The Universal Market Access (UMA) announced a partnership with MakerDAO to release a tokenized version of the stock exchange. Their ERC20 token will feature fractional ownership in the largest financial markets companies in the United States. This according to an official blog post on Medium, March 27, 2019.
Not Initially Available For Trading In the US
UMA explains that their ERC20 token dubbed USStocks would enable investors to access the United States’ stock market using cryptocurrency. Users will be able to purchase the token using MakerDAO’s own USD-backed Stablecoin, Dai.
The blog writes:
“USStocks is an ERC20 token representing synthetic ownership of an index of the 500 largest exchange-listed US stocks. This means that anybody with access to the internet and digital money can participate in the US stock market.”
Through USStocks, UMA will enable individual investors to become shareholders in some of the largest 500 companies in the US financial markets. Potential onboarding investors can initially gain access via the Decentralized cryptocurrency exchange DDEX which is based in Beijing. However, the token will not initially be available for trading in the US for what UMA says are regulatory concerns.
MakerDAO CEO and co-founder Rune Christensen stated:
“Dai exists to create an inclusive platform for economic empowerment — allowing equal access to the global financial marketplace […] USStocks is an exciting example of how decentralized finance can unlock economic opportunities for people regardless of geography or income level.”
As per the announcement, each USStocks will represent $1 x stock index level, which level is calculated by the 500 leading companies listed on NASDAQ, NYSE and CBOE BZX Exchange. The USStocks will be created by liquidity providers depositing DAI tokens into a UMA smart contact. Once the value of the stock index rises, providers will add additional Dai to enforce a total over-collateralization ratio of 108.5 percent.
Increasing Popularity and Use Cases
The tokens will be free to trade until the expiration date of the Smart Contract when the token holders can redeem their USStocks for DAI tokens according to the final settlement value. The firm has said that the initial settlement date is May 15, 2019, when investors can exchange their USStocks back to DAI. UMA co-founder Allison Lu explained:
“So let’s say you buy a token, and it is tracking the index. And let’s say the index is at $100. The smart contract is holding on to more than $100 at all times. So let’s say that the index goes up to $110, then liquidity providers are required to put in another $10, and they have an incentive to do this because they lose an initial deposit that gets paid to initial token holders if they fail in this obligation.”
The move comes at a time when there is increasing popularity and use-cases for Stablecoins, most of which are tied to the US dollar worldwide. As BTCmanager reported last week, Japan-based blockchain project USDDEX reported that its decentralized ERC20 Stablecoin had earned investors a 45 percent ROI.