GameStop/WallStreet: the need to decentralize

We all have heard the recent news about troubles in Wall Street involving GameStop (an American video games and gaming merchandise retailer chain). Their stock was losing value, as people now buy videogames online, downloading them directly from the software house to their gaming console, rather than going in person at a shop.

Large Hedge Funds (offices that invest in the stock market their clients’ money) went short on GameStop stocks (GME). To short a stock means, in simple terms, to identify a stock that is losing value, “borrow” many of these shares, sell them in the market at current value, for example, 10 dollars, wait that their value goes down (or some, illegally, influence the market with fake or bad news, or pretending to sell big quantities without actually doing it, forcing the stock value to go down) and, when the value of the shares is low, say 4 dollars each, the Hedge Funds buys them back to return them. In this way, following the example, they make 6 dollars for each stock they sold and bought back.

A community called “WallStreetBets” which discusses stock trading in Reddit (a website where users can discuss and rate social news and web content), and on Discord (an instant messaging, voice calls, and digital distribution platform initially addressed to gamers), decided to “punish” the “big” of Wall Street, under the feeling that whatever the bigs do, often borderline with regulations, never has legal consequences. The community, which had about 2 million users, most of which are geeks and thus also videogame players, didn’t approve of the “short squeeze” done by the large Hedge Funds on GameStop. Most users of this community were also users of “Robinhood”, a mobile app that allows users to execute trades in the stock market, that was born with the slogan “democratizing finance for all”, and became popular thanks to the “occupy wall street” movement. As they state on their website, “investing with Robinhood is commission-free, now and forever.” This means, as with all the free services offered online, that the product is the user. Robinhood, in fact, makes money by selling data generated by its users. Allegedly, when a user is trading stocks with Robinhood, before the trade takes place the data is sent to large stock market investors’ servers, giving them the time to buy the same stock at a cheaper price compared to the user of the mobile app.

What did WallStreetBets (WSB) do? Aware that large Hedge Funds had borrowed GameStop stocks to short them (selling them and waiting for the value of GameStop stock to go down to buy them back and make a profit), the WSB community, that now counts more than 5 million users, using their Robinhood accounts started buying the GameStop shares. Due to Robinhood user data sent to large investment firms, automated software run by those investment firms started also buying GameStop shares. Increasing the demand, GameStop’s value went to the star, giving GameStop a valuation of almost $30 billion. The shares, which in August were less than 5 dollars each, went up to almost 400 dollars each. The Hedge Funds found themself forced to buy back the stocks they borrowed at an exorbitant price, registering huge losses, and sending many of them to bankruptcy. For “WallStreetBets” this was going to be just the beginning, but…

In what seemed a synchronized action executed without previous warnings, Discord banned the WallStreetBets server, de facto killing their chat system, and Robinhood blocked its users from buying GameStop shares, leaving them only able to sell. These moves have been seen as a favor to the big of Wall Street. Traders were quite upset. A Robinhood user organized a class-action lawsuit against Robinhood, stating that Robinhood blocked its users from buying GameStop shares “knowingly to manipulate the market for the benefit of […] financial institutions” which were still free to buy them.

Which is the takeaway from this (true) story? 1) Communities can organize, coordinate, and win against huge entities (WallStreetBets); and 2) It takes a single man to stop a community that uses his centralized service (Robinhood, Discord). We also know that a decentralized system cannot be taken down (Torrent, Bitcoin, etc) and that self-organized communities cannot be stopped when coordinating on decentralized platforms.

Recent events add to this specific story. In a centralized social media platform such as Twitter, Facebook, or Youtube, even the president of the United States of America can be censored, or even kicked out from the platform for good. And before pointing fingers at the man that press the ban button, is it on Discord, Robinhood, or Twitter, let’s consider who “forced” them to do so.

Jack Dorsey, the CEO of Twitter, addressing these concerns endorsed the way Bitcoin functions — a technology that is not controlled or influenced by any single individual or entity. Twitter’s initiative may lead Twitter to a Bitcoin-like operation: an open and decentralized standard for social media. He explains: “The reason I have so much passion for Bitcoin is largely because of the model it demonstrates: a foundational internet technology that is not controlled or influenced by any single individual or entity. This is what the internet wants to be, and over time, more of it will be. We are trying to do our part by funding an initiative around an open decentralized standard for social media. Our goal is to be a client of that standard for the public conversation layer of the internet.”

All these events are the reason why we are moving toward decentralization. This will happen as long as the general population feels the system is rigged against them. The rise of decentralized platforms will give even more power to self-organized communities like WallStreetBets. While the move to decentralization and censorship resistance began with Bitcoin to give people money not managed by central banks incapable of keeping economies stable, the underlying technology is not relegated to money or stores of value. Decentralization will be behind every aspect of our online lives, from social media platforms to instant messaging systems, to data storage, and will support and replace most of the current centralized services such as web hosting, emails, video broadcasting, etc. Decentralization is happening now, and it needs an upgrade in its underlying technology, which is originally built just to manage cryptocurrencies.

Projects like ZooBC by Blockchain Zoo (google the name for info) aim to provide the right protocol and platform to implement decentralized applications, offering a secure layer that works with or without a cryptocurrency, allowing users to sign transactions with their government-issued eIDs, and that is structured to scale and support applications such as a decentralized Twitter.

Roberto Capodieci

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