BRIDGING THE GAP BETWEEN CRYPTO AND FIAT
In our world fiat is the king, this is an inescapable reality. Corporations across the world are implementing blockchain technologies to automate their business processes (or create blockchain-based IoT), yet there are still no large-scale breakthroughs to be seen, since most of the companies are rather conservative and lives by the rules of the fiat world, where bank and lending agency funding is still valued above all else. There is a gap between the blockchain world and the world of real production industries, which is yet to be bridged with the added value that can revolutionize the world of financing. Let’s not forget that all of the technology comes from the “top”, where small and and medium-sized business cannot afford to buy and implement such technologies. Nevertheless, recently there appeared several special tokens among the cryptocurrencies, which are backed by real or declared assets — fiat currencies, gold, natural resources.
The controversial member of this group is Tether (USDT). An equivalent of Tether is planned for launch by the UK’s Royal Mint, it will be backed by the gold in its vaults, while Venezuela has launched a pre-sale for its crude oil backed Token Petro.
A number of projects that have a similar idea but smaller scale are being launched, where they take something that has indisputable value and issue a token symbolizing a kg of metal, a kw of electricity or other valuable resources, and release the token on the market. To do so it is enough to own a small tokenizable asset or even no assets at all.
If we are to compare a token (backed by something of value) and cryptocurrencies (without backing), there is little to no difference. And what’s more, the very same token on different stages of development can easily combine many roles or change categories. And if we look at it from a technological point of view, any of them can be both a smart contract coin and a native token of its own blockchain.
The difference between cryptocurrencies created during the traditional economy asset tokenization process is obvious — it’s in their price dynamics.
Without major problems with project economy and with qualified professionals at the helm, these cryptocurrencies constantly monitor the base asset (which, by the way, remains a part of the old economy). That is why the tokens of these projects are digital symbols of material resources and are not influenced by the volatility of the fiat currencies.
Tokenization projects, while not able to quickly make early investors rich, are nevertheless contribute to the development of the world crypto industry and have their own target audience. Tokens of such projects open up new horizons for cost reduction and release of cash from the ongoing business projects.
Concerning the advantages:
- Payment speed increase. When banks lend funds to enterprises against the cash that the business already has, the funds, be it due to technology shortcomings or the financial intermediaries policy, move slowly through the banking system, remaining unavailable for all parties for a lengthy amount of time. Asset tokenization that connects the funds of the industry’s players denies the banks their unearned income and saves the money for the enterprises;
2. Token application for ownership transfer without the transportation of the product itself in much larger scale than accessible today. Imagine a business scheme, where the product goes immediately from the warehouse to the end consumer, and all wholesale and retail sales are conducted via token exchange;
3. For example, an oil token creates all the favourable factors for investing into the industry for the traditional investors that prefer to invest in oil and not cryptocurrencies;
4. Access to the crypto market gets easier through tokenized assets;
5. Crypto market capitalization growth;
6. Fiat substitution in the stock and wholesale markets with crypto;
7. Increasing the amount and size of investments through the global nature of the crypto market, lowering the barrier to enter the investment and the ability to get out at any moment via exchange token sale.
The project that strives to launch a platform for tokenization of all types of assets is Product Protocol. The essential part of the tokenization algorithm on this platform is the process of creating a digital copy of the asset, connected to the original real world asset through the Open API and IoT technologies. The detailed digital description will be enough to ensure a 100% digital identity of every asset unit.
This way, one of the main functionalities of the tokens that are tethered to the fiat currencies is the creation of comfortable conditions for transferring commercial capital into crypto. Digital clones of fiat currencies and other assets of the traditional economy build a bridge across the chasm that separates the fiat economy and the crypto economy, binding these disparate universes together.