Morpher makes anything a liquid asset through decentralization
A Tim Draper-backed startup aims to let people trade anything with no fees and infinite liquidity. A tall order, but CEO Martin Froehler and the team at Morpher are making it happen.
Mr. Froehler is a mathematician by training, and a veteran quant who designed trading algorithms for futures and equities as the manager of a Zurich-based quantitative research firm. He later spent five years running a decentralized quantitative hedge fund in Silicon Valley before founding Morpher in the spring of 2018.
That combined experience qualifies Mr. Froehler to weigh in on the current state of investing, and he doesn’t like some of what he sees.
“As an investor…and hedge fund manager I saw how broken the industry was throughout,” he explained.
Investing is a burdensome, costly and inherently unfair process, he continued. In order to participate, we have to navigate a series of middlemen including banks, brokerages, exchanges, indices and mutual funds.
“All of these middlemen essentially stand between the consumer and their product,” Mr. Froehler said. “All charge fees for essentially providing bad service.”
And those fees add up, Mr. Froehler said. To the tune of $250 billion every year.
The barriers are even worse for regular traders, Mr. Froehler said. They have little access commodities and futures markets and rarely get the chance to short the markets. And heaven forbid you trade after hours.
“Essentially as a little guy you don’t get the same level of access institutional investors get,” Mr. Froehler explained.
Mr. Froehler began to seriously follow blockchain technology in 2015. Once he saw its potential to replace the expensive middlemen with software and cryptographic protocols he was excited to apply it to the world of finance.
Things have since moved quickly. Morpher issues a crypto token on the Ethereum blockchain which can morph into any asset by replicating its returns. Participants stake Morpher tokens on a market and receive returns proportionate to changes in that market. So if a wise investor stakes 100 tokens on Bankless Times and the stock gains 20 percent that investor gets 120 tokens back.
“It operates without trading,” Mr. Froehler said. “Inspired by futures markets, it replicates returns but purely in a virtual sense.”
Morpher’s tokenization is unique because it is not backed by an underlying asset, and is not part of a two-sided marketplace like most security or asset-backed tokens, Mr. Froehler said, adding that eliminates the need for a counterparty that must want to complete the opposite action. The smart contract resolves bets by creating and destroying all tokens, making it solvent by design, Mr. Froehler explained. Morpher mints 0.01 percent new tokens every day, and its operating income equals 3.71 percent of the token’s market capitalization every year.
Tokens will soon be available via airdrop after the application is launched on the Ethereum Mainnet in the coming weeks, Mr. Froehler said. The timing is for the token to be listed on exchanges in Q3 and an international expansion beyond Europe is planned for Q4. The United States is one target and Mr. Froehler sees a clear path to compliance there.
Morpher’s is an ambitious play but they have some important believers, including Tim Draper, who believes Morpher is one of the first to see the future.
“Over the next 10 years, I believe we will see the decentralization of everything, from insurance, to health care, to government.,” Mr. Draper said in an email. “The world will open up and with it a very dynamic and ubiquitous crypto economy. I suspect people will still be using fiat, but they will be the dinosaurs.
“I am excited to see Morpher build this platform to trade anything. There is so much demand for a platform without a counterparty.”
If you have a reliable data feed, you can turn essentially anything into a tradable market, Mr. Froehler said. That could be sports, P/E ratios and even election results. Previously unaccessible or illiquid markets are now available to more people.
“And it’s free,”Mr. Froehler said. “No user fees reduces a significant barrier to entry.”