A Whole New Way For Retail Investors To Capitalize — Brought To Light With Shadows
The CEO of the Robinhood is expected to testify in front of congress this coming Thursday. Earlier this year, Robinhood’s decision to halt purchasing of GME shares once again highlighted the vulnerability of a centralized financial system. Our economy should be fair. It should be transparent. It should not be controlled by a small group of people because their interests may not always coincide with the market as a whole.
There is apathy among retail investors that this status quo is inevitable. It has existed for so long because there has been no alternative. Now there is. The crypto resurgence has seen a huge rise in the number of DeFi projects gaining attention. DeFi, an acronym for decentralized finance, uses blockchain protocols to provide a genuine alternative to the current financial model.
Shadows is one such protocol. Using Shadows, retail investors can create synthetic assets like gold or even TSLA shares. The value of these assets are tied to the value of their real world equivalent.
Crucially though, there is no central agent. The assets are created and collateralized by a debt pool that all users can contribute to. They gain access to the debt pool (and the rewards the debt pool offers) by staking their DOWS, the token used by the Shadows network. DOWS is then converted into xUSD, a cryptocurrency that is tied to the value of the US dollar. This xUSD can then be used to create any synthetic asset that the network approves.
To give a clearer understanding of how this works, here’s an example. Jenny pledges $60,000 worth of DOWS to the debt pool. This is converted to 60,000 xUSD and held on the Shadows network. Tommy then decides he wants to invest in gold. First, Tommy converts enough DOWS to add 30,000 xUSD to the debt pool. The debt pool is now worth 90,000 xUSD. Tommy then converts his 30,000 xUSD into a synthetic asset tied to the value of gold (xGOLD). The price of gold doubles. Now Tommy is owed an extra 30,000 xUSD. However, because the debt is shared proportionally by users Jenny is responsible for two thirds of this debt and Tommy himself is responsible for the other third. This leaves Tommy’s net profit at $20,000 taken from Jenny’s net loss of $20,000.
One important caveat, this example is massively over-simplified in order to show how money flows through the Shadows network. Retail investors might raise an eyebrow at having to forfeit one third of their profit on an investment but this is not how it will work in practice. As the market grows, so will the debt pool and the amount of assets traded on the platform. No retail investor will be responsible for as much as one third of the system’s total debt.
Pledging money to the debt pool also exposes investors to a whole new revenue stream thanks to the benefits they are entitled to. Converting digital assets on the network incurs a trading fee. This trading fee is then shared among anyone staking xUSD as collateral to the assets. So anyone with money staked in the debt pool will be accruing profit from the transaction fees as the market moves up and down around them!
The advantages that Shadows has over the current financial system are manyfold.
It is more transparent; it is clear exactly where profits come from and losses go.
It grants greater access; anyone can trade in assets so long as they have the tokens to put forward as collateral. It offers greater opportunity for users to make money; users can invest in assets or they can choose to leave their money in the debt pool to accrue transaction fees.
Finally, it is decentralized. There is no centralized agent taking value out of the market which ultimately mean more value for investors. And of course, most pertinently, there is no centralized agent that can shut down a market if it becomes over-exposed.
Shadows is so named because the synthetic assets it creates are like shadows of their real world counterparts, but maybe it’s just as apt to see this as a system that exposes the shadowy parts of the financial system to the light.
Retail investors should watch this space — more things to come soon.
For any questions, you can reach out to Shadows Network via: