Tokenization – Buying, Selling and Borrowing against Tokenized Assets – creates wealth – do what rich investors and institutions have been able to do for a long time, but bring it to ordinary people anywhere in the world.
Tokenization through DeFi allows people to Buy, Sell and Borrow against Tokenized Real Estate and other assets by issuing NFTs and tokens that allow indirect ownership and decentralization.
This allows people to invest small amounts while also taking advantage of other protocols like Uniswap and Compound for liquidity and borrowing against their assets.
This means 3 things:
It allows many more people to own an asset that they couldn’t before, either because they didn’t have the whole amount or because the transaction costs were too high.
When people own assets, they can start building wealth thanks to the appreciation of the value of that asset and the income it generates, but also, they can now borrow against it under much better terms.
Once this is in place, it means that ordinary people who need funding can access capital from all over the world, and ordinary investors can get the best return available globally, and their funds are secured against a real world asset. And all of this is done without banks or lawyers. How cool is that?
In summary: do what rich investors and institutions have been able to do for a long time, but bring it to ordinary people anywhere in the world.
Finance is being reimagined by DeFi & crypto technologies. This presents opportunities to generate 10X improvements and release trapped value in the Real World.
Finance is being remade
Finance is being reimagined by Blockchain/DeFi/Web3 and crypto technologies. However, the biggest change doesn’t come from new technology, but from a new way of thinking about Finance: a financial system built without intermediaries (who in many countries operate under outdated legislation that heavily favors incumbents, and/or provide the wrong incentives), a new way of establishing trust (via a distributed consensus), and how to execute agreements (automatically via smart contracts without depending on a country’s legal system). This presents new opportunities to generate 10X improvements and release trapped value in the Real World.
How it’s better
The New Finance is open (anyone can build new applications), global (anyone in the world can have access), transparent (all transactions are recorded publicly), accessible to many more people (it literally costs nothing), and it is also much more flexible, allowing for a more open innovation model by easily combining protocols (through composability).
What’s the Vision
The Vision is open & global finance and capital markets, especially to make them available to the large proportion of people and businesses in the world that currently don’t have access to or are underserved by them. In other words, democratize (vs. privileged) access to capital.
[As an aside, this is not a call for no regulation, but to define rules taking advantage of the possibilities offered by new technologies instead of instead of retrofitting new technologies to old concepts.]
How it will be adopted
Many aspects of Decentralized Finance are still a work in progress, but it is already better than the options available to many people in countries where financial systems are underdeveloped or focused on a richer segment of the population; the key point is that it is already solving problems in the Real World (see examples below). It is completely possible that DeFi will leapfrog Traditional Finance in many countries, just like mobile phones in Africa and digital payments in China leapfrogged landlines and credit card payments, respectively.
In rich countries, where Finance is more developed and use cases are more complex, there are still many issues to figure out, but if history teaches us anything is that the technology will keep improving and it’s possible to see how DeFi will not only replace cumbersome processes (like settlement of securities, more open private markets, and so on), but also expand access to the large portion of people and businesses who are still underserved even in developed economies (think of small businesses and people with lower incomes).
Examples
Here are some examples of Real World Problems that DeFi and crypto are solving today, where existing solutions are either too expensive or not available to most users who need them:
• USDC: saving in (digital) dollars from any country.
• CitaDAO: expanding access to real estate for everyone.
• Agrotoken: using tokenized grain as collateral to finance purchase of supplies.
• Addem Capital: tapping global sources of funding for businesses.
• Goldfinch: financing of unsecured loans on emerging markets.
• Centrifuge: much cheaper borrowing using Real World Assets as collateral.
What’s Next
So What’s Next? Get started and use it to solve more existing real world problems, then keep improving and adding more and more use cases until the vision of Finance for everyone becomes a reality.
We are in a crypto winter, but builders keep building new applications using crypto-related technologies. The next wave has already started, and it is focused on bringing crypto innovations to the Real World.
What: Crypto winter before the next wave
We are in a crypto winter, and it is understandable since so far, crypto has mostly been used for speculation, not solving problems in the Real World. However, the key crypto-related technologies (blockchain, smart contracts, decentralized applications, tokenization) have the potential to remake industries (starting with Finance) and release enormous amounts of trapped value.
If we look beyond the headlines, we can see that many applications that are already solving real problems in the Real World. If we look at the long-term trend (beyond the current volatility), we can see these technologies are categorically better and create fundamental changes for how to solve many existing processes (see examples below). In fact, this stage reminds me a lot of the conversations around Amazon (remember Amazon.bomb?) and the technology sector in 2000 after the Dotcom bubble burst (and follows the Gartner Hype Cycle almost perfectly, just as we navigate through the Trough of Disillusionment).
Who: 2 Cryptos: Traders vs. Builders
A key insight is that there are two cryptos: financial crypto (Wall Street people, focused on trading and short-term profits) and tech crypto (Silicon Valley/engineering/entrepreneurial people, focused on building products that solve real world problems); where most people see things that don’t work, the tech crypto community see a list of things to be fixed.
Crypto and crypto-related technologies are here to stay; if we look beyond the hype we can see it already working in specific industries. The key is: Focus not on going from 0 to $30B from one day to the next, but on building the products that people need.
Hugo Stevens 