GameStop affair: actions on DeFi, the false good idea?

The GameStop affair shook the financial world at the end of January. The withdrawal of stocks affected by speculative movements on Reddit shocked social media, providing a spotlight on decentralized finance. Is tokenizing DeFi shares the ultimate solution? Not really. Response elements.

What happened to the GameStop action?

Small reminder of the facts. On January 27, thousands of individuals spread the word on the Bitcoin Trader discussion forum to buy shares of companies in difficulty, including GameStop (the parent company of Micromania in France). All via the Robinhood trading application for individuals.

Goal ? Raise the share price in order to cause the bankruptcy of hedge funds (speculative funds), these giants of Wall Street who had bet on their collapse. And save the business from programmed death.

“This is called shortselling (short selling). It is a trade that pays big if the share falls, but which is expensive if the share rises, since hedge funds must then redeem themselves at a loss, ”says Anice Lajnef, former trader at Société Générale.

For GameStop, it was the Melvin Capital fund that was in the process. But the catch is that the appeal of individuals on Reddit has largely been followed. And the hedge fund lost five billion dollars on this operation. “The stock shot up to over $ 480, whereas it was trading a few tens of dollars before the deal. “

A show of force from WallStreetBets , the group of small traders gathered on Reddit. But why did Melvin Capital bet against the GameStop company?

“With the digitization of gaming, the company was in bad shape and it is for this reason that the financial sharks went to kill them. But the predator was attacked in turn. The little ones came to defend the company and won the fight. “

What about efficient markets?

Market efficiency is an investment theory that argues that it is impossible to “beat the market”. According to this theory, stocks always trade at their fair value. Undervalued or overvalued equities would therefore not exist.

And for Anice Lajnef, this event shows the whole world that the myth of market efficiency does not exist.

“The myth of efficient markets is shattered. The paradox is that in 2008, these same hedge funds were in terrible shape. Central banks saved them. On the one hand, we let predators kill companies with public money and when they get screwed at their own game, they change the rules. Here, by prohibiting the purchase of GameStop shares, ”he sighs.

And this is precisely what has greatly shocked about this affair. Following the surge in the price of GameStop, trading platforms for individuals have in fact withdrawn this action from their offer . One way to prevent the action from going higher and therefore to plug the losses of hedge funds . Never seen. “We have already prevented betting on the downside against equities, by suspending shortselling . But never buy it. “

These movements, as violent upward as downward, will leave traces on WallStreet and the markets. “The company is not worth more than the future cash flows it will generate. If the share was at $ 4, it was because it should bring in 4% at most, or 16 cents per share. The number of years of dividends it would take to pay $ 400 per share is getting huge. This total disconnection is pernicious. It often catches up with the company with a violent correction in its share price. „

For Anice, this operation raises another problem. “It discredits finance and especially currency. If there weren’t so much money in circulation, it never could have happened. “

To fight against these abuses, the former trader advocates for more decentralization „A finance in the hands of the SEC (the American federal body for regulation and control of financial markets), the FED (the American central bank) and private banks, it doesn’t work. We must move towards a system that is more and more decentralized, or under the democratic control of the people ”.