The Next Wave of Tokenization Requires Smart Tokens

In 2009 the world was given Bitcoin, opening our eyes to the possibilities of fungible tokens. In 2017 the world expanded the idea of what a token could be with the creation of the non-fungible token, sparking the NFT craze further expanding the idea of a token. Both token types are powerful and have shown the promise of a new decentralized web however, we have yet to give the world the mainstream use cases beyond tokens as an asset class. For tokenization to reach its full potential it needs something more, it needs Smart Tokens.

Smart Tokens are a programmable blockchain-based entity that encapsulates business logic, enabling complex interactions with various systems and other tokens in a self-contained, interoperable format. Where regular tokens function as an asset, Smart Tokens function more like an application, enabling any business logic, data, or service to be derived via a token. They are composable and interoperable enabling any web service to integrate them directly.

Smart Tokens enable better user experiences and create business efficiencies. They are the integration points of the next web, and the missing piece to unlocking mainstream tokenized use cases.

Smart Tokens & The Tokenized Web

The web thrives on integration. Internet centers such as Google, Facebook & Apple have been the enablers and limiters of the integrations that could happen. Smart Tokens offer a new approach. They carry information and functionality. They can represent a wide range of assets and rights and execute complex interactions with other tokens and systems.

Tokenisation, as facilitated by Smart Tokens and enhanced by the Smart Layer, is a transformative process that enables a frictionless market and seamless web integration by converting goods, services, and digital rights into programmable and composable components. These components derive their authenticity from the blockchain and interact with integrated business processes through programmable interfaces.

Take a car ownership smart token for example. In the example below Holden, is the car manufacturer, and issuer of the Car Ownership Smart Token, which provides the owner services to manage his car. From unlocking, starting, to tracking service history. The token is also able to face the market directly enabling the owner to enable peer-to-peer renting, or selling instantly from the token.

The token is also composable with other tokens. Now the insurance token is also added allowing the car ownership token to be a full record of the vehicle, enabling the owner to easily prove ownership and coverage.

The insurance token is also a smart token, and just doesn’t prove you have it, but also pulls through business services directly into the token. Enabling the end user to receive those services when and where they need them. For example, the owner of the car decides they want to drive for Uber. So they go to Uber and as a part of the sign-up process prove they have a car, of a specific type, and that they have insurance to cover it.

The owner simply connects the token, and Uber is able to verify instantly ownership, type, and coverage. They can even see if the coverage isn’t correct, and the owner can top up their insurance directly at the moment. No need to go back to their insurance company website or app. Since the token is connected it instantly proves the correct coverage and the owner is now an Uber driver.

Through tokenization consumers get a better experience, the car manufacturer and insurance companies are able to create a better user experience, and the end consumer is able to receive those services in a more efficient way. Everyone wins.

In contrast, securitisation does not have web use cases and is primarily used for liquidity management and risk diversification. For instance, shared ownership of a car through securitisation does not enable you to drive that car or enjoy services related to that car such as finding the nearest rentable car that is tokenised.

In essence, the benefit of tokenisation lies in its ability to create smart tokens that act as integration points, streamlining and facilitating interactions between systems. It’s about transforming the functionalities of websites and digital rights of users into programmable components that can interact with various systems, creating a more dynamic, integrated, and user-empowered internet. Tokenisation is a key component of the next-generation web, enabling a level of integration and interaction that goes beyond the financial concept of securitisation.

ERC 5169

All tokens rely on an underlying smart contract. This creates a problem for advanced tokenized use cases, as smart contracts are too rigid to handle more advanced token functionality. This is why EIP 5169 was created and accepted to become the latest standard for tokens, now referred to as ERC-5169.

ERC-5169 is a new standard that introduces the concept of executable scripts within Ethereum tokens. This development allows tokens to carry their own logic and behavior, transforming them from static digital assets into dynamic entities. More details about this EIP can be found on the official Ethereum GitHub.

ERC-5169 opens up a wide range of possibilities for dynamic and interactive tokens that can interact with both web2 and web3 environments. The inclusion of executable scripts within tokens can significantly enhance the functionality and utility of tokens. Here are some examples:

• Modular web services: Each token can now carry off-chain logic and functionality liberating web services and functionality from centralized websites and apps, enabling them to become modular and composable. Enabling end users to receive those services in the moments they need them and increasing the functionality of any web experience.
• A ‘miniDApp’ tailored for a single token: For instance, a miniDApp could be created for a game token, allowing users to buy in-game items, trade them with other players, or even level up their characters. The miniDApp would be designed to interact with the specific smart contract of the game token, enabling these functionalities.
• A script that allows users to interact with contract functions not normally provided by a wallet, eg ‘mint’ function: Normally, wallet interfaces only provide basic functionalities like transfer or balance check. However, a TokenScript(TokenScript is a JavaScript/Wasm/XML framework to improve functionality, security, and usability of blockchain tokens in a myriad of ways) could be written to allow a wallet user to interact with more complex functions of a smart contract, like the ‘mint’ function, which creates new tokens.
• An extension that is downloadable to the hardware wallet with an extension framework, such as Ledger: This could be a script that extends the functionality of a hardware wallet like Ledger. For instance, it could enable the wallet to interact with a specific DApp or support a new type of token that was not previously supported.
• A script to operate IoTs, after the owner receives an authorization token in their wallet: This could be a script that allows a user to control a smartlock using a token in their wallet. For instance, a user could receive a token that represents their right to access a certain property. The JavaScript instructions would interact with the smartlock, checking the presence and validity of the token in the user’s wallet and unlocking the door if the check is successful.

TokenScript

The internet requires standards like HTML, the tokenized web requires them as well. EIP 5169 is a standard enabling tokens to carry additional logic past the confines of the smart contract, enabling tokenization to scale. TokenScript is the new token standard enabling the creation of Smart Tokens.

TokenScript is a framework for writing scripts that define the behavior of tokens. It allows developers to create a user interface and define actions for tokens, essentially bringing the tokens to life.

When used in conjunction with EIP-5169, TokenScript enables the creation of smart tokens. The scripts defined by TokenScript can be embedded into tokens as per the EIP-5169 standard, allowing these tokens to interact with various services and platforms in a dynamic way.

Smart Layer & Smart Tokens

Smart Tokens are the integration points of the next web. They enable a token to go beyond being an asset, to become an experience. We have created Smart Layer to help achieve this future state. Smart Layer is a service network that enables token issuers to create smart tokens while acting as a middleware connecting web services with smart tokens.

Smart Layer allows us to solve the two key issues holding back the progress of the tokenized web, scale, and functionality. SmartTokens allows us to solve part of the functionality issue, while the Smart Layer allows us to solve the scale issue by removing the need to integrate to each token directly. Instead, any web service can use Smart Layer as a middleware making.

We believe in the tokenization of the web and believe Smart Tokens are the integration points of the next web.