Synthetic representations of Iranian equities

Ideas Bank
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I’d like to use UMA to create synthetics of Iran’s equity market so that it’s more accessible to people outside of Iran. Grateful for any interest or input on the below!

Why Iran? There’s huge upside that’s difficult to access. Iran’s economy is relatively large and uncommonly self sufficient thanks to sanctions. The equity market is a smaller % of GDP than most nations, and there’s many boring, normal, profitable businesses that are completely undervalued because of the sanctions. The demographics of the country also mean that some level of secular economic growth is certain in the future, irrespective of sanctions. Any level of normalisation of Iran’s political situation would unlock this latent potential by multiples. Iran is also representative of challenges anyone would face creating synthetics for other emerging and frontier economies - if it works there, it will be easier to replicate in other places.

Synthetics for Iran’s equity market can unlock a few novel features:

  1. Give people the ability to be long or short Iran’s equity market without having to visit in person or navigate through tradfi brokerages.
  2. Create liquid markets to realise gains in foreign currencies outside of Iran
  3. Collateralising uAssets for this market with USD stablecoins provides special advantages insofar as you can be long the equity market, and simultaneously short IRR, as the TSE (at least until recently) has been on a monstrous run up, while IRR suffers constantly against the USD.

It’s the last point that probably excites me most.

Current approach / stream of thoughts:

Elements of this may be poorly conceived or wrong - please correct me if so! I’ve consumed as much as I can about UMA, but I am out of my depth.

  • Initial thought was to start with an index from the Tehran Stock Exchange (TSE). Rationale being that this might be easier to find data for and also provide broader expsoure to the market as a whole.
  • Largest index is TEDPIX/TEPIX (I believe) So, create a uAsset for this - e.g., uTEDPIX-Q1-2021. This would use the Expiring Multi Party (EMP) contract, resolving quarterly (more or less frequently?) to the index’s actual price.
  • But, priced in what? There might be two layers to this problem: accessing data on the actual performance of TEDPIX on the TSE, and having a reliable USD/IRR rate. This is complicated by the volatiltiy of USD/IRR and the existence of official and street rates.
  • I then wonder if a uAsset can reference multiple types of pricing information that is then pushed to the DVM: 1) The TEDPIX price, and 2) The USD/IRR rate. I don’t think I’ve seen this in any other uAssets.
  • Does it then make sense to create a synthetic Toman (uUSD-IRR) first, which can then feed into the uTEDPIX-Q1-2021 asset?
  • Sufficiently granular data is particularly challenging to find (The TSE website is DOA, lol) - not just on the performance of TEDPIX, but also on it’s design and composition.
  • The launch of UMA’s perpetuals is exciting, though I am unsure how it affects this line of thinking.

Where I am at:

Working through the above, moving towards first draft UIMP. Trying to eliminate the errors in my thinking (which there surely must be many of). If this works it would be fun to expand this to a range of other similar assets for other frontier markets.

I’m mislyr-dirbud on discord. Product design background, early defi participant, crypto lifer. Grateful for any interest or input!

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For data on the Iranian Stock exchange I found this resource that may help

I think that there is another UMIP somewhere that does the two part PI conversion that you speak of here, but I cant find it right at the moment., but I think that it does rely on another PI, so it is probably better to create the USD/IRR PI as well.

All in all this sounds like a really cool project. Iran is the world best performing stock exchange according to the Economist so could gardner quite a bit of attention.

Although the attention might not always be positive - could be questions around whether such a thing is in violation of US sanctions on Iran, while although Iran has lifted its ban on mining cryptos, it demands that all mined cryptos are sold to the bank of Iran, how they would handlle this I’m not sure. There are a few crypto pressure groups in Iran tho, the most “respectable” is the Iranian Blockchain Association, it might be worth contacting them for a heads up on how this might be perceived, and if there is anything the Iranian authorities could do to scupper this if they decided they didnt like it.

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I’m not a lawyer, but I don’t see how anything in here could be a sanctions issue, since no money is going to Iranian entities through the minting, buying, and selling of these synthetic assets. It also shouldn’t require any cooperation from Iranian authorities if there are public data feeds. However, if you did get the cooperation of Iranian authorities, that might create a sanctions issue.

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I wasnt really talking of getting the co-operation of the Iranian authorities, more just an awareness of what their rules are, what they could do if those are being breached and how to get round them if required.

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Both good inputs above - I think regulatory issues are likely of secondary concern, and more dependent on the nationality of a user, for which they’d need to exercise their own caution.

The hard bit is going to be data - the R package that @SlowChimera pointed out is helpful, and surprisingly detailed. Pinning down the exact composition of the index will be important, as will having more than one data source. It might be worth considering median figures as the price to reference once you have more than one data source, given that data sources seem to be hard to find or experience inconsistent uptime. Realise also that data will likely be tied to the Islamic Calendar, which perhaps might affect how price is resolved in the DVM at voting time.

Also, instead of creating a stablecoin, you might find a simpler path is to just reference a specific USD-Rial rate if you specify them sufficiently in the UMIP. So, if you’re using official rates, specify multiple sources. If you’re using unofficial ones, specify those also.

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This is an awesome idea - I’d personally buy this synthetic token for sure (I’ve been looking for a way to get exposure to the country but haven’t found an easy way to do so)!