Use cases of tokenization - DeFi, commerce, securities, DAO

in #blockchain2 years ago

We look at some economic use cases for tokenization. During that we go through areas such as decentralized finance, merchandise and also a bit of decentralized governance.

Mostly a requeirement for all these use cases is the token container model out of the Blockchain Act of Liechtenstein or a comperable legal solution in each country. So a model that allows a legal connection between token and real goods or rights. As we know regulation by the governments side mostly provides issues - it stays against innovation if it exists or makes insecurity if it is missing. If that is once solved, much possibilitys will come up.

DeFi - multi collatelal backed stablecoins

DAI is so to say the stable currency of Ethereum which is backed by ether itself. But these stablecoins are not the tokens I wanna talk about. The important thing is the tokenized collateral that is used to create that type of currency.

Earlyer you could just deposit Ether in order to receive DAI as credit. Viewing towards the future we can conclude that this will develope to a system where you can deposit any type of tokenized asset in such a contract. What was first managed by banks will now be executed by a smart contract. This might become possible for real estate, insurances, shares, securitys, gold...

How you can imagine the creation of decentralized backed currency
decentralized finance smart contract

The more types of tokens exist, representing a value and being an item of trust, the more assets become available to deposit them into a smart contract in order to get stable digital currency. Such a contract is basically a bank that is structured as a decentralized autonomous organization(DAO). Of course a DAOs code that is nothing than virtual can only operate with tokens and not with material goods. That is why the legal connection between token and real physical value of any type is necessary.

Sure it is also possible to use Bitcoin or Ether, cause they are immaterial goods anyway. This way so to say the digital gold stays in a digital save of a digital decentralized autonomous bank and the customer gets digital decentralized backed stable currency out of it. Nice would be if that currency could stay stable even when former cash doesn't anymore. That could be the real sense behind it. The more tokenization comes up, the more possibilitys to create and use stablecoins like DAI. So until Bitcoin is not stable and scaled enough they could be used as payment currency instead.

Buying items with atomic swaps?

As said all types of ownership could exist in a tokenized form. If one wants to get a credit from a decentralized autonomous bank he may find success when providing his tokenized house or a part of it as security. But I think that very smaller objects could also become tokenized in the future.

When I send such by a DAO-bank generated stable currency to you in exchange for an item I wanna buy from you - how can I be sure that I will get my money back if I want to return the item? Or even that you aren't a scammer at all? Once finished I cannot cancel my transaction if you don't ship my order.

But when the Item I wanna buy is tokenized, we could make an atomic swap - so noone of us can scam the other one. We don't need to trust each other anymore because of code and law.

Buying tokenized items by using an atomic swap
purchase Items with tokenization and atomic swaps
Atomic Swaps Explained - Binance Blog

No matter if we use Bitcoin or such a stablecoin. Bitcoin Lightning to ERC20 atomic swaps are also possible.

A problem that decentralized exchanges and atomic swaps have is liquidity. Such a problem does not occur here since the merchant makes all offers and prices.

So a modern merchant will tokenize his articles. That token will go to the buyer which than can proof his legal ownership of the article. So it seems only about how to avoid scams. But there is much more.

The buyer can cancel his purchase if no shipment occurs. Atomic swaps are timelocked contracts. There is a specific time until they can be cancelled if not finally signed by both sides. Refund and revocation could be programmed directly into that contract. The transaction could be cancelled until the time hasn't run out. If the buyer does so, he also has to send the parcel back or the merchant doesn't even need to ship it, because the token and therefore the legal ownership is on the merchants side again. Both parties know about that and so they behave according to that.

This seems kinda like a logistic system based up on tokenization and also dezentralized exchange using atomic swaps.

Packing stations working with tokenization?

You could build packing stations which grant access to a parcel to that person who can proof ownership over the token that is legal connected to the parcel locked inside the station. By signing a message. Anyway this is a better way of delivering parcels because it is more efficient. Noone has to be at home while the shipment. Many potential of making logistic more efficient.

DHL Packing station in germany
A DHL packing station (free to use, CC0)

While working at customer support I might have processed about 500 retoures, and also several order cancels and failed deliverys. Better would be to build new management systems and to teach customers how to use apps. So that the entire thing works. Applications which, if such a tokenizations comes up, have the complicaded tokenizing-stuff is already build in and which work without the customer having to be a genius. It's another question if it makes sense to build packing stations this way but the idea is obvious if we think about tokenizing all types of items.

Trademarks, merchandise and limited editions

But thats not everything at all. Imagine you buy merchandise or several game, book or CD limited editions. In this case even the fixed supply of a token becomes important. If there is a new merchandise article limited to a quantity of 1000, there may also just 1000 tokens created. Using an ERC standard that doesn't allows to create more tokens, unlike as for other types of products. These tokens now aren't just a virtual counterpart that is legal connected to the real item, rather they are also a certificate about the items uniqueness and authenticity. So we are solving two issues at once and this will bring up innovative possibilitys of monetization to artists, trademarks and franchises.

Poppy Merchandise
Poppy Merchandise

Example for a merchandise collection(by @wiki336 on Twitter)

If it's the case that fans out there worship their popstars as like in a cult they propably also build altars for them using merchandise. Of course limited editions is an important buisiness model and merchandise is everywhere no matter what franchise wa are talking about. Actually it is even possible to make completely digitalized merchandise. And a different point is that books, CDs and games become more and more digital. So they cannot be a real collectible anymore and they can be copied without any effort. Tokenized editions of ebooks, games and CDs could bring the feeling of "having something nice standing in the shelf" into the era of digitalization.

Securitys, DAO

The possibility of tokenizing shares and securitys might be of of the main reasons to be positive for Ethereum. You could tokenize nearly everything that makes earnings which could flow automatically to the holders of these tokens. Executed by the tokens contract.

So that companies could start tokenizing not just their products and limited merch items rather also their shares, the according legal framework is needed. In this case maybe even more because financial products are more under the view of governments. The token container model would cover that too.

There is also the possibility to make not just a legal framework rather also a code framework according to the rule "code is law". By structuring a buisiness as DAO, theoretically it doesn't need laws to operate. Especially when such a buisiness doesn't trades with material items and has not to tokenize any material goods therefore.

On my point of view, Steem is also a type of DAO. Not a bank and not a merchant but rather a decentralized editorial stuff. Everyone can buy and sell ownership of that system and can influence it using these shares. With an upcoming social token economy on Steem there are also some comletely other types of tokenization use caseses.

Dezentralisierungsgrad von Unternehmen
by ViLo in this version addet to Wikimedia under CC BY-SA 4.0

That image comes from the wikipedia article about DAOs - Here Steem is classified as DAO. With more legal and technical developement coming up, more types of such buisinesses could become possible. Even such trading with material goods. A different way could be to digitalize the item that was originally material. By making it existing inside of a virtual reality and making its appearance depending on the ownership over its token. This way we also come to the area of gaming where many more tokenization use caseses can be found.

There are many more areas to explore. Tokens are awesome. Stay creative and think about what you can do with them!

German version



Just joking! The post is worth it :)

Go, create more memes, this is how the internet works and should look like!

It's not a double post, basically this are two different versions. The English version is a bit simplified. And I also made two posts for a reason. Not just because I like it more this way. Googles seems to be "confused" when a post contains two languages. That theory of mine got some confirmation due recent test results. In "A dating application working with future technology" I did so and I am not able to find the post on google.

Interessant, danke!

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