One of the characteristics of the new technology is that, at the beginning, it is often worse than the one it replaces. I remember sitting in my apartment in the late 1990s and spending a weekend tearing my CDs in MP3 to get a hard training accident and lose all my data on Sunday evening. I had a moment “why I do this”, and many of the first tokenized stock buyers feel the same. And then I repeated the process the following weekend, because I am a slow learner.
If digital music had started, then ended with Napster and my Rio PMP-300 (because Iykyk), we could all forget it. But this is not the case. It improved and now that’s exactly what we are doing. The same goes for the model that we will see with tokenized stocks.
Tokenized stocks today are a product below the traditional market offer. I examined the terms and conditions of eight different chain services offering tokenized assets to obtain a good understanding of what is available. Most are available in the EU, one is available worldwide, excluding the United States and one is available in the United States only.
Although these can all be considered good efforts, most of the platforms offering these actions restrict them in many respects which are tedious and show that the underlying infrastructure is not yet really native crypto. The restrictions that exist so far seem to be the result of efforts to comply with regulations or gaps not yet defined in the underlying markets (like the lack of hours of the weekend).
Read more: Paul Brody – Ethereum has already won
For most platforms, trading is available 24 hours a day, but only five days a week. Many tokens carry geographic restrictions and have “know your customers” (KYc)/ Authorization restrictions on transfers. These token offers rarely have voting rights, some do not allow dividends and most do not allow us to be used in a decentralized finance (Challenge) Services either.
The chain action exchanges today are rudimentary and if it should end here, it would be a small market limited to a limited number of customers who do not have access to major stock markets. Slowly but surely, however, I think we will overcome many of these limitations.
Surrounded limits
Take KYC, for example. Although KYC’s rules disappear little, as they become standardized, instead of being limited to negotiation with a small group of people who use exactly the same supplier and partner performing the same KYC process, all small liquidity pools will become interoperable, actually becoming a greater liquidity pool. And with deeper liquidity, market manufacturers will be ready to support the 24/7 trading without any price penalty. The increase in regulatory maturity will probably allow voting rights, dividends and automation of tax deduction as well.
All these steps will make, over time, the trading of actions in token largely comparable to the negotiation of traditional actions. If we go back to the analogy of music, this is not okay, but barely a convincing reason to change. It will appeal to those who have limited access to actions today, but if you have chain and KYC assets verified, the chances are good, you can already get a bank account and a brokerage account. This means that parity with existing offers will not be convincing.
We can already see where chain offers are going, and it’s more than parity. Robinhood’s recent announcement of a layer of layer 2 in Ethereum included the promise of tokenized access to private companies such as SpaceX and Openai. Beyond this, the possibility of connecting assets to the chain in the DEFI services and using them as guarantee or lending them for additional return will bring many users to the market.
Finally, I think it is possible to really transform corporate governance. Despite several hundred years of experience, shareholders’ governance leaves much to be desired. Many owners make none of their rights. It is not surprising since we can barely follow the real policy. But, with intelligent contracts, the possibility of delegating your voting rights to experts in whom you trust opens up a brand new world of enlightened governance.
Early adoption is often motivated by users with unique needs and risk tolerance. This is a perfect example of the entire cryptography ecosystem, including users who have accumulated assets outside the entire traditional financial system.
But, over time, we will go from “because we can” something much better. And, when this happens, the 3 to 4 billions of current dollars of cryptographic assets and a few hundred billion stablescoins will be overshadowed by the 200 billions of dollars and the obligations that can be in chain. It’s just a matter of time.
Warning: These are the author’s personal views and do not represent EY’s views.
