Asset Tokenization Reading Notes

 Asset tokenization is essential to not only powering the next-generation digital economy, but also to paving the way for new business models built upon the “instance economy.” 

This spectrum of technology-driven platform and the use cases that exploit them rely on some of the manifestation of value. 

This digitization, be it systemically generated in the form of a transaction utility coin or a layer-two token that relies on the underlying coin for its valuation, is nothing but a digitized notation of an instrument that has a real or perceived value.

technology-based systemic governance comprising incentives and mechanisms of coordination. 

digital interactions and value-exchange mechanisms.

blockchain itself provides the technology constructs to facilitate exchange, ownership, and trust in the network, it is in the digitization of value elements where asset tokenization is essential.

1) Digitization is the first step in many enterprise and permissionless blockchain projects. 

2) Tokenization is the process of converting the assets and rights or claim to an asset into a digital representation or a token onto a blockchain network. 

Crypto VS Token

An (crypto) asset or currency is a medium of exchange or a protocol-driven exchange mechanism that often embodies the same characteristics of a real-world currency, such as durability, limited supply, and recognition by a network, while being backed by a common belief system (like a fiat currency). An (crypto) asset or cryptocurrency also represents a byproduct of trust systems (consensus) as a vehicle to back the incentive economic model that rewards and fuels the trust system of a network, making it a trust currency of the network.

A token, on the other hand, can be many things: a digital representation of a physical good, making it a digital twin, or a layer-two protocol that rides on the (crypto) asset or currency and represents a unit of value.

This distinction is an important construct to understanding the exchange vehicles, valuation models, and fungibility across various value networks that are emerging, posing challenges around interoperability, not just technical, but also business challenges, around equitable swaps.

https://www.linkedin.com/pulse/asset-tokenization-essential-powering-next-generation-nitin-gaur/

Tokenization is a method that converts rights to an asset into a digital token.

Token Valuation Models and the Instance Economy

While an (crypto) asset or currency derives its value as a medium of exchange with a shared common belief system of a network (often confined to that network), tokens may have complex and fragmented valuation models.

The issue with paper (or digital records) and complex legal agreements is that they are cumbersome and pose a challenge to transfer and track, leading to opacity, and then to fraud, opportunity, and transaction costs. 

One solution would be to switch to a digital system along the lines of digital assets, such as tokenized assets on a blockchain network, but linked to an asset.

the promise of blockchain-based business networks is not just digitization and solving the inefficiencies of time and trust, but rather is creating new business models and co-creation from synergies of the network participants that did not exist before.

Tokenization of assets can lead to creation of a business model that fuels fractional ownership or the ability to own an instance of a large asset. Fractional ownership does open up a market to participation from entities that were in the past prevented from participating due to high capital requirements or due to the opacity of value transfer systems. Furthermore, fractional ownership opens a whole new range of asset classes and asset types, unlocking the economic value of locked capital due to the inaccessibility of investment opportunities. 

I use the term instance economy, as this fuels tokenization of assets, leading to ownership of an instance of an asset class, thereby creating markets and secondary markets of value that simply do not exist today. ~ Nitin Gaur

Published on July 9, 2018