Though with its own flaws, the trend of recent developments within the cryptocurrency markets shows just how much capital will become increasingly active across economic systems thanks to tokenization.
When you look at products like liquid staking and restaking, you get a glimpse into how the industry perceives “idle capital” and essentially try to leverage it. Certainly, these concepts come with a great deal of liquidity risks, but there are practical ways they can be mitigated to ensure that value can be maximally capitalized without sliding into a liquidity catastrophe.
These solutions exist because the ecosystem is opposed to rigid financial systems. Tokenization paves way for trillions of idle capital to make way into a more flexible financial system.
Though I am not a fan, one project that gets mentioned a lot when discussions of idle traditional capital are up is Ripple and the XRP Ledger.
As Ripple continues to scale its operations globally, industry commentators increasingly believe the company is positioning XRP as a critical solution for global financial institutions.
Jake Claver, a business leader and consultant, recently highlighted this perspective in a tweet. He cited over $27 trillion sitting frozen in banks worldwide due to inefficiencies in cross-border payments. According to him, XRP is set to change this status quo.
Although reports like this are often insanely bias because there are literally a great number of blockchains currently existing that would offer just the same solutions(some better) that Ripple offers through the XRP Ledger.
The reason for this conclusion is simply that the argument is always about fast transaction times and low-cost. Hive literally has the same speed with zero fees.
Now the second argument is always about infrastructures, yet, I never really get to see any real exploration of these so-called military-grade secure infrastructures for traditional banks to integrate with the XRP Ledger.
Make no mistakes though, there are lots of reports on banking partnerships but the fact remains that XRP isn't going to be as dominating of unlocked traditional capital as it's heavily being reported on in the media.
The good thing about these reports, however, is that they shine a light on some true realities of the traditional financial system.
Idle capital or funds, which is the focus of this article is one of them and this goes beyond what is often discussed closely to this, being payments.
Idle capital in the context of focus here is value that simply can't figure out where to be rather than sitting idle in a bank or an asset.
There's a good reason why I talked about liquid staking to begin with.
People may simply just want to have their capital sitting in a bank, but tokenization brings about the ability to maintain semi-idleness and simultaneously contributing to economic growth or expansion of ecosystems.
It becomes even more evident, the value that comes with moving finance on-chain when we ditch the idea of “capital” being central to “cash” or essentially stable money.
Considering that money is just a unit of account, whatever is bought with it essentially becomes the bearer of the account, making it a capital good, especially if used to generate more economic value.
This means that everything we commonly refer to as “assets” — including physical assets — become “capital” and the value they hold, which generally stays idle, becomes capable of contributing to economic expansion.
Think of how lots of bitcoins sit idle and projects like Babylon attempt to make these idle capital active and capable of earning interest.
This can be applied to far more than just digital assets. Real estate for instance holds tremendous amounts of idle capital because it has to do with physical assets and tokenization makes it possible for this to become active value that is leveraged across various economies.
This is what blockchain unlocks and big players like Blackrock understand this, hence their recent heightened interest in the industry.