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  • what are the problems with that?

  • Well let's talk about the problems this week we saw with iron finance, they were trying to set up a stable coin that was trying to match the price of the U.

  • S.

  • Dollar $1 for the stable coin.

  • Sounds like a great idea right?

  • Guess what?

  • When you buy the stable coin it's the price of a dollar until it wasn't.

  • And two days ago the collateral that was backing that asset went into the toilet and that price of the dollar went down to 70 cents.

  • And guess what?

  • Your beautiful synthetic instrument that now you could trade in a borderless way and a peer to peer way in a trust this way.

  • Look how amazing it is.

  • Look mom now becomes almost worthless because you didn't understand that there was risk involved with that synthetic instrument.

  • And so let's talk about some of those risks.

  • First of all we have collateral risks like we saw with our own finance even something like U.

  • S.

  • D.

  • C.

  • Or tether.

  • Those are all collateralized with ethereum or other multi collateral assets.

  • But they still they still might not be there if the markets move the value might not be there.

  • Remember that it's not the same as having a dollar that you can go to the U.

  • S.

  • For.

  • And again that has risks as well.

  • But remember that with a synthetic instrument also, you've got technology risks.

  • And and that's always a problem.

  • You don't know if these platforms are gonna break, you don't know if they have bugs.

  • You don't know if there's gonna be a run on these new tokens and currencies.

  • And we saw that happen as well.

  • In the real world.

  • You have counter party risk.

  • Again, when I enter into a derivative, it's a contract between two people.

  • Now with the mercantile exchange there is a centralized exchange.

  • They have margin accounts, there's someone standing in the middle.

  • But ultimately, it's a contract with another institution which could go bankrupt.

  • And we've seen those things go back up in the past.

  • So still again your synthetic instrument.

  • It's all well and good.

  • But if the institution goes bankrupt, you lose everything.

  • When I worked at bankers trust, you did a trade with bankers trust, we were a double A rated bank.

  • If we went bankrupt, guess what?

  • You've got nothing.

  • So always remember that.

  • And lastly, we've got regulation risk.

  • We don't know what's going to happen down the line.

  • So when you own a share of Tesla stock, you understand the regulations, the capital gains.

  • When you show own a share of synthetic Tesla stock, it's really not obvious what's going to happen in the future.

  • So there are all sorts of risks involved.

  • And then finally, there's just a liquidity risk.

  • Will you even be able to sell that thing if you want to get out?

  • So again, I am really bullish on the future of synthetic instruments inside the academy.

  • We're gonna be learning about these and hopefully trading these where we can.

  • Um, but I also want to say it's still early in the markets.

  • We need to understand their liquidity issues.

  • There's collateral issues, there's technology issues, there's regulation issues and it's something that you have to understand before you just go in there and start putting on your japanese in synthetic trade or your Tesla synthetic trade or your whatever.

  • Be careful before you do it.

  • Um, There's also lots of risks involved there as well.

what are the problems with that?

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B1 synthetic collateral instrument bankrupt risk tesla

THE PROBLEM WITH SYNTHETICS IN CRYPTO ? Brian Rose on RISK ?

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    林宜悉 posted on 2021/07/15
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