How the WallStreetBets DApp is Revolutionising Finance

7 min readMay 16, 2021

BTC VIX, an early adopter of crypto in 2013 and has been a trader and community leader for years, having appeared on one of the largest trading podcasts Chat With Traders as their first crypto trading guest in 2015. He was formerly banned from the r/wallstreetbets subreddit for talking about crypto and is working with WallStreetBets founder Jaime Rogozinski on creating the WSB DApp to allow the creation and rebalancing of exchange traded portfolios for $WSB token holders to vote on.

“The amalgamation of blockchain technology with financial markets is the next logical step for finance — and not just for Wall Street but everywhere” - Jaime Rogozinski

Problems with TradFi (Traditional Finance)

ETF’s are funds traded on stock exchanges that track a basket of securities. These are created by global institutions to accommodate their needs; leading to the middlemen in between taking large cuts of interest. The problem with ETF’s are that they are subject to control by third parties such as Robinhood who are able to halt trading at any given moment; leading to manipulation in the market by only allowing certain institutions to buy and sell. In essence, they are made to suit the interests of those selling them, not buying. Additionally, if I’m from the US and want to buy Samsung stock, this is not possible without a third party broker or over the counter as a “Pink Sheet Stock”. Problems like these are what WSB DApp aim to solve.

What WSB DApp plan to do?

WSB DApp looks to bridge old finance with new DeFi. WSB DApp plan to create ETP’s (Exchange Traded Portfolios). ETP’s track the real-time market performance of a basket of stocks and the underlying basket methodology comprises between 2 and 8 assets (reviewed fortnightly) typically based on their free float market capitalisation weighting and ideally with a cap of 25%.

ETP’s and non-custodial managed pools

Why ETP’s are different from from ETF’s is because there is no pooling of funds. Even though the index is created, when you go into Balancer with $100 USDT, the tokens are minted enabling synthetic collateralization. If the ETP grows in value, your tokens grow in value. The key here is that the funds are fully segregated, if the funds are pooled then there are many regulatory issues involved which do not make the concept of ETP’s possible.
Pools such as Balancer are automated market makers with certain key properties that cause them to function as self-balancing weighted portfolios and price sensors.
Balancer V2 smart pools work by being 100% wholly collateralized and segregated. E.g. $1000 of USDT comes in then ETP tokens are generated based on the composition of the underlying constituents, i.e. TSLA, Bitcoin, Samsung. This will trigger a call to purchase these assets from the relevant custodians/exchanges behind the scenes.

Tokenized assets and non-custodial managed pools are being formed on the Ethereum Blockchain through Balancer, Synthetix; and on Binance Smart Chain through the Mirror Protocol.

WSB DApp (Decentralized App) Overview

Using blockchain technology, $WSB governance token holders vote on regular rebalancing of ETP’s. If you think that TSLA should be 80% instead of 10% of an ETP Portfolio, just vote for it!
Votes are weighted according to the size of an individual’s $WSB holdings before the timer runs out each rebalancing cycle. The timer is based on a certain predetermined block height for when votes are cast.
The ETP products will contain a 2% per annum management fee. The $WSB Governance token holders will vote on what to do with accumulated funds. For example some may propose to use these proceeds to buy & burn $WSB. Or perhaps allocating more funds to developers to build further ETP’s. Or even vote to remain locked in the contract creating a giant honeypot over time which will amass a huge fortune or it could just go to zero, whichever the crowd prefers.

This novel product is made possible through what is known as a decentralized autonomous organization (DAO) meaning that control over the associated ETP’s rebalancing is placed in the hands of community members with voting rights instead of privileged insiders and unaccountable institutions. Any retail investor with access to the internet will soon be able to use an associated application on their computer or smartphone to not only get exposure to the ETP’s but also participate in polling for how their indices are weighted.

Utility of the WSB Token

The utility of the token is to vote to decide on the composition of ETP’s which comprises assets such as stocks, gold, NFTs, mortgage-backed securities and much more. The key here is the proposals for an ETP need to be two parts value orientated; have solid due diligence behind them but also need a marketing angle so that different proposals can get enough votes for the ETP to be created. This is entirely community driven and votes are weighted by how many $WSB tokens are held.

Behind the scenes when purchasing an ETP, the WSB DApp purchases the basket of assets e.g. (TSLA, BTC, Samsung) and ends up collateralized. Purchases are made through stable coins (USDC, USDT, BUSD).
WSB DApp will have many tiers of risk e.g. Low (Boring Warren Buffet ETP) to super High Risk YOLO (34% TSLA, 33% BTC, 33% GME).

Why the 2% Management Fee?

TradFi (Traditional Finance) investors find it difficult to value crypto as they are not being able to apply a discounted cash flow (DCF) model to the protocol. The 2% management fee would provide the $WSB tokens with a measurable income stream which would help TradFi investors understand what the value of $WSB tokens are.
WSB token holders can vote on how the fee should be spent; perhaps the community want to use this to burn tokens to reduce total supply, or reward holders with a dividend payment. This is entirely up to the community, giving more incentive to users to hold WSB.

Reasons for creating the WSB DApp

“Rewind to 2008 financial crisis, people lost houses, jobs, livelihoods and all those bankers went to jail right? Yeah, no bankers did and that disdain for the banks and financial system lead to the Occupy Wall Street movement. When it comes to political change there are basically two avenues : VOICE or EXIT… protest is obviously an attempt to use VOICE to impact change at the political and systemic area.
So that didn’t work, nothing changed, then bring in the rise of the retail trader that manifested itself on r/wallstreetbets and climaxed earlier this year with the big short squeeze. I call this an attempt to bankrupt Wall Street… it was still an act of VOICE though because it was using money to enact change or attempt to, but the retail traders were playing on “their” turf and that got shut down by the powers that be
so that brings us to EXIT….
This is where no longer do we think the current system is saveable so we exit to crypto and DeFi — and at the current time we are seeing FTX with 30+ tokenized stocks, Binance just launched TSLA so the worlds are colliding where we might see big companies start turning down NASDAQ listings and instead be birthed on a 24/7 crypto market instead” BTC VIX

Study on the competency of WallStreetBets traders

Jaime Rogozinski has brought up multiple times on interviews the study of WallStreetBets and how they are collectively better at picking stocks than the overall market. Many people may consider the community as “YOLO degen gamblers” but there are copious amount of people performing extreme due diligence to do whatever it takes to triumph institutions and give retail traders a level playing field.

Place Your Bets? The Market Consequences of Investment Advice on Reddit’s Wallstreetbets

35 Pages Posted: 22 Mar 2021 See all articles by Daniel Bradley University of South Florida University of South…

papers.ssrn.com

Why DeFi will revolutionise finance

DeFi removes one of the biggest barrier to entry within the financial markets, removing the middlemen between transactions often taking days or even months to settle. This means no more need for brokers, lengthy security checks, “suspicious” transaction freezes; all of this is automated through smart contracts which are publicly verifiable on the Blockchain. What WallStreetBets are doing is giving everyone the freedom to purchase assets with no restrictions, all living on the Blockchain. (You can verify the source code of the contract, transaction history, the distribution of funds etc). Crypto runs 24/7; the market never sleeps and is one of the reasons why it has progressed exponentially in contrast to TradFi. This gives anyone the ability to make a trade whether it’s 8pm on Christmas day or you’re stuck in the next world lockdown. Development is done continuously and soon enough there will be no traditional open and close market hours, allowing people to trade with a single click anytime and anywhere in the world. All these factors are what makes DeFi so powerful and is inevitable that it will revolutionise the finance industry for the good. What we are witnessing is a whole new era of finance and this is only just the beginning.