Why tokenization?
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Why tokenization?
Blockchain tokenization has brought significant changes to the efficiency of the real economy.
Navigating Web3 tides with focused insights
A typical objection to blockchain tokenization is: Why do we need tokenization?
The answer is efficiency. Systemic efficiency. Blockchain tokenization brings transformative changes to the efficiency of the real economy.
By eliminating barriers and frictions created by systems and markets, we will experience a far more efficient economy—essentially free of intermediaries (third parties), gatekeepers (centralized authorities), and obstacles in the innovation process.
The blockchain-based tokenization process will achieve a paradigm shift in systemic efficiency through two fundamental pillars: infinite composability and frictionless markets.
Tokenization Overcomes Technical Limits of Integration
Take banks as an example: their underlying systems are databases built specifically for banking services. They are permissioned and designed as moats. Access is granted only through accounts. A large bank may interact with 180 systems, yet annually integrates only around $35 million worth of major applications or services—smaller services or apps cannot be integrated at all. Services cannot be treated as composable objects; the bank’s system is non-composable, limited, slow, and closed.
Tokens are carriers capable of holding infinite logic and functionality. They can be infinitely composed. Rights, services, and applications can be seamlessly integrated into systems via tokens. Tokenization will provide a more efficient and accessible foundational banking system—one that achieves trust, interoperability, privacy, and security beyond what legacy systems like MOAT banking infrastructure can offer.
Tokenization Removes Friction Hindering Market Innovation
Today, we design businesses, services, and applications for functionality rather than unlocking their full potential. Developers build software to operate within closed parameters, not open to market dynamics. In this design philosophy, tradable rights are secondary. Market forces cannot drive system design—because the system is already fixed.
The paradigm shift is treating tradable rights as a first principle in system design. By building applications around composable, tokenized rights, innovation and growth across entire markets become boundless. With tokenized rights as composable building blocks, our design thinking shifts from "I need an app to start my car" to "I want to tokenize my car rights so I can generate incremental income through third-party rentals." We design to eliminate market friction and open up to the market.
Tokenization Will Penetrate All Areas of the Real Economy
To make these concepts tangible, here are six attempts to tokenize aspects of the real economy—now made possible due to systemic transformation brought by blockchain tokenization.
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Smart Devices. A smart dining table is a tokenized restaurant table that knows when it's occupied or booked. Tokenization reduces friction, enabling tables to be auctioned in real time or embedded into other applications (e.g., Itinerary Maker). This use case is just the tip of the iceberg.
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Personal Time. Tokenization removes friction from selling time hourly, making it key to efficiently bundle personal services into third-party schedules and integrated products (e.g., offerings from Calm App).
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Subscription Services. A "Thrilled for a Year" subscription token could be integrated across various websites, allowing owners to access content or services without separate payments. This model isn't new, but has been hard to implement in practice due to the high cost of breaking down system boundaries.
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Privilege Tokens. A "High Net Worth Individual" token is much more than a digital letter of recommendation. It enables further constructions on top. For instance, privilege token holders could auction one hour of investment advisor time to promote their products.
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Service Exchange Tokens. These overlap with "smart table tokens," but focus on services rather than IoT devices. For example, a hotel room booking token allows 1) value discovery through auctions; 2) value creation through bundling; and 3) value creation through integration.
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Product Ownership Tokens. These are issued upon purchase of goods. They enable token holders to access services such as repair and replacement (e.g., iPhone ownership token), and simplify the process of reselling or renting out items.
The Future Is Much Closer Than We Think
We have already seen countless examples of using tokenization to remove barriers and friction in systems and markets.
As the tokenization process becomes easier, we will view smart tokens as a digital primitive similar to websites or mobile apps—and we will no longer ask why we should tokenize.
Instead, we will ask how we can tokenize and when to begin.
About the Author
Weiwu Zhang is founder and CTO of Smart Token Labs, with over nine years of experience in blockchain technology, smart money design, and trading algorithms. He previously served as blockchain architect at CBA (Australia’s largest bank), global architect at R3, and has architected 3 altcoins and 7 ICO projects.
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