The recent Gamestop (GME) vs. Wall Street battle was a classic David vs. Goliath story that pitted the old against the new. The video game retailer’s stock price shot up nearly 2000% in a fierce battle between retail investors and overexposed hedge funds.
Just a year ago, GME was stagnant and trading under $4 as the company struggled to find footing in a shift to online prominence. Fast forward a year and the stock had increased to a high of $470. This was not a result of great management or financial performance, but rather an ambitious and dedicated group of Reddit users who worked together to catapult the price in a successful short squeeze against a hedge fund called Melvin Capital.
This sparked a collective effort to find and exploit hedge funds with large shorts on struggling companies. A global news frenzy ensued, with people joining forces to support the movement from the comfort of their homes using various mobile trading applications. The hype has since subdued but the clinging effects of this event include a continued discussion around the power of hedge funds and various collaborative entities, regulation, and what appears to be the beginning of an investigation into what happened.
In short, Gamestop shares surged as a result of a subreddit called r/wallstreetbets, where degens and talented traders collide to drop alpha and place bets on stocks. Over the past few months, a smaller group of WallStreetBets members believed that GameStop's stock was undervalued, largely due to a massive options bet in 2019 by one user who was later doxed as a prominent Youtube financial educator and trader.
During this squeeze, the rally of retail investors grew and demand for the stock was through the roof. Right as critical mass and support were building, several mobile apps begin interfering with user trades.
Several trading platforms such as WeBull, Apex Holdings, and most prominently Robinhood refused to allow more buying of GameStop shares. WeBull highlighted that the market is characterized by extreme volatility and its clearing house was unable to process more orders. As a result, the users of WeBull were forced to liquidate or sell GME and other stocks with short squeeze potential. Robinhood also cited extreme volatility.
Trading in GameStop shares was stopped, preventing retail investors from buying more shares. There was immense pressure on circuit breakers and trading platforms to restrict trades. This paved the way for people calling for the need for more censorship-resistant trading and decentralization in its best form. The event also saw massive support from top influencers, thinkers, and media personalities. Chamath Palihapitiya, CEO of Social Capital and popular influencer, :
Dave Portnoy, Founder of Barstool Sports and popular crusader against Wall Street, strongly against Robinhood and demanded that they get punished for the crime.
A fundamental shift from centralized exchanges and apps (that can essentially control your money without your permission) to decentralized solutions is currently underway.
In the context of the cryptocurrency markets, a centralized exchange like Coinbase has a closed order book that is managed by a central system. They use their own servers to take care of the trades meaning that the company alone takes decisions on several critical factors such as suspending trades on certain listings and other events that can be detrimental to their user base.
In the world of equities, Robinhood benefits from its relationship with Citadel Securities and other large liquidity providers, funds, and partners. In return for access to order data, Robinhood sold roughly $69 million worth of user Information in 2018 to firms like Citadel Securities. One could argue their interests are not in their users (who can use the app for free) but in the profit potential their user data brings.
Decentralized finance (DeFi) brings the transparency and security of distributed ledger technologies to traditional finance use cases while reducing inefficiencies and solving pain points. Similar to migrating financial processes from the physical realm to the digital realm, DeFi intended to migrate from current infrastructures to more robust, secure, and efficient systems.
Open-sourced smart contracts allow for an immutable ledger backed by consensus mechanisms. Hence decentralized technologies can easily transfer the burden of trust from a centralized authority to software. The ability to automate the creation and settlement of agreements using smart contracts provides a secure and reliable basis to access financial services for the underbanked and unbanked populations.
With decentralization also comes great transparency. Distributed ledger technology (DLT) contains records of all blockchain network activity and is shared by everyone. This is a major game-changer and ultimately is more secure, robust, and efficient vs. legacy systems.
With the smart use of consensus algorithms and cryptography, like Proof-of-Work, one can achieve true immutability. This makes manipulating records stored on the blockchain network impossible.
The main feature of Decentralized Autonomous Organizations (DAOs) is that their operating rules are automatically hardcoded. These rules are enforced when the conditions specified in the software are met in stark contrast to traditional norms. In the case of DAOs, funds are immediately transferred upon result of a contract's approval. Not even influential internal stakeholders and third parties like banks can then stop it. Everyone has a stake in a DAO can make proposals regarding its future. Stakeholders vote on various proposals and proposals are determined based on the opinion of the majority.
Currently in the blockchain industry, DAOs are gaining momentum as various applications and products realize the importance of governance within their platforms. In fact, since 2019, the number of active DAOs have increased by 660%. In 2020, we saw the rise of DeFi DAOs including oracles (DIA Data and API3), staking derivatives platforms (OINDAO), and other notable names like Curve DAO.
In the case of OIN Finance, its blockchain systems offer convenient and robust solutions to create DeFi functions. OINDAO allows projects to mint their own stablecoins with the help of a customization staking pool. This way users can swap their hot coins in order to accumulate more and surge their holdings. Users can leverage their holdings, use it for many use cases, earn rewards, and much more. With such progressive DAO solutions onboard, OIN Finance and OINDAO are a good example of what v2 DOAs look like in 2021's Defi landscape.
While the debate for decentralization is still ongoing, the recent turn of events has driven people away from centralized platforms towards a more trustless and decentralized future in trading. The people have spoken and they want more control over their money and how it is used.