Trading Stocks Against BONER Is The Latest Trend For DeFi Degens

The HIMS token is designed to track shares of the teleheath company Hims & Hers, which trade on the New York Stock Exchange (NYSE). On Robinhood Chain, traders can buy and sell the tokenized stock alongside other crypto assets like memecoins.

And that’s what happened with BONER.

The deliberately ridiculous memecoin was paired with HIMS in a liquidity pool, where traders could swap between the two tokens.

At one point, the pool contained 31,198 HIMS tokens, which is more than half of the 58,714 tokenized HIMS shares that were in circulation. That imbalance briefly sent the HIMS token on Robinhood to $132.64, more than four times the $28.84 closing price of the real HIMS shares on the NYSE.

It is a bizarre glimpse of what can happen when real-world assets are put onchain and made usable in crypto markets. As Thomas Probst, a research analyst at Kaiko, tells Magazine:

“A listed stock effectively becomes a composable DeFi asset at an unprecedented scale, in the same way Ether did.”

But why would anyone want to trade a memecoin against a tokenized healthcare stock in the first place? And what happens when onchain markets make even more bizarre pairings possible?

Onchain finance is for the ‘crazy ones’

Cast your mind back to summer 2020, when DeFi pioneers were busy farming for yield, deconstructing legacy finance and trying not to get rugged in the process. As Mike Dudas, co-founder of 6th Man Ventures, puts it:

“Onchain finance is for the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in square holes.”

Robinhood Chain seems to be the next iteration of this phenomenon, finding new uses for tokenized stocks no one had even considered until now. In less than three months after it launched, traders on Robinhood have created some wild crypto-native pairings like BONER/HIMS, AI/NVIDIA and SPACEHOOD/SPCX.

Stock tokens where they are the quote asset. Source: DeFi Prime

The basic idea is simple: instead of buying and holding a tokenized stock on its own, users can put it into a decentralized liquidity pool alongside pretty much any other token, and traders can swap between the two, creating a market around the pair.

Related: Robinhood Chain nears $1B TVL as Uniswap drives liquidity: Standard Chartered

One of the launchpads behind the trend, LONG, says its stock-paired markets generated more than $425 million in trading volume over a 24-hour period on Sept. 2, with almost $12 million locked in stock-token liquidity.

Sergej Kunz, co-founder of DeFi aggregator 1inch, tells Magazine:

“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, notes that this creates an array of new opportunities. 

“Once equity exposure becomes programmable, it can be used as a quote asset, collateral, loanable inventory or margin for derivatives.”

In other words, once a stock becomes a token, it doesn’t have to remain just a stock; it can become one of the building blocks of entirely new DeFi markets.

So, is this actually a new market?

Looking under the hood, there’s nothing particularly revolutionary about the plumbing. The markets are built using automated market makers (AMMs), a type of DEX mechanism that uses liquidity pools and algorithms to set prices and which let traders swap one token for another without a traditional order book or a matching buyer on the other side.

What is new is what those markets can contain. In a traditional stock market, stocks trade against currencies or other conventional financial instruments. In the wacky world of onchain finance, a tokenized stock can become one half of a market with almost anything else that has sufficient liquidity. 

Reid Noch, vice president of US equity market structure and electronic trading at TD Securities, says AMMs remain “very novel when compared to traditional markets.” 

While he finds the idea of making a stock part of the quote and liquidity for another market “interesting,” he says it’s a use case could make institutional adoption a harder sell. He tells Magazine:

“As long as they are primarily used to drive liquidity in memecoins, it will be challenging for more traditional players to take them seriously.”

Stock-paired markets generated more than $425 million in trading in 24 hours. Source: longdotxyz

It may sound like a strange use for a stock token, but there is a logic to it from a DeFi point of view. Traders don’t really need a reason to pair two assets beyond having a market where they can swap between them. 

Related: Robinhood takes stakes in Crypto.com, OG.com in prediction markets deal

And the more important experiment is whether tokenized stocks can become reusable financial building blocks rather than simply digital versions of traditional shares.

Does it actually work?

The BONER/HIMS episode shows that unconventional pairings can have unconventional results. 

Aspris says the extreme divergence between the tokenized HIMS price and the underlying stock was largely a consequence of “thin reserves” and “temporarily restricted issuance,” warning: 

“This creates the conditions for these events and increases the potential for strategic exploitation or manipulation.”

Arbitrage would normally pull the tokenized stock price back to the price of the real stock, but that link can break when liquidity is thin or the real-world market is closed, as Probst explains:

“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.”

Memecoin / stock token pairings are succeeding at scale. Source: @howdymary

Noch is similarly skeptical that these pools will become the primary venue for discovering the price of tokenized stocks:

“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.”

Maybe price discovery isn’t the point

Memecoin/stock pools may be able to trade around the clock, but these markets are immature and isolated from traditional markets….for now.

That said, they’re already generating real demand for tokenized stocks and testing how those assets behave when plugged into DeFi, says 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 may also be just the beginning. If tokenized stocks become established DeFi building blocks, there’s no obvious reason they have to be paired with other stocks or cryptocurrencies. Why not use them against tokenized real estate, commodities, artworks or even tokenized farts? (It’s a thing, look it up).

Of course, that doesn’t mean those markets will emerge, or that they would be popular or make economic sense. But the BONER/HIMS experiment shows that once real-world assets become composable onchain, markets can emerge around all kinds of combinations that TradFi would never have dreamed of. Aspris notes we are just at the beginning of this experiment, however:

“The experiment is useful and the direction is clear, but calling tokenized equities a finished DeFi primitive would be ahead of the facts.”

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