Explaining Tokenization
TL;DR: Kanye West and Anthony Pompliano recently gave us good blockchain conversation, specifically around tokenization. Tokenization lends the benefits of smart contracts and blockchain technology to assets — the improvement is like the difference between letters and email. It also makes issuance and transfer of assets faster and less expensive, creating asset liquidity and wider availability of capital around the world.
This time last week Twitter was having a fit over Anthony “tokenize the world” Pompliano trolling Kanye West, suggesting he “tokenize” himself and pursue the benefits of Bitcoin.
This meeting of blockchain and Kanye could only have happened so seamlessly on Twitter, where nascent technology and pop culture have both found their wings. The influence of pop culture is certainly not lost on tech, an industry that has benefited significantly from both the creation of its own cult superstars and the borrowing of celebrity status. In this case, it might have been unplanned, but the insertion of “Kanye” and “Bitcoin” into the same sentence is drumming up greater curiosity within the mainstream about the technology and its abilities.
In my experience, conversations around blockchain typically start with questions and anecdotes about crypto, leading into bigger questions about the underlying architecture, it’s implications, and real world applications that we’re seeing today. For those who dug a little deeper into Anthony Pompliano’s Twitter brand (and thus refer to him as Pomp), tokenization is where blockchain is really starting to make waves. Certainly at Finhaven we agree, but specifically focusing on applying blockchain to the global capital markets for the benefits of tokenized assets.
Tokenization changes how assets behave, and effectively democratizes access to capital around the world by way of a less costly and more efficient system. But that’s a little abstract. Here’s a metaphor that puts it into perspective by way of a technological shift that many of us have experienced:
Tokenization of the capital markets is like moving from letters to email; it makes network involvement easier and faster, brings new benefits like security and automation, and makes data and assets more easily shareable.
Let’s lean into this financial perspective: technically speaking, tokenization isn’t far off from securitization, which the capital markets have been doing for hundreds of years. Both tokenization and securitization create fractional ownership, allowing many people to share in ownership, or equity, of an asset. But in use, they are very different. Traditional fractional ownership is managed by a very cumbersome and often manual process involving layers of intermediaries. In contrast, blockchain technology removes the need for many financial intermediaries like transfer agents, brokerages, and clearing houses because it streamlines the clearing and settlement process.
Security tokens are issued via a smart contract, which provides the benefit of programmability. This means that execution, a.k.a. instructions for peer-to-peer transferability, and legality for ownership, are coded into the smart contract creating near frictionless use of the token. This also means that divisibility is made far more efficient; ownership is recorded onto the blockchain creating an immutable and auditable trail, and dividends, if relevant, can be automatically distributed to owners according to the rules of the smart contract — no manual effort required.
Further, blockchain technology provides the benefit of a 24/7 market where assets can be transferred at any time — provided security regulations allow. Data is updated in near real-time (as fast as the data is added to a block), giving market participants the right information at the right time. And because tokenization eliminates intermediaries, the issuance of securities — and raising capital — is now open to smaller businesses who before couldn’t afford the process.
The capital markets have long operated with centralized power, supporting a costly infrastructure for raising capital and largely cutting off access to small and medium-sized businesses — especially in emerging markets. Our objective is to change that, providing reliable, global capital for growth via a new platform powered by blockchain technology. We’ve already started.
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