18May 2018

The Future Tokenisation of Everything — Part 1

by Henrik Andersson

Tokenisation has the potential to dramatically change the nature of all asset classes. The first generation of crypto assets created new, digital assets like bitcoin and ether that only exists on their respective blockchains. Code governs these assets and ownership can be secured through public-key cryptography. The open-source code base is the governing law for these assets. We now have new assets; with Bitcoin, ‘digital gold’ was created, with Ethereum we got unstoppable smart contracts and we have currency that can take new form as money becomes programmable.

We no longer have to rely on third parties to transact and there is liquid markets that never closes. The potential for these new assets is great, and we can’t yet imagine all the potential use cases and possibilities.

The next generation of crypto assets are likely to tokenised traditional assets; real estate, equities, bonds, commodities, venture capital and hedge fund interest.

New properties for traditional assets

The driver for tokenisation of traditional assets is the technology enabling new properties:

  •   Tokens are divisible. One Bitcoin is 100 million Satoshis (the smallest unit in Bitcoin). We will be able to transaction in small fractions of e.g. real estate.
  •  We will be able to transfer ownership of all kind of assets seamlessly, instantly and at a very low cost. The overhead cost of the third parties currently involved will be minimised.
  • Previous illiquid assets will become liquid such as real estate, VC, and hedge fund interest. Liquidity premium is likely going to unlock value in these assets.

As these assets tokenise they become programmable and tradable, new possibilities for escrow, and governance become possible.

New protocols for these assets are currently being formed. Firms like Harbor is working on the R-token standard for security tokens. As a result, regional-specific compliance and legality can be written into the smart contracts themselves.

The Future Portfolio

A future investment portfolio in a tokenised world might be completely liquid. It could consist of crypto assets like Bitcoin, a stable coin like Dai or Basis, and traditional tokenised assets like equities, bonds, real estate and alternative investments like venture capital and hedge fund interest.

Tokenised Assets.png

Key difference between crypto assets and tokenised traditional assets

With Bitcoin and other purely digital assets we can secure ownership. However, this is not possible with a real world asset like real estate or gold. If we tokenise gold, the physical gold can be seized even if you control the private key. With Bitcoin, the ownership is guaranteed and there is no real world asset that can be compromised. Crypto assets are the only assets in the world that can’t be seized, that won’t be the case when we tokenise traditional assets.

In Part 2, I will look at the role of utility tokens in this future portfolio.

Henrik Andersson

Henrik is the Chief Investment Officer at Apollo Crypto and is the fund manager for the Apollo Crypto Fund. He also acts as the fund advisor for the offshore Apollo Crypto investments funds, the Apollo Crypto Frontier Fund and the Apollo Crypto Market Neutral Fund. Henrik's expertise in traditional financial markets comes from spending a decade on Wall Street as a vice president in institutional equity sales. His exceptional understanding of DeFi comes from co-founding two successful DeFi protocols, mStable and dHEDGE.