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Crytoassets and the Tokenized Economy

(The University of Chicago - Alvin Wei-Cheng Wong)

- Cryptoassets

Cryptoassets, including cryptocurrencies, security tokens, and utility coins, cannot be ignored right now. There are now more than 2,000 cryptoassets, including new types of assets such as stablecoins, with a combined market cap estimated at $211 billion. The number of users on the cryptocurrency exchange is said to exceed 30 million, while major financial services institutions such as Fidelity are launching crypto products and services. 

Together, these assets, coins and tokens have led to the emergence of a tokenized economy. Global financial services institutions are looking to actively restructure and participate in this blockchain-based tokenized economy. While it’s still early days and it’s hard to predict how the next 10 years will unfold, the tokenized economy could be one of the most impactful innovations that cryptocurrencies will bring.


- Tokenization

Tokenization is the process of digitally storing property rights to something of value (assets) on a blockchain or distributed ledger so that ownership can be transferred through the blockchain’s protocols. 

Today, many startups are using blockchain technology to build entire businesses. However, instead of turning to the public stock market or venture capital to fund companies, businesses are turning to cryptocurrencies. So-called initial coin offerings (ICOs) have been on the rise over the past few years. This is a new way of raising capital for startups that issue new digital tokens or coins. While much has been said about cryptocurrencies like Bitcoin in the past, these are just one type of cryptoasset and many others have emerged, including stablecoins, security tokens, and utility tokens. 

In particular, it points to the potential to tokenize traditional and emerging assets. The digital tokenized representation of these assets issued, traded and managed on a blockchain platform can reduce the friction and overhead costs associated with the issuance, transfer and management of traditional assets such as securities, commodities and real estate assets. Tokenization can also help increase liquidity, codify rules and regulations, and improve transparency throughout the asset lifecycle.


- Initial Coin Offerings (ICO)

An Initial Coin Offering (ICO) is essentially a fundraising tool. First, startups can create new cryptocurrencies or digital tokens through many different platforms. One such platform is Ethereum, which has a toolkit that allows companies to create digital coins. The company will then eventually conduct a public ICO, where retail investors can buy the newly minted digital tokens. They will pay for coins using other cryptocurrencies such as Bitcoin or Ether (the native currency of the Ethereum network). 

Unlike other fundraising methods such as an initial public offering (IPO) or even venture capital, investors do not receive equity in a company. For example, if you buy stock in a public company, you own a fraction of it. Instead, the promise of an ICO is that the coins can be used for the final product created. But there is also hope that the value of the digital token itself will appreciate — and can then be traded for profit.



[More to come ...]


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