the blockchain, synthetic assets unlock untold pools of global liquidity.
Apart from simple market buying/selling and derivatives trading, synthetic assets create possibilities for seemingly infinite markets and combinations for new sources of value.
Example:
Imagine a synthetic asset token that tracks corporate co2 emissions in an industrial zone.
When emissions rise, token holders (these may be locals living nearby, city officials, and outside speculators) profit as the companies issue co2 tokens. However, when emissions decrease, the companies profit by retaining tokens, incentivizing them to continually reduce co2 emissions.
Synthetic asset-based markets like these are just some of the ways synthetics break trade out of the mold.
LETS DIVE INTO TOKENIZED STOCKS
(full credits to u/SajiMeister)
This section will dive deeper into regulations surrounding tokenized stock coins and their potential connection to GameStop FTDs. Please see posts from __________ who was the original bell ringer for the conundrum.
What are Tokenized Stocks?
“Tokenized stocks are tokenized derivatives that represent traditional securities, particularly shares in publicly listed firms traded on regulated exchanges such as Tesla, Apple and Facebook or ETFs like SPDR S&P 500. The key benefits of tokenized stocks include fractional ownership of traditional securities, 24/7 access to markets, and greater liquidity to name a few. These digital assets are backed 1:1 to traditional stocks, entitling holders to the same economic benefits of owning the underlying stock.”
“Tokenized stocks are a tokenization of a digital total return swap contract (“TRS”) (similar to contracts for differences). The Tokenized stocks value is based on and collateralized with the underlying asset, a traditional security (typically a publicly traded equity) and the value of the digital asset is determined by the value of the traditional security. For example, they are collateralized by an equivalent notional amount of the traditional security (i.e., $100 of the debt derivative would be collateralized with $100 of the traditional security). This allows Tokenized stocks to mirror the economic performance of the applicable reference traditional securities.”
“Tokenized stocks may also represent innovative baskets or indexes of traditional securities as well as traditional securities plus cryptocurrencies (for example, the S&P 500 AND BTC). Tokenized Equities may also include leverage as well as long or short exposure..” – From bittrex.com
Well, that is interesting, it is a derivative of an actual stock. It is essentially a convertible. Remember this because it will become important later.
One thing to mention briefly here because I will not touch on it later is that the last paragraph says Bittrex also has convertible ETFs. A bonus tidbit is that they have a tokenized ETF basket which contains…. Well just read it straight from the press release.
“The WallStreetBets Index, or WSB, officially trades under the ticker WSB-0326, and tracks the price of 5 stocks and 2 cryptocurrencies. Thus the index is made up of shares from Nokia (NOK), BlackBerry (BB), AMC Entertainment (AMC), GameStop (GME), iShares Silver Trust (SLV) and Dogecoin tokens (DOGE) and the FTX Token (FTT).”
January 27
Guess what tokenized stock gets added to FTX during the height of the January squeeze… You guessed it GME.
Wait, that is not the only one. They also added a bundle of WallStreet bet favorites. You also can guess this was done on January 27th .
Citadel and FTX
Guess who gets added as their first president on May 14. A FREAKING CITADEL executive. Source.
“Harrison will be in charge of helping FTX.US “massively scale out,” FTX.US CEO Sam Bankman-Fried said in a statement Thursday. Harrison’s expertise is in developing trading technology. In his most recent role at Citadel Securities, Harrison was head of semi-systematic technology, where he oversaw a team of more than 100 engineers.”
Robin Hood and FTX
The chief Operating officer is Sina Nader who previously headed the crypto business at RobinHood. OH BOYYYYY.
So, let’s summarize ownership…
- Founder is a former trader on Jane Street Capital’s ETF Desk
- President is Former Citadel Exec of Semi-Systematic Technologies – May 2021
- Chief Operating Officer is the former head of crypto at Robin hood – Sina Nader.* – August 2020
*A little more information on Sina Nader. Previously, he held positions at Morgan Stanley and Credit Suisse and was a former director at private crypto investment firm CryptoLux Capital.
Nothing to see here…… No conflicts of interest for sure….
FTX and Head of SEC Gary Gensler
A LOOK INTO VOLUME OF TOKENIZED STOCKS IN FTX
As you can see in the graph above, on January 28th the volume of synthetic GME Traded was somewhere at 5.129 million. I believe this in USD so let us use 200$ as the average price for this day. 5,129,000 divided by 200 equals roughly 25,000 shares. This doesn’t seem like much but in order to trade this number of shares then you would need to have the token backed by actual shares.
Well the broker who purchases the shares to back the coin is CM-Equity. Well as you probably already have guessed and can look up yourself… CM-Equity does not claim to have any ownership of shares in SEC filings… Did you also know that Bittrex and Binance also have tokenized GME stocks as well as other meme favorites? Bittrex and Binance are also backed by stocks purchased from CM-Equity. So, 3 major tokenized stock dealers who are backed by actual stocks custodied through CM-Equity but yet CM-equity does not have any SEC filings. Very Strange.
Next we will look at on board volume for FTX GME Tokens.
So the onboard volume shown starts from the first day GME was offered, January 27th. The volume starts positive then goes to negative… So OBV is just the volume from second day minus the volume from the first day and then accumulates every day. Why would the OBV go negative to -5,000,000 volume. That is a 10 million change since the original position and appears to show a net short position among traders… SHORT POSITIONS HMMM.
Search FTX all day and night and you won’t find anything about short positions on tokenized stocks except in their FAQ.
So something, something short exposure. It will take more digging to figure out exactly what is going on with the short exposure but I WILL FIND IT EVENTUALLY.
Tokenized Stocks FTD Theory 1 – Pump and Dump Crypto to Purchase GME FTD’s at a Lower Price.
So now that we have a clear understanding of what tokenized stocks, let’s dive into a theory one on how shorters and FTD holders can take advantage of this.
As you know, you can purchase tokenized stocks with any accepted crypto on the exchange. You can then trade in your token for the actual share using CM-Equity.