SIP 144: Create a global stock market synth Source

AuthorAccelerated Capital
Discussions-Tohttps://research.synthetix.io/t/sip-create-a-global-stock-market-synth/410
StatusDraft
Created2021-05-22

Simple Summary

Add a Synth for the iShares MSCI All Country World Index ETF (ACWI).

Abstract

This SIP proposes to add 1 new Synth: sACWI.

Motivation

Synthetix has recently been expanding the list of product offerings within traditional equity markets. Synths currently exist (or are being implemented) for U.S. indicies (SPY, QQQ, IWM), international indicies (Nikkei, FTSE), and a handful of U.S. stocks (e.g. TSLA, FAANG, MSFT). It makes sense to offer these types of products since it provides risk management and speculation benefits to crypto investors looking to get exposure to traditional markets on-chain.

However, these options are still lacking. As an institutional investor, I would be unable to design a global equity porttfolio with the options available. Wide swaths of the market are still missing, such as emerging and international developed markets outside of Europe and Japan.

Specification

Overview

This Synth would be implemented similarly to the other long equity Synths.

Trading will be halted outside of market hours or when a valid price feed is not otherwise available. Similar to SIP-125, a privileged keeper with a feed to market opening, closing times and holidays will be able to suspend the synth for trading during that period. Secondary markets would be created on external AMMs.

Rationale

The MSCI All Country World Index is MSCI’s flagship global equity index designed to represent performance of the full opportunity set of large cap and mid cap companies across 23 developed and 27 emerging markets. It is comprised of 3,000 constitutents across 11 sectors and accounts for 85% of the free float-adjusted market cap in each of these markets. The iShares MSCI ACWI ETF (ACWI) is the most commonly used investable product using the MSCI All Country World Index’s methodology.

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The primary rationale for creating this Synth is to make the MSCI All Country World Index available on-chain as a crypto-native product. The MSCI All Country World Index is a common benchmark for global equity in traditional finance. Having one-click diversified equity exposure will allow crypto investors to allocate toward traditional capital markets without ever having to migrate assets off-chain.

This SIP comes at an interesting time for the crypto ecosystem. DeFi protocols are beginning to examine their growing treasuries and realize there is a need to diversify away some of the idiosyncratic risk of their own governance tokens. The sACWI Synth addresses this need by providing a product in line with the institutional investor mindset.

I expect this Synth to increase trading volume as I could see many DAOs and institutional investors willing to hold an asset like this on-chain. In addition, it would allow traders to speculate on the movements of the entire global market. While Synthetix continues to work to expand its product offerings in traditional equities, sACWI will ensure Synthetix can always provide full global equity exposure to anyone looking for it.

Finally, I believe this Synth would be extremely beneficial for DeFi as a whole. Having the global stock market as a composable asset on-chain could lead to some interesting opportunities not possible with traditional investment vehicles.

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