DeFi Degens Embrace New Fad: Pairing Tokenized Equities With BONER Memecoin
Pairing tokenized equities with memecoins such as BONER has emerged as DeFi's newest obsession. However, industry experts caution that this practice may damage stock tokens' credibility in traditional finance circles.
Representing shares of the telehealth provider Hims & Hers that are listed on the New York Stock Exchange (NYSE), the HIMS token serves as a digital counterpart to the traditional equity. Through Robinhood Chain, market participants have the ability to trade this tokenized stock in tandem with various crypto assets, memecoins included.
This exact scenario unfolded with BONER.
The intentionally absurd memecoin found itself matched with HIMS within a liquidity pool, enabling traders to exchange one token for the other.
During peak activity, the liquidity pool held 31,198 HIMS tokens, representing over half of the total 58,714 tokenized HIMS shares available in circulation. This supply imbalance temporarily drove the HIMS token price on Robinhood to $132.64, exceeding by more than four times the $28.84 closing value of actual HIMS shares on the NYSE.
"A listed stock effectively becomes a composable DeFi asset at an unprecedented scale, in the same way Ether did."
The question remains: what motivates traders to pair a memecoin with a tokenized healthcare equity to begin with? Furthermore, what are the implications when onchain markets enable even stranger combinations?
The 'crazy ones' gravitate toward onchain finance
Consider the summer of 2020, a time when DeFi trailblazers were actively yield farming, dismantling traditional finance structures, and working to avoid getting rugged along the way. Mike Dudas, co-founder of 6th Man Ventures, characterizes it this way:
"Onchain finance is for the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in square holes."
Representing the latest evolution of this movement, Robinhood Chain appears to be discovering novel applications for tokenized stocks that were previously unimagined. Within a mere three months following its debut, Robinhood traders have constructed some unconventional crypto-native combinations such as BONER/HIMS, AI/NVIDIA and SPACEHOOD/SPCX.
The fundamental concept is straightforward: rather than purchasing and holding a tokenized stock in isolation, participants can deposit it into a decentralized liquidity pool together with virtually any other token, enabling traders to exchange between the pair and establishing a marketplace around the combination.
LONG, one of the platforms driving this movement, reports its stock-paired trading venues produced over $425 million in trading volume during a 24-hour window on Sept. 2, with nearly $12 million secured in stock-token liquidity.
"The opportunity tokenized equities present is much bigger than assets appearing onchain. [...] this is not just about changing the venue. It is about creating an asset that can plug into an open financial system."
Angelo Aspris, a finance academic at the University of Sydney, observes that this development unlocks a multitude of fresh possibilities.
"Once equity exposure becomes programmable, it can be used as a quote asset, collateral, loanable inventory or margin for derivatives."
Put differently, when a stock transforms into a token, it need not stay confined to functioning solely as a stock; it has the potential to serve as one of the foundational components of completely new DeFi marketplaces.
Does this constitute a genuinely new market?
Examining the underlying infrastructure, there's nothing especially groundbreaking about the technical foundation. These markets utilize automated market makers (AMMs), a decentralized exchange mechanism that employs liquidity pools and algorithms for price determination and enables traders to exchange tokens without requiring a traditional order book or a counterparty on the opposite side.
The innovation lies in what these markets are capable of containing. Within a conventional stock exchange, equities are traded against fiat currencies or other standard financial instruments. In the unconventional realm of onchain finance, a tokenized stock can form one component of a trading pair with practically anything else possessing adequate liquidity.
Reid Noch, vice president of US equity market structure and electronic trading at TD Securities, characterizes AMMs as remaining "very novel when compared to traditional markets."
"As long as they are primarily used to drive liquidity in memecoins, it will be challenging for more traditional players to take them seriously."
While it might appear to be an unusual application for a stock token, from a DeFi perspective there exists a certain rationale. Market participants don't necessarily require justification for pairing two assets beyond establishing a venue where exchanges between them can occur.
The more significant trial is determining whether tokenized stocks can evolve into reusable financial components instead of merely serving as digital representations of traditional shares.
Is it functionally effective?
The BONER/HIMS incident demonstrates that non-traditional pairings can produce non-traditional outcomes.
Aspris attributes the extreme price divergence between the tokenized HIMS and the underlying equity primarily to "thin reserves" and "temporarily restricted issuance," cautioning:
"This creates the conditions for these events and increases the potential for strategic exploitation or manipulation."
Under normal circumstances, arbitrage would force the tokenized stock price to align with the actual stock price, but this connection can fail when liquidity becomes scarce or the traditional market is closed, as Probst clarifies:
"Arbitrage relies here on a single actor rather than a continuous competitive mechanism like the one seen in traditional stock markets. These pools can therefore produce unreliable price signals, without any real transmission to the reference market."
Noch maintains similar doubts regarding whether these pools will emerge as the principal venue for determining tokenized stock prices:
"I still see price discovery happening more in traditional markets, and AMMs being used [by] arbitrageurs to keep the market in line. [...] I struggle with how these markets will drive price discovery given their low volumes compared to traditional markets."
Perhaps price discovery isn't the objective
While memecoin/stock pools possess the capability to operate continuously around the clock, these marketplaces remain underdeveloped and disconnected from traditional markets....at present.
Nevertheless, they're already creating genuine demand for tokenized stocks and evaluating how these assets perform when integrated into DeFi ecosystems, according to Kunz.
"Memecoin pairs might not be the number one case for tokenized equities, but are yet another source of demand, volume and liquidity for those assets."
Memecoins could represent merely the starting point. Should tokenized stocks become recognized DeFi building blocks, there exists no clear rationale why they must be paired exclusively with other stocks or cryptocurrencies. What prevents their use against tokenized real estate, commodities, artworks or even tokenized farts? (It's a thing, look it up).
Naturally, this doesn't guarantee such markets will materialize, or that they would achieve popularity or possess economic viability. However, the BONER/HIMS trial demonstrates that once real-world assets achieve composability onchain, markets can develop around all manner of pairings that TradFi would never have conceived. Aspris emphasizes we are merely at the starting point of this trial, though:
"The experiment is useful and the direction is clear, but calling tokenized equities a finished DeFi primitive would be ahead of the facts."