Is it real-world assets? Or fake-world narratives?
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Is it possible to pinpoint the exact moment when you take ownership of a house youâre buying?
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You might think itâs when you sign the closing documents at your lawyerâs office. Or when your money leaves your lawyerâs escrow account. Or maybe not until the money arrives in the buyerâs account two days later.
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It could also be when the deed is notarized. Or when the deed is filed with the county registrar.Â
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Or maybe itâs not until the seller hands over the keys.
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Itâs impossible to say, really.Â
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Attempting to identify the exact moment when a property changes hands is like trying to calculate the velocity of a moving object at a precise moment in time.
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Newton and Leibniz had to invent calculus for that one â and itâs still just an estimation.
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The moment ownership of a property changes hands is similarly just an estimation.Â
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Itâs different with crypto assets where ownership is determined simply by control and where you can check a block scanner for the exact moment that control of the asset was transferred.
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If you can't identify that moment for a real-world asset, I donât think that asset can ever be truly on-chain.
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Nor would we want them to be.Â
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You wouldnât want someone to take ownership of your house by stealing the deed from the county registrar's office â and you wouldnât want a worst-of-both-worlds scenario where you could lose your house by being hacked on-chain or being dispossessed by the legal system off-chain.
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Ownership of real-world assets will therefore continue to reside off-chain â your house isnât leaving the real world (unless maybe you attach enough balloons to it).
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This, I think, is why Qiao Wang called real-world assets a âfake narrativeâ for crypto.
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But itâs an increasingly substantial narrative for blockchain.Â
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Expanding finance
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Yesterday, Citi announced a permissioned blockchain that will give customers, among other things, âreal-time, always-onâ access to tokenized deposits.
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It will start as a Citi-only walled garden, but with big aspirations. âDigital asset technologies have the potential to upgrade the regulated financial system,â they said in a statement.
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More expansively, the LSE recently stated its intention to launch a blockchain-based exchange that will be available to investors in any country that chooses to opt in â a radical departure from the current system of siloed, nation-based capital markets.
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Most expansively, the BIS believes that an international system of CBDCs trading on a single blockchain would âexpand the universe of possible economic outcomes.â
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(Next time someone asks what crypto is good for, remember to cite the BIS and say âto expand the universe.â)
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Even before going interstellar, though, âtokenizationâ could be a big market.Â
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A recent note from Sanford Bernstein estimated that $5 trillion of assets could be tokenized and tradeable on blockchain rails within the next five years.
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That would save a lot of money.Â
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Tokenizing securities could solve Wall Streetâs byzantine reconciliation process. Instead of sending zillions of messages back and forth so that everyone's in-house database agrees with everyone elseâs, blockchain-based exchanges would offer a single shared ledger for everyone to work from.
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More importantly, tokenization could enable new use cases by making money and assets programmable.Â
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Aside from being a neat party trick, this could spur new ways of funding investment â which is the ultimate purpose of financial markets.Â
Citi believes tokenization will create ânew financing avenues for small companies,â for example.Â
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The LSEâs blockchain-based exchange would match investors and builders that otherwise would not be able to come together â âunlocking liquidity,â in finance-speak.
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You might even unlock some liquidity yourself by selling fractional shares in that house you bought (and then tokenized).Â
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This and many more innovations, some of which we wonât be able to imagine until they happen, hold the promise of putting scarce resources to better use, thereby making the world a better place â something that finance is not often accused of doing.
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We built that
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That will still seem like a fake narrative to many crypto natives.
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Trading the representation of assets on blockchains while the ownership of assets remains in the real world is not really âcrypto.â
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It is, however, crypto-adjacent, and some of these crypto-adjacent things are likely to jailbreak their private blockchains and go fully native.
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Regardless, itâs worth noting that tokenization is a huge market and that itâs being enabled by the infrastructure that weâve funded by voluntarily losing money in crypto all this time.
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That may seem like a small consolation to people hoping to decentralize the entire world.Â
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But buying a house is a pain. If putting deeds on a blockchain makes it easier, itâll all have been worth it.