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by thebean11 1516 days ago
Not necessarily..tons of financial transactions are purely digital (currency exchange, stocks, derivatives etc).

You can also tokenize a real world asset (for example a token representing an amount of gold). Then you have to trust the issuer of the token, but it's very possible you trust that issuer but don't trust your counterparty.
1 comments
hiq 1516 days ago
The examples you mentioned are not purely digital since they rely heavily on the legal system. You don't consider tokens abstracted from the whole physical world.

I meant that nothing is fully embedded within a blockchain (maybe physical was the wrong word).

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thebean11 1516 days ago
For sure, something like a stock still has a real-life counterparty that you can't get rid of. Trading it on a blockchain eliminates only the counterparty risk from the person you trade with, not with the party issuing the token / asset. This is true for basically everything except the native token.
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hiq 1515 days ago
> Trading it on a blockchain eliminates only the counterparty risk from the person you trade with

I think we agree here. The question then is: how useful is this really?

For example, assume I have some USD that I want to trade for VT, and I want to decide between using a blockchain or not.

The counterparty risk solved by using a blockchain is:

1. No blockchain: the broker (who's between me and the person I want to trade with) can technically keep the USD and the VT.

2. Blockchain: this cannot happen because a smart contract prevents it.

But:

a. How often are you in a situation where you trust the entities backing the two assets (USD and VT here) but can't find a broker whose trustworthiness is implied by the trustworthiness of the two entities backing the two other assets?

b. Less trust is always better, but blockchain-based solutions bring their own problems (e.g. private key custody). Are there even cases in which this trade-off is worth it?

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thebean11 1515 days ago
What if I:

- Am not in a jurisdiction where there is a trustworthy broker for VT or USD?

- Want to loan someone my VT (for example for them to short)?

- Want to buy some derivative of VT (easy to do in the US for VT American-style options, but this isn't true for all derivatives on all assets in all markets)

- Need to buy a large amount of VT and using the open market isn't cost effective?

VT maybe isn't the best example in favor of crypto as it's probably already one of the easiest assets in the world to trade safely online. There's lots of other stuff that's way trickier in the current system.

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hiq 1513 days ago
1. that's unlikely you're allowed to trade VT at all in this case.

2. the real hurdle is regulations rather than anything technical.

3. again, you don't need a technical solution, you need a legal one.

4. and this will be more effective thanks to a blockchain? How so? So far, blockchain-based solutions seem more costly rather than less.

The current system has a lot of limitations, but many (most?) of them are of regulatory rather than technical nature, and blockchains do not help in that regard.

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