Republic’s Mirror Tokens – SpaceX and Beyond
Co-Author: Tony Greenberg
If there is one thing that financial markets are really good at, it’s supplying demands for investors and capital-needy ventures. When investors want to speculate in pork bellies or orange juice without buying an extra large fridge, there are commodities markets to act as their bookies using futures contracts. When growing companies want to avoid the overhead of pesky SEC regulations of going public, private markets come to the rescue, growing 3x faster than public ones in this century, to the point where 87% of US companies with $100M or more in revenues are privately held.
The Final Demand Frontier – Private Company Stock for the Little Guy
Until recently, there was one final mountain of investor demand for the finance industry to climb – retail speculation on private companies that restricted stock transfers.
Selling equity to external retail investors rather than accredited ones or insiders would typically require SEC disclosures and a mountain of overhead, so companies that have ample private funding lined up increasingly prefer to avoid public markets. Not only that, but most of them don’t really want a bunch of strangers on their cap table. So even when they granted stock (e.g. to their employees), they would restrict its transfer.
As an outside retail investor if you wanted a share of the upside of SpaceX or OpenAI, you were out of luck. There were some legally questionable circumventions of these using private forward contracts with employees, but these were both dubious in terms of enforceability and subject to counterparty risk (e.g. what if the employee sold future rights to his shares after an IPO to 10 different people? Or his equity was voided once his employer caught wind of the transaction?)
Republic’s Genius Mirror Token Solution
But some retail investors really want to get a piece of that upside – today, not when SpaceX goes public. And when there’s a demand, someone will find a supply. In this case, it’s our friends at Republic, who issued a token matching the value of SpaceX shares as the first of many in their new Mirror Tokens program.
Notably, it’s not equity. Republic does not own any piece of SpaceX. If you buy an rSpaceX token, you don’t get to pester Elon with inconvenient questions on investor calls or file a lawsuit questioning his salary. From a financial mechanics perspective, it’s closer to making a bet on SpaceX’s IPO price using a prediction market – albeit with an outcome that is contiguous rather than binary.
But from a retail investor’s economic perspective, it’s identical to owning equity in one of the hottest and fastest growing private companies in the world. If there’s an IPO or acquisition of SpaceX, Republic will pay token holders a bonus corresponding to the increase in SpaceX share value from the investor’s purchase (including any connected dividends). And your counterparty is not some random SpaceX employee who may or may not deliver your upside after an IPO, but probably the most reputable name in tokenization with capitalization to back up its promises, and no major legal or regulatory blips on its history.
The Power of Tokenization
Around 2022, when the ICO boom turned into a crypto winter that mirrored the pop of the dot-com bubble without even an Amazon or eBay-scale unicorn coming out of it; with headlines full of scams, rugpulls, and broke retail investors, it would be easy to assume that either (a) the wild wild west of crypto and token sales would start getting regulated more closely and turn into something like conventional securities or (b) investors would flee the speculative and fraud-laden world of crypto ICOs for safer traditional equity investments.
As it turns out with these Mirror Tokens, the correct answer was (c) traditional equity investments will transform into tokens. Republic’s innovation is just one highly creative instance of an unstoppable movement. Despite all the well-documented boomer concerns about anything blockchain-related, tokenization is such a powerful financial revolution that it has become mainstream finance. Trillion dollar forecasts for the market aren’t coming from crypto maximalists but from Deloitte, McKinsey, BCG, and Blackrock.
The core of this faith is based on tokenization’s indisputable mechanical benefits. Token exchanges operate 24×7, with reduced transaction costs and settlement times. They need fewer intermediaries. Tokenization can be applied to many more classes of assets than traditional equity and debt, creating liquidity in previously illiquid markets and democratizing access to some of the highest growth opportunities that only billionaires and finance professionals could access previously.
And finally, as demonstrated by Republic, its peers like Robinhood (which has its own mirror token for OpenAI) and prediction markets like Polymarket, which is returning to the US, it creates a new canvas of investment creativity in terms of futures, hedges, and new risk-reward tradeoffs for any taste and any portfolio. As creative as 20th century finance has been, it has operated within discrete regulatory categories – stocks, bonds, futures, options, etc. The world of the token and smart contract is where paint by numbers turns into an artist’s canvas with new masterpieces yet to be created.
A Power Not Fully Explored
But even that level of institutional enthusiasm often misses the point. Tokenization first and foremost brings back retail investment – which has been drying up in traditional equity markets both due to good financial advice (“buy index funds”) and the aforementioned move of capital to less-regulated private equity. This is critical because retail investment is much, much more than ownership – and that same canvas of tokenization can be used to turbocharge its power.
When done right, retail investors are a community that hypes up their own members more than any paid marketing ever – see Apple, Tesla, GameStop, and the like. As any Patreon creator with clout will tell you, co-investment is co-creation and co-ideation. In an ideal world, it’s an alignment around not just shared value growth, but around shared values and impact commitments.
That’s the future we see for tokenization in ImpactSoul – rallying communities around shared values to become active participants in the value creation of the tokens they own. Many of the assets we’re bringing to market – museum exhibits, art, music, etc. don’t have companies around them, so liquidity raised from token sales just becomes a windfall for the owner. But if we rally and incent those communities of retail investors as quasi-companies, marketing, creating, enhancing, spreading the word – they can be a true growth engine.
Is This Legal?
Some aspects of the blockchain industry deserve intense regulatory scrutiny. When 98.7% of meme coins on pump.fun exhibit signs of a rugpull or pump-and-dump, that might just be a platform that mints more fraud than value. Until the meme coin industry runs on a rug-proof protocol (something we’re working on actively), there may be a few projects where 80% of investors lost money that might just deserve a second look from the SEC (though I wouldn’t hold my breath on that particular one).
But previous regulatory efforts often focused enforcement based on success rather than true criminality (a.k.a “regulation by enforcement”). With a Damocles sword of unclear and long-outdated regulations that could apply to literally anyone that issued a token, most innovative projects, even when completely well-intentioned and deliberately fighting against use by criminals, were forced offshore into jurisdictions known for money laundering rather than well-regulated capitalism. Which, in turn, created incentives for being part of the wild wild west rather than the future of finance.
This is now ending. The GENIUS act kicked off the parade of long overdue clear regulations specific to this new economy (in this case focusing on stablecoins). So rather than parsing long-past precedent like an originalist judge (if I had a dollar for every conversation I had about the Howey test in the last couple of years…) we can finally build regulation that is appropriate for this new age.
As of today, this emphatically includes tokenization of equities. In a recent appearance on CNBC’s Squawk Box, SEC Chair Paul Atkins has publicly stated that the agency views stock tokenization as an innovation and that the SEC will encourage its development. He has also indicated a shift away from “regulation by enforcement” approach towards a more transparent and supportive regulatory framework for digital assets, including tokenized stocks.
What Next?
To recap, there are some facts about this that are indisputable:
- Private capital has been more efficient than public capital in recent years
- 80% of people are locked out of Reg D – the most common form of participation in private capital
- Democratizing access to this opportunity is in itself a positive
- Tokenization is one of the most direct paths to unlocking this broader access, starting with innovative mirror tokens like Republic’s rSpaceX
- The SEC will likely not stand in the way
We believe that this is only the beginning. Democratization of financial opportunity is an end in itself. But it is also the means to new economic models, like those we’re building at ImpactSoul. The canvas that innovators like Republic are starting to sketch new models on will explode in creativity. Some of it will create new opportunities and new models we haven’t thought of yet. Some of it will create new ways to separate retail investors from their money.
But if there was ever a time to get financially literate and active as an investor, it’s now – with the opportunity to buy anything, from the Republic Mirror Token of a stock that’s not for sale, to a share in a highly complete skeleton of a pregnant T-Rex (more on that soon).
