Cryptocurrency is going to succeed.
This is something that many will still want to dispute but the simple fact is that we are seeing a new revolution in finance. Even if we do not delve into the technical aspects of things along with how it will merge with future automation, there is something adrift.
Many on Wall Street are starting to see the benefit of tokenization. While there is still great debate of how it will look, with the traditional believing it will be under their control, there is little doubt where this is going.
This includes Jenny Johnson, CEO of Franklin Templeton. She did an interview where she referred to what is taking place in the digital asset world.
During CNBC’s Delivering Alpha event, Johnson noted that tokenization — the process of converting asset ownership rights into digital tokens on a blockchain — is akin to “securitization done on steroids,” a term often used to describe something that exceeds expectations.
This isn't going to surprise most of us in the cryptocurrency space. We discussed those over the past few years.
Fractional Ownership Is Huge
Fractional ownership is something that becomes bigger than than most realize.
When we are dealing with securitization on steroids, this is how the numbers get into the quadrillions. Securitization has already generated trillions of dollars in wealth over the last half century. This is only going to get bigger.
The key, as always, is how this wealth is distributed.
Here is where cryptocurrency and the digital asset space enters. When we consider a concept like the metaverse, who owns it? How is that monetized?
The answer, to me, lies in tokenization. Here is where we quantify value which is previously unknown. By establishing markets, we see where value can be openly traded, establishing prices.
Consider how much a company is worth when it is private as compared to publicly traded. Certainly, there are times markets are nuts and bubbles take place. We can also see pumps with certain companies.
However, if we look at something like Apple or Microsoft, would they be worth trillions if privately held? One could make the case that would be the case...on paper. But what about in terms of liquidity? There is no way that value could be utilized and extracted for even more growth.
Now consider it as a public company. Someone can take their shares and place that as collateral on a loan. Here is where economic productivity can be increased.
Quadrillions In Market Cap
I have stated for years that the eventual market capitalization for the digital asset world will be into the quadrillions. This will be the greatest wealth creation mechanism ever seen in human history.
The CEO of Franklin Templeton agrees with this assessment. Securitization, while having a downside, was a boom for humanity. The economic productivity over the last 40 years exploded. Technology was thoroughly enhanced by the ability to fund. This led to breakthroughs which completely altered society.
It is easy for us to point to real estate and the hundreds of trillions there. The same is true for stocks and bonds. Naturally, these will all be part of the process.
What about the concept of a song? Here is a simple example of something that is in the news with the development of artificial intelligence.
Consider the idea of buying a piece of an AI song for a few dollars. Overall, this is not much but it will illustrate how this works. If the "artist" sells 25 of these, the person makes, say, $50. We will presume this is a 50% stake sole.
So I drop a few bucks into this song, denoted on the blockchain by a NFT. For this example, we will presume the song generates $50 a month. That would mean my payment is 50 cents per month. This is not something to retire from yet it is a nice return. I get $6 a year coming into my wallet.
Rinse and repeat.
This is in alignment with the foundation of markets. Remember, most of what is done with markets is basically the moving around of risk. It is the process of shifting it from those who want to unload it to those who are willing to take it one.
Tokenization puts this on steroids. Fractional ownership also makes it easy since we can see this happening in billions of situations per year.
By removing the friction from the system and ridding ourselves of financial intermediaries through technology, we can deal with small numbers.
If you want to invest 25 cents, you can do that. How many people around the world could drop this amount?
A Bird In The Hand
Basically, this comes down to the age old decision: a bird in the hand or two in the bush?
Do you want to get something now or hold out for a larger amount later? This is an answer that will be personal in each situation, with people on both sides. That is what makes markets.
A number of years ago, there was a basketball player who tried to tokenize his contract. It was nixed by the NBA yet the concept was valid.
What is someone signs a $50 million contract? This person could sell 20% it for $17 million. The token holders would end up getting $3 million above what they paid while the player would get the money upfront. This could all be written into a smart contract and executed autonomously.
Would you put a few dollars into a deal like this?
Now consider how technology factors in. Whereas it might be difficult to sell someone on the idea of putting up the $17 million, how much easier is it for 17 million people from around the world to pay $1 each? This is what the digital age provides.
Imagine if a piece of this contract could be purchased with a stablecoin through Metamask. One simply swaps it like any other token.
Fractional Funding
For this to happen, the securities laws will have to be change. However, we can see how this concept ties into what is happening in the world.
We discussed the idea of AI generated feature films. Let us use the example of $500K being needed to produce one. This is obviously a fraction of what one costs now and the technology is not ready. Nevertheless, we can ponder the capabilities for a future time (maybe 5 years).
The team needs $500K, so it tokenizes the project. This is done by selling fractional pieces into the digital realm. Again, perhaps 1.5 million people get involved, all with varying amounts of money. If the film goes on to generate $2.5 million, the token holders get a nice return.
Of course, if it is a dud, most won't care since it was only a fractional amount.
This is the power of micro-funding.
More importantly, consider how many different projects, businesses, and opportunities around the world could be funded in this manner. It only grows as the value of the digital assets people are holding keeps growing.
It is also why financial services such as lending and collateralization are vital. With technology, this can be taken to a micro level.
What if someone has $10 in tokens that he or she wants to hold yet there is another opportunity to get into. Here is where the assets can be used as collateral, the $10 is paid out (less a small fee) and the new tokens purchased.
Tokenization is certainly securitization on steroids. Technology is taking this to the micro level which will push this to even greater heights.