Dacxi Crypto Wealth Cafe | Tokenization - The Next Big Opportunity?

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Dacxi

Jun 7, 2022

5 MIN

“Web3 gives people ‘property’ rights, the ability to own a piece of the internet.”

 

 

Hi everyone. At the time of writing Bitcoin is $31,140 and Ethereum is $1815. So just a little bit down from where we were seven days ago. But not really too much happening at the moment. So I thought it would be a good opportunity to do something a little bit different today.

 

I think it's a good opportunity to talk about the bigger picture opportunity that web3 and blockchain tokenization presents. What does it all mean? Where are we? What happens next? 

 

Typically, new technology, new innovations, new cycles, tend to grow in S curves. And new tech generally goes from stupid to exciting to boring, right? This has been the model really for the last 60 years or so. We can think of mainframes. You know, the big mainframes that used to fill a room. Now everyone has more computing power in their phone and they don’t even think about it. Smartphones too have reached the higher end of the adoption curve, and they're now at the boring stage, because the product has matured, the easy and obvious things have been done, and marginal improvements are now the name of the game. 

 

Whether you're an iPhone user, or, or, or Android, it's kind of the same at the moment. So a new kind of high end iPhone, or Samsung Galaxy, they'll cost you like two to two grand, maybe three grand even for the really high end models. But what are you getting for your three grand, you're getting a really good phone, but the improvements on the previous generation iPhone or Samsung, they're not huge, you know, the battery might last a little bit longer, the operating system will be a little bit faster, and the camera will be a little bit more impressive. But really it's still just a new iPhone. And that's because the product has matured. 

 

People used to call the people used to call Jeff Bezos stupid, or at least they loved to criticise the idea that people would purchase books, the early CDs, music, and now of course, absolutely everything through Amazon and delivered within one to two business days. In the early days, people laughed. They call it Amazon stupid. Now, of course, Amazon has a mature product. But in that exciting phase, a lot of people got really, really wealthy from Amazon shares. And now people are happy to call blockchain stupid at the moment. 

 

Of course this is traditionally how a lot of people react to a new technology. A great example is when the internet was in its early stages and the late 90s Paul Krugman, a respected New York Times writer, wrote in 1998 that by 2005 or so it will become clear that the internet's impact on the economy has been no greater than the fax machine. Now, he could not have been more spectacularly wrong. Obviously, the internet has been an absolute game changer for the entire planet. And whole new business models are now possible due to the internet. Here's another one. Back in, I believe it was around 1950, Thomas J. Watson, who at the time was the Chairman and CEO of IBM. He said that ‘I think there is a world market for maybe five computers.’ Today it's mind boggling that he so severely underestimated the potential, the power, and the adoption for this new and exciting technology. 

 

 

Another good way of thinking about this comes from the author, Douglas Adams who is the author of The Hitchhiker's Guide to the Galaxy. He came up with a set of rules that describe our reaction to new technologies. He said that anything that is in the world when you are born is normal and ordinary. It's just how the world works. Anything that's invented between when you're 15, and 35 is new. It's exciting. It's revolutionary. And you can probably make a career out of it. And anything invented, after you're the age of 35, is simply against the natural order of things. I think it's just a really great mental model. I can kind of relate to this. As we get older, our brains can tend to get a little bit stuck. 

 

What are the next big growth opportunities? I think that the next big opportunity is Web3 and blockchain tokenization. 

 

Of course you've got to be a little bit sceptical as there is such a thing as being too early. In the dot com boom, some online businesses were viable business ideas, but they were just too early for the available technology at the time. The computing power of the early 2000s wasn't mature enough to support what Amazon is capable of today. So you know, we've got to keep that in mind. Is blockchain mature enough to support all these ideas? Right now, blockchain is just at the beginning of the S curve as well. But over the next 10 years, 15 years, it's going to be mature enough to support all these incredible new business opportunities. 

 

The crypto market develops in cycles. When the prices go up it brings up a whole wave of new people who get excited, which in turn enables a whole new, a new suite of ideas, more people get excited, this leads to new startups, new projects, and then the price goes up and the cycle continues. That's what happens in a bull market. And then we have a bear market and we flush out the kind of excess froth and some of the scams as well. People that aren't serious enough for the long term. And the builders just keep building and then eventually the cycle starts again. 

 

So if you think about the first era of the modern internet - 1990 to 2005. That first era was about open protocols that were decentralised and community governed. And most of the value accrued to the edges of the network - the people that were using the network and people that were building the network. The second era of the Internet, Web2, from roughly 2005 to 2020, was about siloed, centralised services, and most of the value accrued to a handful of large tech companies like Amazon, Google, Facebook, and Twitter. Facebook did incredibly well in that Web2 era, because they were able to capture all of the value from all of the users, as the whole came online. However, Web3 is a little bit different. 

 

And we're really just at the very beginning of Web3, we're so in that that stupid stage where a lot of people are questioning whether there is anything there. They're saying is Web3 a thing? Is there a point to using a blockchain? What's the point of tokenizing? That the narrative from the naysayers, the non believers. But there's potential there. Something incredible is happening. It's just that the whole world can’t see it yet. But actually what is it? 

 

Web3 is the third era of the Internet, which combines the decentralised community governed ethos of the first era, with the advanced modern functionality of the second era. And this is about to unlock a new wave of creativity and entrepreneurship. It's exciting times people! But of course, you know, again, can't stress it enough at the early stages. 

 

What happens next? Web3 gives people ‘property’ rights, the ability to own a piece of the internet. And they can do that primarily through tokenization, which is the ability to own tokens issued on a blockchain that can represent anything. Those tokens become tradable with anyone else anywhere in the world, through the magic of blockchain and that's where we're going with Web3. 

 

Asset tokenization uses blockchain technology to represent ownership or rights to an tradable asset. It can be anything from a piece of art, a patent, to an hour of a skilled worker's time. For that reason asset tokenization is among the most promising use cases for blockchain, with the upper bound of its growth potentially encompassing nearly all of human economic activity. I’ve seen estimates from the Chainlink blog of it being worth well over $100 trillion annually. Of course that's not going to happen overnight. But it shows the kind of the scale of the opportunity. 

 

What is asset tokenization?

 

In last week's show on precious metals I talked a little bit about this and referred to the Dacxi Precious Metals Tokenization ebook, which anyone can download. 

 

So how does tokenization work? Tokens rely on smart contracts. Dacxi precious metals tokens are ERC 20 tokens built on top of the Ethereum blockchain. And of course, as I'm sure you know, Ethereum was developed specifically to enable smart contracts. When you purchase digital tokens representing an asset, that transaction is recorded to a blockchain, meaning that you can prove that you own those assets, and your ownership of that asset is immutable.

 

There are two main types of asset tokens - fungible tokens and non fungible tokens. Fungible tokens have two key features. They're interchangeable and divisible. 

 

Non fungible tokens are non interchangeable, because they are unique, and so are non divisible. NFT's are a really good example of that. 

 

Dacxi precious metal tokens are fungible tradable tokens, which represent actual physical, precious metal stored in vaults by Dacxi’s bullion provider. That is a real world use case. Right now you can buy tokenized, precious metals, gold, silver, platinum, right now, on the Dacxi Wealth Platform with a few clicks from your computer. That’s incredible. So you can see why tokenization is a game changer in terms of unlocking the value in global asset classes that haven't been easily tradable before. 

 

So what comes next? Venture capital funds, bonds, commodities, and even real estate! It is possible to tokenize individual buildings, or apartment towers or skyscrapers or city blocks, get anyone to invest in an entire city block. That creates all sorts of incredible new opportunities. It’s the same with sports teams. Soon you might be able to invest in any leading sports brand around the world, again, just a few clicks from your computer or smartphone. Same with artwork, you know, it's happening already with you know, NFT's, rights to music, classic cars. The list goes on. Dacxi is developing the world’s first tokenized global crowdfunding platform - something that is only possible using tokenization.

One of the biggest benefits is introducing liquidity to previously illiquid assets like commercial property. For example, an office block developer could tokenize a building, and to 500,000 different fractions, each representing a tiny 0.0002% share. And they might sell the 400,000 of the tokens and keep the remaining 100 fractional shares to generate a pro rata rental income or to sell later. It gives developers more options and gives investors options as well. It also leads to fairer prices. Establishing a fair  market price for an asset that can't be easily liquidated is difficult. But by selling small fractions of ownership as tokens establishing a fair market price is easy. It's just how markets work. We also get reduced management costs. Asset ownership transfer often requires intermediaries like lawyers to handle the paperwork, so it becomes expensive, slow and inefficient. Tokenizing an asset on a decentralised platform automates many parts of the process, and makes it a lot more transparent. And since the blockchain technology behind asset tokenization is immutable. Everything is verifiable. You can see the history of the transactions that have taken place, and you can trust the process. 

 

What else? A broader investor base, which is one of the big ones. With most high value physical assets, there's a limit to the level of fractionalization possible. However, once assets become tokenized, this limitation is removed. And it becomes possible to buy or sell tokens that represent tiny fractions of ownership, which opens the door to a far broader investor base. Simple as that. It also enables broader geographic reach, reduced settlement times, decreased cost for reconciliation than security, easier regulatory evolution, improved asset liability management, and collateralisation. 

 

The asset tokenization process.

 

There are five basic steps to tokenizing an asset.

 

Step one, you evaluate and confirm the asset. For example, with precious metals that’s relatively. We know the market price of gold and there’s an existing market. It's a bit harder, if there's no existing market, in that case, the valuation then needs to be done by an accredited auditing or accounting firm.

 

Step two is smart contract generation. You create a smart contract and the price of the tokens generated corresponds to the market price and valuation of that asset. Step three is tokenomics. When you generate the smart contract you decide the total supply of the tokens. It’s a balancing act. Too much supply can put off investors. but if there's not enough supply, there's a risk of poor liquidity. 

 

Step four is equity or cash flow? The issuer must decide whether the tokenized asset’s purpose is to provide equity or to generate a profit share or a cash flow? Dacxi Precious Metal tokens are equity tokens. 

 

The last step, of course, is regulatory approval, the tokens must comply with the relevant securities and financial products, regulation and the territories they will be offered in. 

 

So  if you're interested in Dacxi tokenized precious metals all you need to do is go to the Dacxi Wealth Platform and buy them with a few clicks. It's a super easy way to get started with precious metals investing, all made possible by Web3 web and tokenization.

 

Hope you enjoyed the show. See you again in two weeks. Bye for now.