Asset Backed Tokens
Asset backed tokens or tokenization is the process by which an asset is “converted” into tokens which can then be purchased, traded or just held. Tokens essentially represent traditional ownership and grant rights to the token holder (owner) which are protected by the immutability of the distributed ledger. Asset backed tokens have unique attributes and represent a new choice for investors.
We’ve seen Vitalik Buterin of the Ethereum foundation blasting “Centralized” exchanges at a TechCrunch Sessions: Blockchain. Mr. Buterin exact words were “I definitely hope centralized exchanges go burn in hell as much as possible.” Mr. Buterin was referencing to the enormous amounts of money these exchanges are charging to initiate new tokens to their platforms.
The main niche for decentralized exchange is NOT satisfying the needs of “whales” and professional traders.
— Vitalik Non-giver of Ether (@VitalikButerin) > October 8, 2017
Asset Backed Tokens Scrutinized
Many hardcore blockchain leaders are vocal with dismay at the asset backed cryptocurrency concept. The “lack of real innovation” creates resentment by some in the crypto community. There’s a discussion to be had as to whether asset backed tokens belong in the same class as other cryptocurrencies. They are almost unavoidably more centralized than most of their digital counterparts because of the centralized management of the underlying assets.
There is scrutiny in the crypto community over the need for blockchain to fulfill this type of solution or investments. Let us avoid the debate over the level of decentralization or the lack of it in this post. Instead, let us focus on the technical option and the solution asset backed tokens offer to potential investors.
In the traditional investment world assets are sold to investors in the form of “containers.” Investors trade equity in a company or a physical asset in the form of securities, paper, or containers. These give investors ownership in the company or the asset. If an investor wants to buy silver, they would probably purchase it in the form of ETF, options, or futures contract that would expose them to silver.
Let us consider a scenario of buying Facebook or Amazon stocks. It won’t make much sense for an investor in developed countries to choose the asset backed cryptocurrency route. At least not until this vehicle has proved itself to be cheaper to trade. However, if we consider emerging markets like India, Russia or China the asset backed tokens are a great solution. It is becoming more accessible to those investors living in these countries. It can cut the broker commission fees, or bypass controversial investor protection laws or lack of any investor protection laws for that matter.
Tokenised assets are a very different product than cryptocurrencies. They do have a use-case (liquidity and access), but at a fundamental level, they are no contrary to running a conventional investment-style business model. As an instance, Liquidity and access are a big deal for emerging countries as well as non accredited investors. Also, assets such as football teams, concerts, schools and banks can be bought, tokenized and governed by a crowd of hundreds or thousands of token holders from all over the world.
Asset Backed Cryptocurrency – What’s Out There?
Swarm.fund allows investors to pool funds and then, by vote, decide on the assets they would like to invest in or purchase. They also don’t have a minimum amount of investment. Their asset backed tokens have 18 decimal places and can be traded in fractional amounts. You can own one-millionth of an asset. Investment opportunities on Swarm.fund vary from Real estate, renewables, agriculture, technical school corporations, crypto hedge funds, impact investments (development projects and post-disaster rebuilding), infrastructure, and any asset or project that the community of SWM token holders approves.
Another company that aims to create asset backed tokens is TrustToken. According to Techcrunch, the project enjoyed pre-sale investments by BlockTower Capital, Danhua Capital, GGV Capital, Jump Capital and other undisclosed investors. A total of $20 million were invested in pre-sale stages. TrueUSD (TUSD) is a stable coin that you can redeem 1-for-1 for US dollars. TUSD is the first asset tokens created on the TrustToken Platform. TrustToken is aiming at the real estate industry by tokenizing assets and allowing the public to purchase equity in these assets.
Neufund also aims to tokenize assets and companies. The platform opens up venture capital and funding for cutting-edge projects and creates an avenue for founders and smaller investors to deploy their funds into projects they consider. On Jul 19, 2018, it announced a partnership with the Malta Stock Exchange and Binance. The idea is for Binance to create an equity-based tokens exchange. The Maltese stock exchange will monitor and regulate the operation.
Accessible and Fractionable
Tokens are fractionable. If a small investor wants to buy 100 dollars’ worth of Facebook stock he or she can’t do it easily, but with tokens it is conceivable. Tokens are transportable you can have them on your phone, sell them from anyplace in the world at any time for dollars or another cryptocurrency and have access to your funds immediately instead of having to wait for wires from your stockbroker. Asset backed cryptocurrency could also make assets more liquid. If we look at tokenizing a real-estate project, a hotel, for instance, the investors in such a project would be able to sell their tokenized shares in the project whenever they want as these markets progress.
Whether you’re a part of those opposed to asset backed tokens or in favor one thing is undeniable, and that is the fact that this investment method makes it more accessible and more fractionable. The ICO format left many investors in pain and allowed whales to take advantage of crowdsale investors. It is true that this type of investment vehicle isn’t innovating or creating a new cryptocurrency or a new blockchain. That in mind, it is opening new opportunities for investors and companies alike to invest and get funded faster, cheaper, and in a fractionable fashion. Real assets equity is offered to the public with an access that was not available. It is using blockchain to realize it. That on its own is another mean of adaptation of the ethereum blockchain and the use of smart contracts.