Critics Dub Mirror Protocol Synthetic Stocks “Fake Stocks,” But Here’s the Truth About Mirrored Assets

A number of traditional media outlets including Bloomberg have called mirrored on-chain assets “fake stocks”, but there are some facts that need to be understood before making a concrete judgement.

Mirrored Assets: Real Value or Fake Stock?

Blockchain firms such as Mirror Protocol and Synthetix are offering ordinary crypto users a way to gain exposure to traditional stocks with mirrored blockchain assets. Mirrored assets (mAssets) are a well named asset class: they are designed to mirror real-work assets, tokenizing them and representing them on the blockchain. Once an mAsset is minted, the system uses a decentralized price oracle to feed in the price of the real world asset. When the price of the mAsset drifts from the price of the real world asset, users are incentivized to purchase or sell the asset to either mint or burn it, equalizing the price.

With mirrored assets crypto traders can gain what is known as “price exposure” to traditional asset classes without having to directly own those assets. So while a theoretical Bitcoin Exchange Traded Fund (ETF) would give traditional investors price exposure to Bitcoin without the need for owning Bitcoin, mAssets can give crypto users price exposure to Tesla or Apple stocks without the need to directly own those stocks.

Blockchain users can now access stocks through “mirrored assets”

Bloomberg Gives Their Input

While the market for mirrored assets is still in its infancy, it has now caught the attention of mainstream media with a number of outlets, including Bloomberg, labeling the assets, “fake stocks.” The ability of blockchain protocols to work outside of the considerable weight of regulations and red tape which surrounds the current stock market, is something that regulators will, once again, simply have to get to grips with.

As Bloomberg journalist Michael P. Regan correctly noted, “At the moment, it’s a case of innovation that’s way ahead of regulation,” 

In crypto, innovation outstripping regulation is not something new. Do Kwon, the founder and CEO of Terraform Labs, the company behind Mirror Protocol, seemingly takes a relaxed attitude to the regulatory grey zone his company is operating in. In an email to Bloomberg, Kwon detailed the hurdles Decentralized Finance (DeFi) has brought to regulators – and why waiting for regulation could be detrimental for all parties.

Kwon explained to Bloomberg via the email that DeFi “is so powerful in unlocking financial services for disenfranchised people around the world,” that “it’s better to move fast and break things. Waiting for fragmented regulatory frameworks to crystallize before innovating is counterintuitive.”

Mirrored assets work exactly as their name suggests

Kwon also confirmed that Terraform Labs had not spoken with regulators in the US or any exchange such as the Nasdaq. That is not surprising however since US regulators and the SEC are notoriously slow-moving when it comes to crypto. Bitcoin ETFs are one case which illustrates the point. SEC commissioner Hector Peirce recently spoke to CNBC to bemoan the lack of urgency from the SEC on Bitcoin ETFs. According to Hestor the SEC applies a “unique, heightened standard” to filings related to digital assets. It is little wonder then, that figures like Kwon avoid dealing with them entirely.

It is not only SEC commissioners and project leaders who acknowledge the problem. Former Goldman Sachs investment banker, Matt Levine, explored mirrored assets in his own Bloomberg opinion piece

In the op-ed Levine states: “Obviously it has regulatory problems; if you did this in the U.S. and sold the thing to U.S. citizens without registering it with the Securities and Exchange Commission you would get in bad trouble. But that’s true of almost everything in crypto so never mind.”

Oh Well, Never Mind

Whatever label media outlets choose to throw on mirrored assets, it appears that industry leaders are already firmly established and appear unfazed. The total value locked in Synthetix is currently $1.77 billion, while Mirror Protocol is even higher at $1.86 billion.

For blockchain advocates, calling mirrored assets “fake stocks” truly misses the point. This is not your legacy financial system, this is crypto. There are so many differences between the two systems that applying the same principles is counterintuitive to progressing innovation. Until widespread knowledge of these differences is obtained, proponents and critics will remain at an impasse. As always, BSC News suggests that readers DYOR (Do Your Own Research!) before making any financial decisions regarding mirrored assets.

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