We are starting to see things starting to change around the world regarding cryptocurrency. This is happening in spite of the United States government and the SEC operating using laws that are roughly 100 years old.
To say that country is screwing up in a major way is an understatement. There is a reason why London is the FOREX capital of the world. The US totally botched that one up.
It appears it is making the same mistake with crypto.
We are starting to see the tokenization of real world assets going into effect. Of course, those in the US are excluded from participating. That isn't going to stop the process from happening.
We must point out this is not exactly Web 3.0. While blockchain is being used, there are some caveats to it.
Image by Ideogram
Hotel Debt On Blockchain
Bitfinex is conducting an offering to fund the building of a hotel in El Salvador. The goal is to raise $6.25 million. It is doing this through the selling of a token.
The minimum investment is $1,000 and is a 5 year bond, paying 10%. Source
It is a Hampton by Hilton hotel that is going in at the El Salvador International airport.
Here is where things are a bit interesting.
This is an American company doing this offering. It falls under the digital asset laws of El Salvador since it is conducting the business in that country. We also see it rejecting traditional debt markets.
It is a deal being done outside Wall Street.
The caveat is we are seeing it through a centralized entity. We are not dealing with decentralized finance although some might try to spin it that way.
That said, it does open up some interesting prospects. The token will trade on Bitfinex's platform. It is closed to those in the United States but open to anyone where it is legal to trade in these types of assets.
Hence, for $1,000 in USDT, one can hold debt from a US hotel chain that pays 10% annually. Over the 5 years, the $1,000 will turn into $1,500.
This might not seem like much in the world of crypto yet, when we look at the majority of the investing world, yield is a much larger segment. A steady return is what most entities are after.
None of this is financial advice or support for the project itself. This is solely for informational purposes.
A New Debt market
Funding is one of the key factors in the success of a currency. We discussed this in the past regarding the Hive Backed Dollar (HBD).
Here is where Bitfinex is starting the process of creating a brand new debt market. This is outside the traditional one controlled by Wall Street.
At present, large debt offerings have to go through the banking system. Major investment firms tend to be involved, charging large fees for the service.
While we do not know what the payment structure is for Hilton, we can start to consider the potential of this type of market.
The entry is $1,000. This is a level that many in the world can handle. Of course, this still excludes a significant portion of the global population. That said, we are looking at a beginning.
We also should look beyond the centralized aspect to this. Here is where the major corporations will naturally reside. They are going to have to adhere to regulations. However, we could see this easily morphing into decentralized finance.
What happens if platforms start appearing that offer similar features yet without the requirements? To start, we might be looking at smaller numbers. Over time, this could grow as the market enjoys greater liquidity.
At that point, the potential to get involved for a few dollars might be possible. It also opens up the door for a Kiva type service, where microloans are tokenized and offered out.
This could be a complete service built under a financial network using smart contracts.
Micro-investing
Cryptocurrency is allowing the world to go micro.
We already discussed the idea of micro-earning. A network like Hive allows for people to receive payments of a few cents for their online social media activity. This means that small payments can enter a wallet repeatedly throughout the day.
The same thing can happen with infrastructure. Crypto networks are being designed so more than just the most technical can offer up support. These are often incentivized with payments happening on a hourly (or more frequently) basis.
What happens to this money?
The first thing people do is spend it. People in many parts of the world are impacted a great deal by a few dollars a week.
For those who can, investing is an option. Here is where tokenization can get exciting. With the development of projects such as the Hilton Hotel, people could put money into many different venture. Most anything can be tokenized.
That means people could spread their investing around. Want to invest a few dollars in a robotaxi? What about doing that 100 times, each in a different market? How about funding 25 different farmers in a developing nation, to help pay for the planting of crops? Or maybe an apartment complex is broken up into 5 million different tokens, at $1 each.
When the financial intermediaries are removed, the ability to micro-invest becomes possible.
This could be taken to another level by establishing funds that do this. For example, a platform could tokenize a fund that raises money. The fund is the one that invests in the different projects. This could be driven by votes from the community, deciding what gets approved.
Over time, we could see the funding of tens of billions of dollars. At present, the debt and venture capital markets only deal in larger amounts. Neither is going to deal with a start up looking for $5K. In fact, even $100K is likely beneath their threshold.
Micro-investing (micro-lending) changes all this.
Bitfinex is taking a hybrid approach. The loan amount is small for Wall Street. It is, however, generating a proof-of-concept. We cannot ignore the fact that this is centralized, so the counterparty risk is there.
It does pave the way for more innovation. At some point, this could be a standard for Web 3.0. Funding is going to be a huge part of DeFi.
Tokenization offers more potential that the average person realizes.