In the first part of this series, I wrote about how a diversified portfolio may look like in world of tokenisation. I envisioned a world where investors’ portfolios will contain crypto assets in the form of digital gold (i.e. Bitcoin), stable coins and a series of traditional assets (both private and public) that will be tokenised. Here I look at the likely long term value of native tokens used to fuel decentralised crypto networks compared with utility tokens used to pay for goods and services within a network.
Crypto tokens were invented for used in decentralised blockchains to incentivise its stakeholders to contribute positively to the network (think of it as fuel for the network - just like money is to any market).
Today, there are over 1,600 crypto assets actively traded. Some digitally native startups are doing token sales to facilitate a network of early users. This is called open network design; tokens help overcome the bootstrap problem by adding financial utility when application utility is low.
Many of these crypto tokens are utility tokens which are used as payment for services sometimes on a centralised platform. These utility tokens are issued on top of other networks, such as Ethereum’s ERC-20 coins.
We are entering a world where we have hundreds of utility tokens that enable payment on crypto networks for specific goods and services. It is, however, unlikely we would want to hold a portfolio of all these different tokens, one for our internet provider, one for streaming music, one for the car-sharing network etc.
We are likely to see a massive increase in the tradability and fluidity between crypto assets. Decentralised markets with common liquidity pools will make trading into, between, and out of utility tokens effortless, seamless, instantaneous, and potentially unknown from the consumer’s perspective. A stable crypto coin may serve as the base transactional currency in this future world where money is streaming like data and where machines pay humans or other machines.
For this reason, in a world where everything is tokenised, the value of crypto assets are likely to consolidate along native crypto assets used to run blockchains, not in utility tokens. These native crypto assets are needed for blockchains to provide incentives for network resources such as processing power, bandwidth, or storage.
With coming interoperability between blockchains, we might even see consolidation within the blockchain ecosystem. Separate smart contract platforms could be run on a single blockchain hub that talks to these different blockchains.
It is too early to say how many different crypto assets will accumulate the vast majority of value. However if this future materialise, they will be part of an investor's overall tokenised portfolio. That portfolio will be:
Liquid. Tokenisation will create new markets that didn’t exist in the past.
Much more diversified. Assets not previously accessible will be accessible (think a fraction of land, real estate, or hedge fund interests)
Instantly rebalanced. Decentralised markets with instant liquidity will enable a portfolio to be rebalanced at any time.
Finally, in this brave new world where we can take direct ownership of assets and software is programmed to handle trade, payment and settlement, a lot less intermediaries will be needed.