tokenization services
The world seems to be fast-rolling towards mass-tokenization of Real World Assets (RWA), and to the extent that this would allow for more financial inclusion or enable public-private partnerships or communities-led projects, this would be a really great thing. This is why we are doing this and providing tokenization services and support out of the special economic zone of Próspera ZEDE in Roatán, Honduras [read more about Próspera ZEDE here or reach out to sister company Ixian which provides legal services]. But we want to take advantage of the opportunity presented by tokenization while avoiding the pitfalls of merely replicating the traditional capital markets - systems that, over time, have often encouraged short-termism, misalignment of incentives, and systemic dysfunctions.
Traditional markets are driven by quarterly earnings reports, share price fluctuations, and a relentless focus on short-term returns, not even speaking of the rampant speculation. We have seen this sort of behavior also in the crypto-assets markets, and it is likely that this will continue for RWA tokenization. Not even going into the sub-cultures of the crypto-assets industry and the belief of many rationalists that markets are best for everything, it is simply in the nature of liquid assets to act like an ocean would, with unpredictable weather. Not addressing this short-term gain mindset would likely exacerbate these issues, and amplify the current problems, as tokenization will introduce new layers of complexity.
The 2008 financial crisis highlighted the dangers of systemic risks inherent in traditional financial markets - from interconnectedness, complexity, and the reliance on a few key institutions, but it especially highlighted the dysfunctions in those systems stemming precisely from short-termist mindsets [underwriters not doing their diligence properly because they were passing off the risks to the markets]. This is why we now have Bitcoin (BTC), because Satoshi wanted to demonstrate an alternative, but with institutional players coming into crypto-assets and buying off smaller players, we are moving back into complex financial products and markets, just with different intermediaries. Tokenization could potentially increase these risks if not carefully designed, especially if it leads to the creation of highly interconnected digital financial ecosystems that lack proper checks and balances.
So how do we design it well?
To avoid these pitfalls, we believe that tokenization must be approached with a mindset rooted in natural systems thinking, which emphasizes sustainability, resilience, and long-term value creation (see here a more detailed explanation). Therefore, our tokenization services are here to help you incorporate the following design principles [and we can also actually help you tokenize things]:
1. Aligning Incentives. Tokenization should be designed to align the incentives of all stakeholders - investors, asset [or property] managers, and tokenholders - towards long-term value creation, and also for RWAs we believe that it’s important to carefully consider the issues related to maintaining and preserving the actual assets for the long-term. At a superficial level, this can involve mechanisms that reward long-term holding of tokens, or link token value to broader social and environmental outcomes. One of the pilot projects that we are working on is a “green reserve token” [message us if you’d like to learn more about this concept].
2. Transparency means Accountability. One of the advantages of blockchain technology is actually enhanced transparency [have you noticed how there are very few projects speaking of using blockchain to track government spending? Just saying]. Tokenization allows communities and entrepreneurs to create systems where transactions, governance decisions, and performance metrics are transparent and auditable by all stakeholders. This can help mitigate some of the opacity and complexity of traditional markets, but it’s tricky to implement if there is too much fragmentation. We have learned this from traditional capital markets, so we need to carefully design checks and balances to take advantage of the transparency and accountability of blockchain.
3. Resilience means Sustainability. Drawing from natural systems thinking, we want our tokenization models to be resilient to shocks and adaptable to changing conditions. This could involve, for example, creating diverse token ecosystems that are not overly reliant on any single asset class or market condition, and that are designed to support sustainable practices, both economically and environmentally. It also involves less of the copy-pasta or plain vanilla models and more work on a design which is bespoke to the needs of a project, the RWAs in question, and the business model. Over-reliance on “free” or “cheap” services can actually be harmful in the long-term, as it can lead to monoculture instead of diversity. We want multidimensional, rich, authentic projects who are not afraid of investing the time needed to succeed.
4. Governance means Implementation: The traditional wisdom of DAOs and tokenization generally is decentralization, but we believe that we should decentralize only as far as we can actually make it work without compromising the project in itself. This is the difference between tokenization and fragmentation - fragmentation disempowers [divided, we fall]. Tokenization without proper design and governance [which is NOT decision-making, it’s actually getting things done] will only splinter our wealth and our world in many pieces, without actually empowering us. DAOs are experiments in human aggregation models, and we’re working on figuring that out too, but for RWAs we will always recommend a pragmatic approach - someone needs to steward the RWAs in question, lest they degrade and lose in actual value.