What kinds of products are suitable for tokenizing?
Some token fans argue to tokenize everything. This statement is feasible in theory, but it has no practical significance. This is similar to saying that all products can be standardized and traded on a centralized trading system. Sure, but why?
Due to the characteristics of centralized accounting systems, the vast majority of products and assets are not actually suitable for trading and circulation in the way that the current securities trading market does. Similarly, even if blockchain technology provides a more efficient way for digital assets to flow, it does not mean that all goods and assets that previously could not circulate smoothly can now make it. The different attributes of commodities and assets determine the feasibility of their current tokenizing. In this regard, the type of commodity or asset (the generic term used in this context is “product”) that may be tokenized may be selected based on the following criteria.
First of all, the product needs to have rareness and market demand at the same time.
Such products are worth tokenizing so that they can be distributed more widely. Such products as equity, bonuses, voting rights, claims, commodity ownership, real estate ownership, and so on. The common characteristic of these products is scarcity.
Second, these products are not well circulated yet.
Today, corporate equity usually integrates ownership, bonuses and voting rights into one single product, stock. However, the current trading market based on the centralized computing system has provided a better trading and circulation mechanism for stocks. So at this stage, there is no need to take the lead in tokenizing stocks. Given the current maturity of the stock market, efforts to tokenizing stocks now are bound to meet very great resistance. In addition to stocks, many other underlying products are in a very strong demand for circulation.
In another article, I talked about how sugar refineries in Dubai are tokenizing their sugar and trading it. Such an underlying product choice is reasonable. Because the refineries can produce a limited amount of sugar each year. If there is a good global demand for the sugar it produces, then its sugar token will be able to circulate and trade globally on the blockchain network. As a result, the refinery’s sugar products are better distributed around the world.
In the current U.S. market, there are ongoing efforts to tokenize real estate, and one of the major customers for such tokens is overseas. America’s supply of prime real estate is limited, but its demand can be global. As a result, American real estate could be more widely circulated around the world.
Third, the extent of regulation.
According to the above two standards, there are still many underlying products that can be tokenized for circulation. However, from the perspective of feasibility, the underlying products with different attributes will be implemented in different orders.
Some of the underlying assets that are heavily regulated and more involved are not among the best tokenizable products in terms of liquidity. Real estate, for example, belongs to this asset class. However, some other emerging assets are the underlying products that can be first tokenized. The most representative product of this aspect is the virtual asset in the game. Firstly, the virtual assets generated in this way are in digital form and then they are in circulation among a subdivided group of users on a global scale. Besides, this global user community has a strong interest in this virtual asset. What is particularly important is the fact that since such assets are emerging virtual assets, they are not subject to all kinds of regulations on a global scale. All of these factors contribute a lot to the game’s virtual assets to be tokenized and distributed globally.
Fourthly, tokenized products must be mass niche products.
The advent of blockchain technology has greatly reduced the production and distribution costs of digital products. Tokens minted by this tech will be a huge number of niche products. Such niche products have a small number of loyal users around the world, and it will give these global users access to products that were previously unavailable to them.
Such products include customized NBA jerseys, limited edition souvenirs released by Disney for a certain movie, or by Apple in cooperation with Hollywood movies, etc. Issuers can pre-sell digital tokens for these products, in which way, it will bring better global circulation for these products.
Article from Gu Yanxi, Founder of Liyan Consulting
Translated by Yang(Mengyan Finance)