The Boring Blockchain Initiative

Blockchain, News, Opinion | January 28, 2020 By:

Tokens are an option, not a condition for a successful blockchain use case

Clearly, tokenization provides liquidity for many asset classes, but what many overlook is that it is not central to blockchains. Many times the hype around tokens actually obfuscates the real benefits of blockchain. 

Tokens by themselves don’t provide transparency or traceability, two of the most critical benefits of blockchain in an investment or capital markets process. Let’s say you are holding mutual fund units but the Net Asset Value (NAV) is not reported for the fund. In this scenario, the investor will have little idea of the value of the underlying assets and will trade in them, virtually, blind. Situations like this happen all the time with token launches, where the NAV is unknown. If you’re not afforded the type of basic transparency you’d receive from a share being traded on NYSE, or in a mutual fund, then what’s the point?

A Single Source of Truth is Priceless in Financial Services

With a distributed ledger there is no reconciliation needed across transacting parties, as the immutable audit trail itself makes the blockchain technology priceless for financial institutions. Billions of dollars have been spent by institutions to achieve a “single source of truth,” with little success. Having spent many years managing financial services operations, I would estimate that upwards of a million people in the space are simply doing reconciliations in some form or another. It’s not only the cost of “recons,” but the fact that reconciled data makes the automation of all subsequent steps in the workflow much simpler. 

With all this in mind, an enterprise blockchain for financial services really just needs to focus on providing one version of the truth in a way that’s automated and seamless, to ensure traceability and transparency are the basis for optional tokenization and the additional benefit of increased liquidity.

From Financial Service to Oil Wells, an Evolutionary Approach is Best

This is the approach Ziyen took when launching ZYEN, an oil well tokenization platform. All stakeholders involved in determining the value of an oil well including owners, data providers, accountants, tax auditors, etc., are on a blockchain that ensures transparency and trust. Then a leading platform is used for issuing tokens and another one is relied upon for trading them. What will differentiate the tokens issued and traded by ZYEN, is that owners of these tokens will have a real-time view into the value of the underlying asset – the true benefit of a blockchain based platform.

When it comes to blockchain in Structured Finance, it makes sense to take an evolutionary approach; you should always expect the market to evolve. Being able to maintain some level of flexibility, whether that’s how you plug into an institution’s data, or how you manage their digital assets, because it’s integral to achieving a positive impact for your partners. 

The option for tokens-based thinking will always seem out of place for the revolutionary types in blockchain, and believe me I’ve been in many situations where I’ve been made to feel unsure and defensive of the approach. I attended a Binance conference in Singapore and felt I had landed on another planet, as no one spoke my language and I didn’t understand the language that was being spoken. I will even admit that, at times, I’ve had some doubts. Thinking to myself, “Is this mindset programmed in me because of the financial services business and technology background that I come from, and is it making me too conservative?” 

But that all goes away when you’re sitting across the table from a major financial services institution, bank, or even top tier media outlet, and they lean in and say, “That’s the most salient conversation I’ve ever had about blockchain.” 

So tokens help, but knowing what’s underlying the tokens is even more critical – and will be a necessary pre-condition for wider adoption of blockchains. Starting with tokens is exciting, but it is high-time we adopted the “boring” aspect of the blockchain initiative with a focus on transparency, efficiency and data integrity, with everything else including tokenization being an optional next step.