There is a lot of discussion in the cryptosphere regarding the execution of Synthetic Assets to access market opportunities in other markets, such as the commodities, forex and stock markets.
While one of the core principles of the Pneuma ecosystem is to create value by the creation of goods & services. This page briefly addresses a methodology that can be used for community members that want to seek financial opportunities outside of the Pneuma ecosystem.
Peligro! Warning – Disclaimer
This is NOT financial advice. This is only for general education. Any financial transaction involves compliance with local, state, federal and other regulatory entities. Please contact professionals before undertaking any exotic or synthetic actions within the Pneuma ecosystem (or anywhere, really).
With that out of the way, lets get back to the matter at hand…
I. How to execute a synthetic asset within the Pneuma Ecosystem.
This example scenario is based on integration with an approved broker (i.e.: TD Ameritrade, or other), and does not cover data/account access, taxation or other details.
The general process to deploy a synthetic asset is (1) discover an opportunity, (2-3) evaluate feasibility and risk of opportunity, (4) allocate funds, and, (5) Execute/Monitor & Control the event.
Behind the curtain, a lot of systems have to occur in order to ensure compliance, reduce risk and provide data for future learning models. In order to have a high level understanding of how this happens, reference the illustration below.
- Team formalizes an opportunity.
If a team wants to explore a possible opportunity in the markets, for example: an arbitrage between wheat futures and the exchange rates (FOREX) between two currencies, they outline the opportunity, define a team, determine allocation and quantify risk tolerances. They then conduct an initial vote and smart contract that initially obligates the team to this effort. There is a small Pneuma internal gas fee that the team is obligated to fund that supports the next step.
2. Support staff then explores the feasibility of the opportunity.
The opportunity is then staffed and modeled to refine risk, feasibility and complexity.
The results, which incur a small gas fee to the team, are returned to the team.
If the team determines that the refined model has merit, then team than has a second vote that commits the funds and members to the effort.
3. Support staff allocates funds and creates monitoring and controlling tools for the team.
The team is granted access to a series of dashboards and ‘best practice’ models to facilitate project objectives. The standard model often uses a hybrid option model with a sharpe ratio for portfolio management to limit downside, while minimizing upside costs.
Funds are realized by the permutation of the teams Pneuma crypto funds (held as a basket of cypto currencies) and/or Pneuma sovereign holdings (i.e.: currencies of nations or unions), transferred via ‘best cost’ exchange tools to the teams approved brokerage account. This is called an Pneuma interdepartmental purchase request (PIPR).
4. Monitor & Controlling of the project.
In order to minimize risk and maximize return, the project lifecycle is controlled and monitoring by using both real time data and pre-set triggers.
In general, the model presets limits and then automatically executes, based on goals, risks and real-time data. Additionally, the system monitors multiple external systems to proactively react to exigent circumstances or model animalities to reduce risk.
II. Factors that may impact the execution of a synthetic asset within the Pneuma Ecosystem.
(In)ability to enter/exit a position. A team/individuals account may or may not be authorized to ‘day trade’ (see: https://www.sec.gov/oiea/investor-alerts-and-bulletins/margin-rules-day-trading), which may (not) impact the ability to execute intraday trading, Non day trade enable accounts may be exposed to additional risk factors.
Delays in trading. Depending on the brokerage used, teams/individuals may experience delays in trading. Additionally, some brokerages may engage in (in)direct front-running (https://www.investopedia.com/terms/f/frontrunning.asp).
Availability of funds. Depending on account type/brokerage and trade type, funds to/from a brokerage trade can take days to before they can be accessed by a team/individual.
III. Closing Thoughts.
Think long(er) term. There is a reason Las Vegas exists. Despite its façade, of promising unearned wealth, Las Vegas is good at removing money from its participants. In general, its a better strategy to work towards a goal pragmatically than to use your paycheck to buy lotto tickets.
A tale of two economies: Financialization -vs- goods & services. The US M1 money supply has went up 500% since 2020 ( https://fred.stlouisfed.org/series/M1SL) to support the financial based economy. Consider the following factors and ask yourself “how is this system working for me?“:
- Does the increase in money supply mirror the production of goods & services of this economy? Does the US now have X5 more goods and services in circulation? If not, how does this change the purchasing power of your dollars in the real economy?
- How do all these middlemen in the financial economy create value between the buyer and the seller? Do they add value, or do they destroy value?
- Individual sovereignty and community. Is the current economic model acting my my best interests, or are there other alternatives to explore?
You are in control of your destiny. Choosing to abdicate this gift is ultimately a personal choice. Best said by Invicuts, by William Ernsest Henley:
Out of the night that covers me,
Black as the pit from pole to pole,
I thank whatever gods may be
For my unconquerable soul.
In the fell clutch of circumstance
I have not winced nor cried aloud.
Under the bludgeonings of chance
My head is bloody, but unbowed.
Beyond this place of wrath and tears
Looms but the Horror of the shade,
And yet the menace of the years
Finds and shall find me unafraid.
It matters not how strait the gate,
How charged with punishments the scroll,
I am the master of my fate,
I am the captain of my soul.