Digital Assets AG said it is not taking any short positions against the underlying stocks, unlike some CFD (contract for differences) providers in traditional finance.
“We take the same position as the clients,” the company’s representative said. “We don’t sell short and we are not selling the order flow to market makers like Robinhood.”
The disadvantage of having no physical headquarters
A big question, for some cryptocurrency-industry veterans, is why Binance didn’t use its own blockchains to mint the tokens.
Binance has two blockchains: Binance Chain, focused on high-speed transactions, and Binance Smart Chain, to host decentralized finance applications and other digital assets.
“I don’t understand why people in the digital asset space aren’t just actually issuing tokens that represent equity for real,” said Chong, the Fusang CEO. “The whole point of blockchain technology is supposed to simplify all of these layers and layers of intermediaries.”
Binance has thrived, in part, because it’s operated in young and always-changing cryptocurrency markets, where regulations aren’t nearly as coordinated across international jurisdictions as mature markets like stocks or even bonds and foreign exchange.
Notably, Binance CEO Changpeng “CZ” Zhao has repeatedly refused to answer questions about where his firm is headquartered.
“They always say they don’t operate in any jurisdiction,” Chong said.
“They are working with a regulated German broker for these transactions and apparently made the decision that represented sufficient regulatory cover,” Richard Johnson, CEO of Texture Capital, a New York-based company that offers tokenized securities for private capital markets, said through a spokesperson.
For traders, there’s also the existential question of whether Binance might end the new service abruptly – for any reason.
A two-page “Binance Stock Tokens Trading Service Agreement” on Binance’s stock token website says that “Binance.com reserves the right to suspend or terminate Binance stock tokens trading service without notice. If necessary, Binance.com has the right to suspend and terminate Binance stock tokens trading service at any time.”
Alternatives to Binance’s stock tokens
Binance said in an email to CoinDesk that the company does not charge commission fees on the tokenized stocks while running a tight spread model. The goal for launching the product is to allow users to access the underlying shares in a more affordable way.
While Binance’s new service may attract regulatory attention due to the exchange’s size, the effort isn’t the first of its kind. Popular crypto derivatives exchange FTX provides similar products, also through a partnership with Digital Assets AG and CM Equity.
Terraform Labs’ Mirror Protocol allows users to mine crypto assets that mimic the value of shares in publicly traded companies.
“Binance doesn’t allow withdrawals because then the underlying broker-dealer wouldn’t be able to keep serving Binance – it would break the KYC (Know-Your-Customer) chain,” Do Kwon, founder, and CEO of Terraform Labs said. “So these stock tokens on Binance and FTX can never be transferred out, and therefore can never be composed into smart contracts.”
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