How Enterprises are Benefiting from Tokenization
There are all indications that enterprises are looking into ways to tap into the potential of emerging technologies. According to a recent survey on blockchain by Deloitte 95% of enterprises surveyed are planning on investing in blockchain in the near future. With the popularity of asset tokenization on the rise, more firms are set to enter the token economy.
In the blockchain world, a token represents a value unit which can be assigned to any asset or commodity. Backed by the immutable technology, tokens are seen as secure, easy to transact across borders whilst guaranteeing the user ownership of assets or commodities they peg their digital tokens on, thanks to smart contracts.
Many enterprises are trying to cut operational costs and tokenization is the easiest way to their business profitability. This will shift focus on traditional financial systems that are expensive and slow. Tokenization is set to open up more opportunities for enterprises and here is how.
Tokenization Value Addition
Tokens represent a fraction of a real world asset or commodity. This could be oil, precious stones, property or even pieces of art. By so doing illiquid assets are turned to liquid assets and more people enter the market since fractional ownership is affordable to the larger population.
Tokenization means more value to due to increased trade which in the long term spurs price appreciation and profits to all participants in the token economy. Tokenizing assets and commodities means even creation of wealth across borders with the unbanked taking part in the economy.
Freedom in the Token Marketplace
A tokenized economy is borderless which create an open market for all to participate. This will also spur the growth of ecosystems that are effective and more fluid. These will also promote participation which will in return spike adoption rates.
Investors have a choice on what to stake or invest in and who token suits their needs. The market will detach itself from a single authority point and give the global investor a chance to invest anywhere across the borders.
Flexible Investment Models
Tokenization will open new investment models and open markets that have been restricted to select geographical locations. The entry of the tokenization concept and will enable startups expend through capital raising and create a new buy-in model from potential consumers.
With smart contract backing, tokens can be automated and fit well in the secondary market. There are no more checks, instead, funds are governed well and released only when set parameters are met. Tokenization will open up publically traded markets since it gives tokens the power to protect shareholders.
Standardizing Data Movement
- Tokens as Part of the Protocol
Today, many protocols exist to standardize data transfer between systems and parties. Other protocols exist for the transfer of monetary assets. However, they have never been combined. At a fundamental and technological level, tokens can be utilized as a common protocol for data and value transfer. By creating a common set of standards for both data and value transfer, this can lower transaction costs and make transactions faster. Take a complex supply chain as an example. There are a set of detailed contracts that define the terms between supplier, manufacturers, and retailers. However, on occasions when these terms are not met, an often long and tedious financial and legal process is required to determine and collect financial penalties. By connecting value transfer together with contract terms, through tokens and smart contracts, overall transaction speeds and costs within the supply chain can be lowered.
- Aligning Incentives & Disintermediation
The idea of utilizing tokens to incentivize participation on an open blockchain network as part of the protocol can be expanded to aligning incentives in any network. By writing terms and stipulations into a smart contract with directly linked value exchange such as automatic rewards or punishments, you can more closely align incentives in the network. Due to the decentralized nature of public blockchains, there is also no single point of failure, which instills robustness and trust in the network that promotes greater participation. This can be directly applied, for example, to accelerate the adoption of renewable energy. Grid+, a ConsenSys funded startup, is processing payments, allowing consumers to buy and sell electricity through Smart Agents. With micropayments enabled through tokens, Grid+ enables more responsive electricity metering so that families and corporations can be more efficient in their energy usage.
Considerations When Exploring Tokenization
With all of the promise of tokenization for enterprises, there are, of course, considerations to keep in mind when exploring potential use cases.
Not Everything Needs Tokens
While there are many potential applications of tokens, there are many areas where tokens do not provide additional value. Many established payment systems work much better than token markets today as they have greater adoption and offer better transaction volume and security. Think about what tangible benefits around efficiency, inclusion, or value creation can be offered by tokenization when considering each use case.
Avoid Speculative Activity
Blockchain and cryptocurrency are still emerging technologies that are not well understood by the general public. As such, there can be high degrees of speculation when tokens are made available for public investment. When looking at tokenizing, take steps to prevent speculative activity by providing adequate education about the offering and verifying the knowledge level and awareness of potential buyers.
Current Performance Limitations
There is a trade-off between scalability, decentralization, and security in blockchain platforms. Public blockchains focus on ensuring full decentralization and security in order to create a trusted platform that does not require centralized authorities or hosts. Thus there are currently performance limitations to public blockchains. However, this is a need that is being actively addressed in the blockchain community, and solutions like Layer 2, are already available to increase scale.
Future-Proof Your Business
Enterprises are in the early days of exploring blockchain use cases in their industry. There will be continued innovation and development in the overall blockchain ecosystem. As technology and business models evolve, it is important for businesses to keep the future in mind while identifying immediate opportunities with blockchain. Private and consortium blockchains have tremendous potential to improve efficiency and transparency in many business processes, but public blockchains can transform entire industries through new business models. By including elements like tokenization into their blockchain strategies now, enterprises can maximize the potential of this revolutionary technology.