One of the characteristics of new technology is that it is first worse than the one it replaces. I remember sitting in my apartment sometime in the late 1990s and spent a weekend tearing my CDs in MP3s only to get a hard -driven crash and lose all my data on Sunday night. I had a “why do I do it” moment and many of the early buyers of tokenized shares feel the same way. And then I repeated the process the following weekend because I am a slow teacher.
If digital music had started and then ended with Napster and my Rio PMP-300 (because Iykyk), we could all forget it. But it didn’t. It got better and now that’s exactly what we do. It is also the pattern we will see with tokenized warehouses.
Tokenized shares today are a particularly subordinate product for the traditional market supply. I looked through the terms and conditions of eight different on-chain services that offer tokenized assets to gain a good understanding of what is available. Most are available in the EU, one is available globally excluding the United States, and one is only available in the United States.
While all of them can be considered a good effort, most platforms that offer these stocks limit them in many ways that are boring and show the underlying infrastructure, not really crypto-native. The restrictions so far existed for the most part appear to be the result of the efforts to comply with yet non-detailed rules or deficiencies in the underlying markets (such as lack of weekend hours).
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 geographical restrictions and have “Know your customers” (Kyc)/Permission restrictions on transfers. These token offers rarely have voting rights, some do not allow dividends, and most do not allow tokens to be used in any decentralized financing (Defi) Services either.
Stock trading on-chain today is rudimentary, and if it were to end here, it would be a small market limited to a limited number of customers that do not have access to larger stock markets. Slowly but surely, however, I think we will overcome many of these limitations.
Limits overcome
Take, for example, KYC. Although KYC rules will unlikely to disappear as they become standardized, rather than being limited to trading in a small group of people using the exact same supplier and partner who runs the same KYC process, all the small liquidity pools become interoperable, which effectively becomes a greater liquidity pool. And with deeper liquidity, marketers willing to support 24×7 trade without any price penalty. Increasing legislative maturity is likely to enable voting rights, dividends and withholding tax.
Over time, all these steps will make tokenized stock trading virtually comparable to traditional stock trading. If we go back to the musical analogy, it’s okay, but hardly a compelling reason to change. It will appeal to those who have limited access to shares today, but if you have assets on the chain and verified KYC, the chances are that you can already get a bank account and a broker account. This means that parity with existing offers will not be convincing.
We can already see where on-chain offers are going and that’s more than parity. The recent Robinhood message about a Layer-2 network at Ethereum included the promise of tokenized access to private companies such as SpaceX and Openai. In addition, the possibility of connecting assets on chain to defi services and using them as security or borrowing them for extra returns will bring many users to the market.
In the end, I think there is the potential to really transform business management. Despite hundreds of years of experience, shareholder management leaves much to be desired. Many owners fail to exercise any of their rights. This is hardly surprising as we can hardly follow real politics. But with smart contracts, the ability to delegate your voting rights to experts you trust will open up a whole new world of informed governance.
Early adoption is often driven by users with unique needs and a tolerance of risk. This is a perfect example of the entire crypto ecosystem, including users who have accumulated assets outside the entire traditional financial system.
But over time we come from “because we can” to something much better. And when that happens, the current $ 3-4 trillion in crypto assets and a few hundred billion in stableecoins will be dwarfed by $ 200+ trillion in stocks and bonds that can get on the chain. It’s just a matter of time.
Disclaimer: This is the author’s personal views and does not represent the views of EY.
