Most do not realize how large tokenization is going to be. We are embarking upon a new model that is able to capture value creation in ways never envisioned before. This goes far beyond content creation online.
In reality, it applies to all aspect of the economy.
This is going to be a boom. Eventually, we see the benefits of financial inclusion reaching hundreds of trillions of dollars. This is simply a mathematical result of enlisting more than 5 billion people who are presently excluded from the existing financial system.
The world of high finance is going to come to all. It is the promise of tokenization. When people discuss real world assets being represented as tokens on-chain, this opens up an entirely new process for every industry.
The Power Of A Wallet
The starting point is the power of a digital wallet. This is the entryway into a completely different realm.
Having a wallet enables anyone to participate in finance It will go far beyond simply being able to send, store, and receive money. Instead, we are looking at the on-ramp to a host of other financial services that are built to integrate with the multiple aspects of tokenization.
Everything, and everyone, can be tokenized.
Consider the process of creating a cow. This is birthed something that is captured under those who are in the business of breeding these animals. What happens from the time of birth to slaughter.
Basically the cow down nothing but eat. The process is feeding it grass, which is converted into protein, resulting in a fattened animal.
At present, the cow, or end product, is what has value.
But what about the grass? Doesn't that have value? It is a necessary part of the process of creating this money the animal is sold for.
Under the new scenario, the grass itself could be tokenized. This means we could have a market for grass (not marijuana in this case). Suddenly, there is a new revenue model designed for something that is a part of the process.
It is ironic that governments, especially in Europe, we able to tax the value add yet there are many instances where it is not captured except by a select few.
Tokenization changes this.
Having a wallet allows anyone to participate.
Liquid Markets
Estimates vary but the range of real world tokenization is between $16T-$68T by 2030. There are obviously regulatory hurdles to overcome as governments wrestle with how to control this animal.
Sadly for them, it isn't going to happen. There are something that are certainly going to be under their domain. Real estate, since it is heavily regulated and the government is at the center of the process will fall under this domain. However, newer innovations will likely be created on decentralized blockchains, opening up the sale to people around the world.
The key is the moving from illiquid to liquid. This is what markets do.
Liquidity is what takes the value creation and puts it on steroids. When something is tokenized, as long as it is tied to larger markets, it will have a certain degree of liquidity. This is guaranteed to be more than the asset presently enjoys.
For example, a vintage automobile is not a very liquid asset on its own. This comes from the fact there are a small group of buyers while also having a system that does not make it easy to transfer ownership.
Tokenization will change that. The vehicle could be tokenized. Holders from all over the world could have a piece. These tokens could be traded as part of a common protocol, offering liquidity for those who want to exit the position.
Of course, this could be further enhance by the potential for the individual token holder to use the asset (the token) as collateral in another transaction Here we see the value not only captures but utilized to fund another venture.
Imagine what this will do the collectible market.
Value Capture
Everything has value.
The problem is that most of it is lost. At present, we really have no way to quantify the utility of something. This means the value is operating outside the financial realm.
As discussed in the past, is volunteering to sit with an elderly person of value? Obviously since there are people who are paid to do it. Yet, when someone volunteers, there is no compensation.
So what is the difference between the paid aid and the volunteer in terms of the service provided. While there might be some training for the former, ultimately it is the same utility being offered.
AirBNB showed what creating revenue streams out of illiquid, non-quantified assets can do. How much is a room in a house worth? Before this technology, there was no way to answer that. Perhaps one could divide the square footage into the total of the property, then work out the monetary price based upon that.
Now, we can see an easy conversion to revenue stream. Suddenly, we have a dormant asset that has utility AND it is captured. Could that be tokenized? Most certainly. The homeowner could mitigate risk by selling pieces of the room into the market, sharing the revenues with people all over the world.
As we can see, this can appeal to the two types of investors. Because we can apply it to revenues, those seeking yield are satisfied. For the speculators, there is the equitycomponent where the payout is based upon the asset going up in value, such as a painting or sculpture.
Quadrillions
We are looking at a total process that is going to get into quadrillions.
There is a tendency, in this discussion, to look at what is already captured in value, and add it up. This is where we start with the $300 trillion in real estate, $125 trillion in bonds, $80 trillion with stocks, etc...
What gets overlooked is the value that is completely missing from the equation. Here is where the real money is.
How do we value the fandom for a show like The Office? Or Real Madrid? Right now it is based upon sales of tickets, merchandise, and the ratings the broadcasts get. None of this truly captures, or rewards, the fans for their dedication.
Tokenization will change this.
All of this is much greater than simply creating a token (or NFT) related to an asset. Instead, we are dealing with an entire system of value capture and transfer that comes from the development of infrastructure along with applications. We are building a completely new financial network that is going to incorporate things presently overlooked.
Here is where the potential of tokenization truly resides. We see a bit of that with Hive where people's online social media activity is tokenized. This is just a beginning. What happens when that value can be collateralized for further investment? Suddenly, we have the financing for another growth mechanism.
This is not a new process. Wall Street has done this for decades. The only problem is that most of us were excluded from the process.
Get a few billions digital wallets out there and things change completely.