Bitcoin, the first cryptocurrency and payment token ever created, gained adoption as it provided miners securing the network with a financial incentive to do so. Those who utilized their resources to solve mathematical problems received BTC in return. Yet for years, the possibilities of blockchain, beyond simple payments and transactions, remained quite limited.
The birth of Ethereum and smart contract technology in 2015 provided developers the ability to launch new projects without having to build entirely new protocols. This ultimately led to the creation of thousands projects with various applications. Yet with so many projects still in the development stages, what can we expect from the future of tokenization? In this article, we will discuss the future of utility tokens, security tokens, and non-fungible tokens.
The Future of Utility Tokens
While forming the vast majority of tokens currently out there, utility tokens are just scratching the surface of what they can achieve. Currently, a range of innovative new solutions that address centralized systems are being created. We are already seeing disruption of products that were previously untouchable due to the scale of the companies that owned them. This includes the likes of GPS technology, which has largely been dominated by Google.
Companies such as
are using tokens to incentivize users to produce new, and theoretically, more useful maps.
They do this by enabling users to become cartographers that curate points of interest by staking tokens. Those who curate the most used and valuable lists are rewarded with tokens, while those providing erroneous information are penalized by the loss of said stake. While this is just one example of rethinking old ideas, there are a wide range of potential applications for utility tokens in various categories such as:
Access Tokens: These are applications that are used to make API requests on behalf of users. Access tokens represent the authorization of a specific application to access particular parts of a user’s data.
token is used to access the Ethos platform.
Work Tokens: Such token rely on the service provider staking the native token of the network to earn the right to perform work. Increased usage of the network causes an increase in the price of the token. As demand for the service grows, more revenue will flow to service providers.
uses REP tokens to reward those who provide correct results for prediction markets and is also used for staking to prevent dishonest answers.
Governance Tokens: Governance tokens allow holders to vote for changes in the network to which they belong to. Typically, the amount of tokens one holds is proportional to the number of votes they have.
ZRX is used on the 0x platform to vote on how the protocol itself is run.
The Future of Security Tokens
Security tokens function similarly as securities and generally include projects whereby dividends or equity are granted to token holders. Security Token Offerings (STOs) can be broken down into subsets such as ETOs (Equity Token Offerings) and DTOs (Debt Token Offerings), enabling the tokenization of practically any element of the existing financial system.
Yet perhaps the biggest benefit of security tokens is the ability for instant and permissionless trading. This differs from stock markets, which are only open during business hours and do not allow for trading of hard-to-split assets such as real estate. Since security tokens are easily divisible and operate in 24/7 markets, such problems crease to exist. For the first time, investors can own .01% of a Picasso or a building, which they can then easily sell to someone else.
Convexity Properties is offering investors the ability to buy into a $20 million sale for a luxury student residence in South Carolina. In return, investors will receive tokens which will reflect their ownership, but can be traded and sold on decentralized exchanges.
Such innovation can significantly reduce the compliance burden as prospective buyers will have already been KYC and AML approved. Transaction fees and many legal costs, among others, would either be virtually eliminated or greatly reduced.
One Step at a Time
Developers have only just begun to explore the potential of tokens. While there is a temptation, as with any new technology, to replicate previous models, real innovation only comes when we start to imagine wholly new systems. These systems need to be based on the new technology, rather than merely incorporating it. Although mainstream adoption will take time, as developers start to experiment with how tokens can be used and shared, it is inevitable we will continue to see new and exciting uses for tokens in the future. We are merely at the beginning of our journey to a tokenized universe.
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