When the third wave of tokenization arrives, tokens are no longer a "sensitive word"
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When the third wave of tokenization arrives, tokens are no longer a "sensitive word"
The new token layer could be as transformative as HTML.
Navigating Web3 tides with focused insights
Weiwu Zhang, founder of Smart Token Labs, says about tokens: The new token layer could be as transformative as HTML.
Due to speculative attitudes and excessive "obsession" toward fungible tokens and NFT collectibles over the past few years, tokenization has been widely misunderstood and attacked.
Now we are entering a new phase of market development, where the hype around altcoins and NFTs is gradually fading. As a result, we may see more projects focusing on infrastructure development and user experience, conducting practical research and making real efforts to unlock the true potential of Web3. Moreover, this trend will create an entirely new and more open market (similar to what we saw in the 2000s when mobile internet first emerged).
Because of this, more people are beginning to understand the real value of tokenization and tokens, realizing that tokens will enable new forms of transactions and interactions—they are not merely symbols of ownership.
In fact, tokens represent a new digital infrastructure—a novel building block and connecting layer between blockchains, smart contracts, user agents, and services. Beyond that, this connecting layer can also serve as a mainstream solution for user adoption, creating a Token-centric "bridge" linking Web2 and Web3.
The new token layer enabled by TokenScript has the potential to bring bottom-up transformation just like HTML did, becoming the banner of the third wave of tokenization.
The Third Wave of Tokenization
When we talk about tokenization, we have actually gone through two distinct "waves" so far.
The first wave was fungible tokens, primarily seen as currencies for speculation and trading. What we observed was an evolution: [early] users began adopting cryptocurrencies, [midway] went through several cycles of price fluctuations, and [later] their value gained broader recognition. At its core, you could trade or speculate—of course with additional nuances along the way—but the focus remained largely on valuing altcoins.
The second wave followed quickly, with non-fungible tokens (NFTs) emerging as venture-backed collectibles carrying specific rights. Initially, people were skeptical about the value of ERC-721 tokens, but within a few years, their value became clear—sparking a massive wave around NFTs driven by art and profile picture (PFP) communities. Similarly, there are many other use cases and rights associated with NFTs. However, narratives still revolved around trading and speculation, drawing all user and builder attention accordingly.
Tokens: The Third Wave
The third wave is already here, defined by smart tokens with programmable interfaces that carry connectable, composable, and actionable rights.
Smart tokens can enter Web3 via blockchain, smart contracts, user agents, and service providers, acting as a bridge and connecting layer for user rights and entitlements. Between Web2 and Web3, the definition of smart tokens will shift, ultimately fulfilling the full promise of frictionless markets and integrated open networks.
Smart Tokens Fulfilling the Promise of Web3
To illustrate how tokenization uniquely enables frictionless new markets and integrated networks—we’ll explain using the example of car ownership.
The core idea behind tokenizing car ownership is about tokenizing the rights themselves. Who controls the car? Who has the right to drive it, register it, or insure it? Who can rent it out, lend it, or grant different usage rights?
All these rights—ownership, insurance delivery—already exist, but interactions between owners and service providers involve significant "friction." Secondary market rights related to leasing are technically feasible, but the user experience is far from seamless.
With tokenization, we issue a token on the blockchain—such as anchor—using trust as a foundation to unlock the full potential of tokenization. As a programmable smart token, it can be linked to any form of ownership, and having a programmable interface means tokens can interact with any Web2 or Web3 website or service, enabling the above functions in a permissionless (similar to zero-knowledge proofs) and trustless manner.
Tokens: Use Cases
At Smart Token Labs, we've spent the last four years researching these token use cases. Using TokenScript technology as a framework for smart tokens, we developed a car ownership token for Karma Automotive, representing rights to registration, insurance, and leasing services, enabling direct authorization of usage rights to Web2 websites and service providers.
In the next wave of tokenization, future networks will emerge as hybrids of Web2 and Web3, with smart tokens and cryptographic technologies enabling an unprecedented level of interoperability and integration.
We will also see the next generation of disruptive companies emerge at the intersection of Web2 and Web3. The next Uber, Airbnb, and YouTube will be built on programmable smart tokens.
What About dApps?
Clearly, for some time now, dApps have failed to deliver user experiences that meet “real needs” and attract mainstream users into the Web3 world. Despite noble visions, many have taken the path of simply replicating closed, traditional Web2 architectures. This does not fulfill the promise of Web3.
Composable, portable (usable in unrestricted environments), and interoperable smart tokens—with unlimited logic and functionality—are key to delivering new open markets and more fully integrated networks. We believe the third wave of tokenization will finally achieve this goal.
And tokenization will no longer be a word people shy away from.
About the Author
Weiwu Zhang is the founder and CTO of Smart Token Labs, which is creating a new standard for the future of tokenization by using composable smart tokens as a bridge between Web2 and Web3. With over nine years of blockchain experience—from designing altcoins to developing trading algorithms—Weiwu previously served as a blockchain architect at Commonwealth Bank of Australia, the country’s largest financial institution.
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