Framework for Understanding Blockchain’s Next Chapter: Hybrid Finanical Instruments (Part 1)

Note: this post is not investment advice and is for educational purposes only. Caveat emptor!

“Don’t cross the streams. It would be bad.” –Dr. Egon Spengler, Ghostbusters

Crypto/legacy hybrid financial instruments—specifically, those that mix cryptocurrencies with legacy financial products—are the latest trend at the intersection of blockchain and Wall Street. Regulated versions of these hybrid products are quickly coming to market, including stablecoins and bitcoin-backed ETFs, futures, swaps and depositary receipts. There’s much excitement surrounding this trend—with good reason, in one case—but everyone should be warned that there are also unknown and potentially big risks to “crossing the streams” between the settlement systems of legacy and crypto.

Mismatches are inevitable. Accidents will happen. No one should be surprised when they do.

Even so, demand for these hybrids is likely to be significant.

In Part 1 of this two-part series, I’ll lay out the differences between the legacy and crypto settlement systems and explain why the category of “crypto wrapped around legacy” hybrids involves fewer operational risks than the category of “legacy wrapped around crypto” hybrids. In Part 2, I’ll explain what these settlement system differences mean for owners of hybrid products.

To continue reading, please click here. Enjoy!