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The Brave New World of Token Economics

The future is not something to be predicted, but achieved. We are amid a global pandemic that is affecting global economics. The consequences of inaction by business and government leaders have never been so stark. In this blog, we explore how the brave new world of token economics can help achieve a future that brings hope, recovery, and equality.

A token is a digital representation of anything that has value. When you think of a token, the concept of cryptocurrencies immediately come to mind, where a cryptocurrency represents the value of human economic trust, in other words, something of monetary value. However, tokens can also represent a claim to ownership of any underlying asset of value, such as gold, a stock, a piece of property, a valuable piece of art, a song, and many more.

There are two types of tokens: Fungible and Non Fungible

Non Fungible Tokens are not interchangeable, as they are unique and non-divisible, ideal for use cases such as digital certificates and proof of identity. So for example, your passport could be represented by a token, but you wouldn’t want your passport token to be divisible or something that could be replicated.

Fungible Tokens are interchangeable or tradeable, and divisible by nature. Based on use cases, they can be divided into payment tokens, utility tokens and security tokens. Payment tokens are effectively digital money, where their value is derived or driven by the laws of demand and supply, the best example of which is Bitcoin. But there are other payment tokens starting to command attention, such as China’s the Central Bank Backed Digital Currency (CBDC) which is now in a pilot stage.

Utility tokens are used on a platform to compensate for activity within an ecosystem, for example Ether or ETH. And security tokens represent a unit of value associated with a world asset, such as a share certificate or a building.

Tokenization is the process of issuing tokens that digitally represent an asset (fungible or non-fungible). In effect, tokenization is the digitization of something, the creation of a digital version of something in a token.

Switzerland is one of the most advanced countries in the world for the issuance of digital tokens, where the financial regulator has published clear guidelines and qualifications for the various types of tokens, so that businesses that are founded in the token economy can operate legally.

Token Economics

As all strata of economics is concerned with the production, consumption and transfer of wealth, token economics deals with similar concerns, except the wealth or value is represented by tokens. Tokens are subject to the same economic forces as the rest of the world’s assets, forces such as supply and demand, inflation, appreciation and depreciation in value, as compared to other tokens.

As a new asset class, one should consider similar questions to traditional assets: Why will people want a particular token in the future? Similar to other asset classes, the hope is that tokens bought today will be worth more to others in the future. To be reasonably certain, one should understand the token’s utility. What is the token a digital representation of? Does the token grant access or offer privileges to those that own the token?

The manner in which a token is created can also affect its value. Some tokens are created with a fixed quantity in a one-time event, whilst others are created over time, and are designed to become more or less scarce. A token’s scarcity is a key consideration of value.

Can tokens have an intrinsic value? When you think about a traditional investment such as gold, it is obvious that the precious metal itself has an intrinsic value, due to its scarcity but also its usefulness or utility in the creation of other products, for example, jewellery or electronic components. However, consider that even this traditional investment is based on the social construction of value. The value of a gold certificate is based on the assumption that gold will be valuable to people in the future because this resource will be in demand. A token’s value is subject to similar economic forces.

Blockchain is a global game changer because it enables tokenization and therefore the fractionalization of assets, it increases accessibility to assets, and significantly reduces the costs of managing assets.

The tokenisation capability of Blockchain enables a new measure of value. As an example, a piece of fine art will reliably appreciate in value year after year, but usually requires an individual to invest a large amount to participate. In the new world of token economics, a work of art can be represented digitally by a quantity of tokens, enabling more than one owner and thus widening the market to new buyers. There are many parallel examples. For example, tokens can represent a piece of real estate. Both of these concepts have already been implemented in the real estate market and the global fine art market. More recently, a building on the prestigious Banhofstrasse in Zurich, Switzerland was successfully tokenized and sold on the blockchain.

Global transferability, the availability of 24/7/365 markets and the ability to grant fractional ownership of assets will increase accessibility for participation and investment. Ease in transferability and fractionalization delivers increased liquidity. It is also important to point out that in the above examples of property and fine art, illiquid assets are being made significantly more liquid.

Tokenization technology facilitates the automation of processes such as reporting, settlement and compliance, significantly reducing not only the amount of paperwork, but also the number of intermediaries in the asset management value chain.

Due to the decentralized nature of Blockchain, transparency and therefore trust in the market is improved.

With the emergence of tokens, we are now able to monetize many more types of value, even those previously conceived as intangible. Humanity can now tokenize anything into an asset, including intangibles such as human attention, beliefs, loves and even dislikes!

Fyooz is based on the vision that people should be free to share and trade anything, with anyone, anywhere and at any time. With Fyooz, what people value and believe in can be tokenised. Fyooz is a token marketplace that frees investment from rigidity and looks to a future where it is no longer the privilege of a few, but open and accessible to everyone, everywhere. Fyooz will allow people to participate and ultimately create wealth from their own beliefs and value systems.

Imagine the possibilities.

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