🟪 Is it real-world assets? Or fake-world narratives?

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“Economics is the study of the use of scarce resources which have alternative uses.”

— Thomas Sowell

Is it real-world assets? Or fake-world narratives?

Is it possible to pinpoint the exact moment when you take ownership of a house you’re buying?

You might think it’s when you sign the closing documents at your lawyer’s office. Or when your money leaves your lawyer’s escrow account. Or maybe not until the money arrives in the buyer’s account two days later.

It could also be when the deed is notarized. Or when the deed is filed with the county registrar. 

Or maybe it’s not until the seller hands over the keys.

It’s impossible to say, really. 

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.

Newton and Leibniz had to invent calculus for that one — and it’s still just an estimation.

The moment ownership of a property changes hands is similarly just an estimation. 

It’s 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.

If you can't identify that moment for a real-world asset, I don’t think that asset can ever be truly on-chain.

Nor would we want them to be. 

You wouldn’t want someone to take ownership of your house by stealing the deed from the county registrar's office — and you wouldn’t 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.

Ownership of real-world assets will therefore continue to reside off-chain — your house isn’t leaving the real world (unless maybe you attach enough balloons to it).

This, I think, is why Qiao Wang called real-world assets a “fake narrative” for crypto.

But it’s an increasingly substantial narrative for blockchain. 

Expanding finance

Yesterday, Citi announced a permissioned blockchain that will give customers, among other things, “real-time, always-on” access to tokenized deposits.

It will start as a Citi-only walled garden, but with big aspirations. “Digital asset technologies have the potential to upgrade the regulated financial system,” they said in a statement.

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 — a radical departure from the current system of siloed, nation-based capital markets.

Most expansively, the BIS believes that an international system of CBDCs trading on a single blockchain would “expand the universe of possible economic outcomes.”

(Next time someone asks what crypto is good for, remember to cite the BIS and say “to expand the universe.”)

Even before going interstellar, though, “tokenization” could be a big market. 

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.

That would save a lot of money. 

Tokenizing securities could solve Wall Street’s byzantine reconciliation process. Instead of sending zillions of messages back and forth so that everyone's in-house database agrees with everyone else’s, blockchain-based exchanges would offer a single shared ledger for everyone to work from.

More importantly, tokenization could enable new use cases by making money and assets programmable. 

Aside from being a neat party trick, this could spur new ways of funding investment — which is the ultimate purpose of financial markets. 

Citi believes tokenization will create “new financing avenues for small companies,” for example. 

The LSE’s blockchain-based exchange would match investors and builders that otherwise would not be able to come together — “unlocking liquidity,” in finance-speak.

You might even unlock some liquidity yourself by selling fractional shares in that house you bought (and then tokenized). 

This and many more innovations, some of which we won’t be able to imagine until they happen, hold the promise of putting scarce resources to better use, thereby making the world a better place — something that finance is not often accused of doing.

We built that

That will still seem like a fake narrative to many crypto natives.

Trading the representation of assets on blockchains while the ownership of assets remains in the real world is not really “crypto.”

It is, however, crypto-adjacent, and some of these crypto-adjacent things are likely to jailbreak their private blockchains and go fully native.

Regardless, it’s worth noting that tokenization is a huge market and that it’s being enabled by the infrastructure that we’ve funded by voluntarily losing money in crypto all this time.

That may seem like a small consolation to people hoping to decentralize the entire world. 

But buying a house is a pain. If putting deeds on a blockchain makes it easier, it’ll all have been worth it.

– Byron Gilliam

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