After a challenging period in the crypto market, history shows us that better times lie ahead. Renowned professor Carlota Perez has identified predictable waves of technological adoption, characterized by exuberant bubbles followed by crashes, leading to periods of sustained growth. This pattern was evident in the dot-com bubble of 2001, as mentioned in The New York Times article “Dot-com Is Dot-Gone and the Dream With It”.
Today, we find ourselves in the midst of another technological revolution known as Web3. This revolution has introduced a range of promising technologies with significant potential for economic growth and transformation. One such technology is decentralized finance (DeFi), which has laid the groundwork for a new financial system based on smart contracts and eliminates the need for intermediaries. However, DeFi has primarily dealt with volatile digital assets.
Similarly, non-fungible tokens (NFTs) have solved issues related to digital scarcity and enabled the democratization of creativity, but their use has been limited to digital art and culture.
However, industry experts believe that the tokenization of real world assets (RWAs) will be the catalyst for the next phase of growth in the crypto market. Tokenization platforms, such as Tzero, Securitize, and Polymath, are already leveraging blockchain technology to tokenize assets like commodities, fine art, real estate, and financial instruments. This trend has gained the attention of finance giants like BlackRock and Fidelity. According to BlackRock CEO Larry Fink, the tokenization of securities will revolutionize the securities market.
While the current tokenization process reduces the need for intermediaries and enables faster and cheaper transactions, it still relies on trust in these intermediaries to honor the redemption of tokenized assets. This poses a challenge known as the physical asset oracle problem. However, there is a Web3 solution to address this issue. Protocols can secure commitments to execute commercial exchanges through smart contracts and redeemable NFTs, eliminating the need for intermediaries. Disputes can be resolved through decentralized mechanisms, ensuring trust-minimized tokenization, exchange, and settlement of RWAs.
Implementing such protocols ensures the reliability and transparency of tokenized RWAs, providing the same level of assurance as DeFi transactions. This paves the way for a smarter and more programmable economy. Without the need for trusted intermediaries, counterparty risk, friction, and monopoly power can be minimized.
As leading blockchain academic Professor Jason Potts emphasizes, tokenizing physical products and services in a common and interoperable format, along with low-cost trust market transactions governed by encoded rules, enables a “turing-complete economy.”
Once Web3 technologies, including DeFi and NFTs, are fully utilized to secure tokenized assets, we will unlock a trillion-dollar opportunity in the crypto market.