Podpower Episode AtlasThis episode of Unchained features host Laura Shin interviewing Alex Cutler, CEO and co-founder of Dramos Labs, about the recent launch of tokenized stocks on Coinbase's Base network. Cutler explains how these new tokenized assets differ significantly from previous versions, offering true beneficial ownership backed one-to-one by actual shares held by a regulated custodian, akin to the gold standard of traditional ETFs.
The conversation delves into the technical and economic implications of these tokenized stocks, highlighting their 24/7 global accessibility, lower costs, and composability within the DeFi ecosystem. Cutler shares impressive early volume statistics, noting that these on-chain markets are already exhibiting price discovery even when traditional markets are closed, as demonstrated by Nvidia's earnings announcement. He emphasizes that this innovation allows anyone to participate in market making, democratizing access to financial instruments previously dominated by large institutions.
Shin and Cutler also discuss the challenges and risks, particularly regarding price oracles and potential dislocations when underlying traditional markets are closed. Cutler argues that this 24/7 price discovery is a feature, not a bug, and that on-chain liquidity will increasingly become the primary source for pricing. The episode concludes with a look at the regulatory landscape in the US, Coinbase's efforts to gain SEC exemptions, and the ambitious vision for bringing 10% of global GDP on-chain within five years, with tokenized stocks playing a crucial role.
Unlike previous synthetic tokenized assets, the new Coinbase tokenized stocks represent actual beneficial ownership of the underlying share, backed one-to-one by a regulated custodian.
Why careThis distinction is crucial for adoption and functional parity with traditional markets, providing true claims to the asset rather than just a derivative.
On-chain markets for tokenized stocks operate continuously, unlike traditional markets that adhere to 'banker's hours,' enabling constant trading and price discovery.
Why careThis continuous operation allows for immediate reaction to news and events, potentially leading to more efficient and responsive markets.
On-chain markets can discover prices even when traditional markets are closed, as seen with Nvidia's earnings, where millions in volume poured in and the price rose before traditional markets reopened.
Why careThis suggests that on-chain markets could become the primary venue for price discovery, influencing how assets are valued globally.
Tokenized stocks are programmable and composable, meaning they can be integrated with various DeFi protocols for lending, leveraged positions, and automated portfolios.
Why careThis unlocks new financial use cases and products that are not possible in traditional finance, enhancing utility and accessibility.
For dividends and stock splits, an off-chain multiplier is used to adjust the value of the tokenized stock, reflecting these events without changing the on-chain token count.
Why careThis mechanism allows tokenized stocks to accurately reflect the economic benefits of holding traditional shares while maintaining on-chain tradability.
The open nature of on-chain markets allows anyone to participate in market making, providing liquidity and earning fees, democratizing a role traditionally held by large institutions.
Why careThis increases market efficiency, reduces costs, and opens up new opportunities for individuals to earn yield from financial activities.
"What these markets are going to allow people to do is anyone can now be Ken Griffin, right? They can come on chain and they can participate in the very act of market making in a really incredible way."
"What Coinbase launched is a paradigm shift moment. You know, I think this is leaping far ahead of the solutions we've seen because it is fundamentally a representation of the actual underlying asset in the stock."
"In our opinion, price dislocations when markets are closed is the feature, not the bug of these tokenized onchain markets."
"The tokens themselves are still permissionless and accessible and composable across DeFi. But for the full experience, say I wanted to take my Apple shares and I wanted to vote in a issue that was being brought up for Apple shareholders to vote on. I might need to go do that on Cobase.com, you know, with my KYC."
"Brian Armstrong said, Coinbase's belief is that in the next five years, we will bring 10% of global GDP onchain. And I think that seemed a little crazy to folks when he said that on an earnings call."