In this Make Blockchain Work series, I discuss how blockchain technology could be best applied to financing and investment in nine chapters. It is from these reflections that we devised the world’s first marketplace for tokenized real-world assets, IdeaFeX. I prefer not to touch on ideological or debatable subjects, because a strong business model must be built on resources, including technologies, available now while thriving on agility to adapt to future developments. In this series, I will insert some of the posters that we have published on our social media platforms.
A common advantage that comes with innovative technology is agility. In part, this can be ascribed to new use cases or improvements in traditional use cases that innovative technology makes available. Often, the initial proponents of innovative technology also suffer less from organizational inertia and are therefore better-equipped to leverage it. What remains indeterminate is the status of the incumbents. With blockchain, this is by no means a light issue.
On the one hand, financing and investment sit at the very core of resource allocation. Economists and administrative officials have long been aware of their importance. Unsurprisingly, conventional views are deep-rooted and, throughout centuries, have become exceedingly inflexible. While the digital revolution and globalization have shaken the old world, these changes have only touched on the tools and the scale of doing the same. It is safe to say that the thinking of separating financing and investment from business operations is habitual and is unlikely to change without a strong push by a vastly more efficient new entrant.
On the other hand, while blockchain technology is relatively new, the ecosystem has already been filled with diverging views. From my experience building a blockchain startup, I dare say that the most conservative voices come from some of the most vocal groups because these groups have thrived in an unregulated, opaque environment. Their version of conservatism is different from that of traditional institutions; nevertheless, they are against progress in transparency and flexibility (while embracing privacy and access, which are certainly valuable, but which do not inherently contradict transparency and flexibility).
The agility from innovative adoption of blockchain technology in financing and investment, in my view, culminates in the agility in business models.
This is why we have designed IdeaFeX to support real-world assets with great openness. This openness encompasses both flexibility and access, which I have discussed in the first two chapters of this series. (Links to Chapter 1 and Chapter 2 here.)
When financing is integrated into a company’s business model in the form of product futures, the company is freed from debt obligations that frequently impede its productivity. For products that will be delivered long into the future, product futures provide the company a level of market certainty, in terms of both price and demand. For products that are new to the market, product futures make it possible for the company to be first-to-market before products can be delivered, thereby gaining strategic advantage.
When investment is integrated into a company’s business model in the form of product futures, the company avoids stepping into financial services that they may be unfamiliar with. Instead, for products that will be delivered long into the future, these corporate investors benefit from price certainty. For products that are likely to be in short supply, these corporate investors benefit from supply certainty.
When financing is integrated into a company’s business model in the form of exotic assets (e.g. business assets), the company avoids unnecessary losses, debt obligations, and dilution in ownership. When the company owns an asset that is under-utilized, exotic asset financing allows the company to lease out its usage. This not only allows more flexibility in managing capacity but also offers the unique opportunity to finance other activities while the under-utilized asset cannot be sold (for example because it cannot be sold in half). When the company seeks to purchase a new asset, exotic asset financing allows the company to do so in a “lease-to-buy” fashion; the asset can later be managed in the same manner as under-utilized assets. The company thereby gains strategic flexibility.
Incorporating investment into a company’s business model in the form similar to exotic assets is indeed a popular practice now. Nevertheless, with IdeaFeX tokenized real-world assets are supported natively by a secondary market where liquidity is dramatically improved over existing options.