Tokenization

[Saluki]

No one is talking about NFTs anymore and Crypto is still mentioned, but not as much since the new thing to hype to retail investors is AI. I always remain skeptical of fads, whether it's cannabis stocks or offshore wind. 

 

Two of the areas of Crytpo that are still getting mentioned are perpetuals and Tokenization because the new SEC chairman and CFTC chairman seem a lot more friendly towards it than Gary Gensler. It's hard to tell what's real and what's hype because almost all of these companies are not listed and like OpenAI, you won't see the real numbers until they try to go public. 

 

I did notice that the largest tokenization company went public via a SPAC. So N=1 but it's the biggest player and the numbers were interesting to say the least. They lose money but are profitable on gross basis. They need more business to get to profitability on a net basis. What's even more interesting is that tokenization revenues were down 1% year over year. The less sexy, cookie-cutter back office operations grew 200% YOY though. So if the big dog is not growing, what are second bananas doing? 

 

BUIDL, by Blackrock was responsible for more than half of their AUM. If you take their other $2 billion in AUM and divide it by the 625 assets they claim to have tokenized, it's not a huge amount per customer. 

 

Does anyone know of stocks (not hedge funds or private equity) that tokenized their stocks? If so, why would anyone buy it that way? If you use your broker, you have $600k in SIPC in the US. if you buy a token and self custody it in your wallet, then you don't have SIPC protection and if you lose your password then: not your keys, not your cash.

 

Has anyone here ever bought or sold anything that is tokenized?  

[Fly]

1 hour ago, Saluki said:

No one is talking about NFTs anymore and Crypto is still mentioned, but not as much since the new thing to hype to retail investors is AI. I always remain skeptical of fads, whether it's cannabis stocks or offshore wind. 

 

Two of the areas of Crytpo that are still getting mentioned are perpetuals and Tokenization because the new SEC chairman and CFTC chairman seem a lot more friendly towards it than Gary Gensler. It's hard to tell what's real and what's hype because almost all of these companies are not listed and like OpenAI, you won't see the real numbers until they try to go public. 

 

I did notice that the largest tokenization company went public via a SPAC. So N=1 but it's the biggest player and the numbers were interesting to say the least. They lose money but are profitable on gross basis. They need more business to get to profitability on a net basis. What's even more interesting is that tokenization revenues were down 1% year over year. The less sexy, cookie-cutter back office operations grew 200% YOY though. So if the big dog is not growing, what are second bananas doing? 

 

BUIDL, by Blackrock was responsible for more than half of their AUM. If you take their other $2 billion in AUM and divide it by the 625 assets they claim to have tokenized, it's not a huge amount per customer. 

 

Does anyone know of stocks (not hedge funds or private equity) that tokenized their stocks? If so, why would anyone buy it that way? If you use your broker, you have $600k in SIPC in the US. if you buy a token and self custody it in your wallet, then you don't have SIPC protection and if you lose your password then: not your keys, not your cash.

 

Has anyone here ever bought or sold anything that is tokenized?  

 

As someone who has played in the crypto sandbox for several cycles now, tokenized assets have always been some pie in the sky snake oil idea that never makes sense. 

 

Promoters make the case that tokenized stocks allow 24/7 trading, which is true, but we dont need tokenization on a blockchain for that to happen. 

 

Additionally, the last time I looked into these more recent tokenized stock platforms you can't really self custody the stocks, and if you do then you address has to be whitelisted and transfers back into the platform can only come from that address as well. So no way to really do anything outside the initial platform with the tokenized stock (except lose the keys to your wallet). 

 

In a world where tokenized stocks really could exist in a way where self custody is allowed then sure you could send your AAPL stock to a buddy in China who then trades it to another friend in Russia who happens to be on an OFAC sanction list and eventually makes it's way back into a US account. Try selling that on a regulated exchange and watch the alarm bells go off. 

 

Short story long, I don't think tokenization makes any sense because there are real world rules that apply to these assets. 

 

Perps are a different beast though, and I could see that having real demand. Settled with stablecoins or BTC most likely. I haven't followed them that closely but know hyperliquid has been getting a lot of attention

 

EDIT: https://www.tzero.com These guys have been trying for years to get the tokenized asset theme into mainstream, but the platform has almost no volume. Just another data point to watch

Edited Friday at 01:38 AM by Fly

[nsx5200]

A bit out of scope, but isn't one of Hyperliquid's end goal is to get everything financial onto their platform, implying that "everything financial" will be tokenized on their platform?

 

I'm new to tokenization and Hyperliquid, so feel free to spank me.  I can use an education.  @thowed's article was very eye-opening, but unfortunately half of it was Greek to me.

[james22]

 

Treasury Secretary Scott Bessent delivered a remarkably important speech on June 23 at the Economic Club of New York. Yet neither Wall Street nor most of the economic profession seems to have paid it enough attention.

 

https://archive.ph/oKBdw#selection-4137.0-4141.145

[james22]

 

[wabuffo]

"If you've wondered how committed Washington is to making crypto succeed in the US, that tells you something."

 

I thought the bitcoin maxis were libertarians who espoused a monetary medium free from big government involvement.  

 

I guess their new mantra is that "we are all chartalists now!" 

 

lolz.

 

Bill

Edited Saturday at 02:50 PM by wabuffo

[SharperDingaan]

Tokenization, at present, is little more than Tech Bro's trying to find a market for the tech, and doing it badly.

We built it, now use it ... no idea for what though 

 

The best application is around property; secure blockchain record, tokenize to separate the land from the dwelling(s) on it. Already done manually in legal offices throughout the world, it is just not the common practice in the US; an application that is all about reducing cost, not creating something new. Strong agency disincentive.

 

The whole idea of affordability by splitting the price of an expensive asset over many units ... is really about stranding the asset. Sell it at a high price to the token holders, make a spread .... market making the illiquid tokens, consolidate the tokens back later at illiquid (low) prices, take back the asset. A scam.  

 

Different PoV.

 

SD

Edited yesterday at 01:56 PM by SharperDingaan

[Saluki]

5 hours ago, SharperDingaan said:

 

The best application is around property; secure blockchain record, tokenize to separate the land from the dwelling(s) on it. Already done manually in legal offices throughout the world, it is just not the common practice in the US; an application that is all about reducing cost, not creating something new. Strong agency disincentive.

 

 

I don't know if real estate is a great use case. In my city there is a 1.5% transfer tax on real estate, and agents get their 6%, so the title stuff is the labor intensive side, but the other costs aren't going anywhere. 

 

I think restricted funds (hedge funds, private equity) where the wallet is approved and bypasses the bespoke human stuff is where it makes sense, kind of.  But giving me a token for part of a Picasso starts to remind me of NFT nonsense.

[SharperDingaan]

17 hours ago, Saluki said:

 

I don't know if real estate is a great use case. In my city there is a 1.5% transfer tax on real estate, and agents get their 6%, so the title stuff is the labor intensive side, but the other costs aren't going anywhere. 

 

Think of the RE as a $1M 'package' of land (750K) + building (250K). The lawyer severs the package into land + a 'X' years lease on the building, titles of both put on a secure blockchain. As only the dwelling 'lease' is transferring .... not the land itself, taxes and commission will only be paid on the 250K, not the full $1M. Game changer (and UK common practice).

 

RE bro's have incentive to consolidate all local (less 'trustworthy') RE block chains, into a single 'Google USA RE' where a trusted title search is now simply a query of the immutable data blocks (blockchain property). Lawyers now paid primarily to put the new transaction onto the block chain, and not for a redundant title search. 'Google USA RE', now a monopoly way more effective than a Standard Oil Trust ever was .... and much harder to break-up. Game changers.

 

'Trustworthy' is what the public perceives (social licence), not the blockchain mechanics (tech creation) that create the immutable record. More public trust in a bigger/ubiquitous Google versus dinky blockchain startup (hence consolidation). Social licence more easily granted to a governmental institution vs a Google (hence private/public partnerships). But if there no social licence .... all this amazing ability strands (hence the agency attack).  

 

This is what artificial intelligence actually is .... the other side of the blockchain coin, We're not going to see it for a while as established agency controls have strong incentive to kill it, but it's coming. Anything where a record (digital) documents a change in the physical world, done much faster, and more reliably by tech vs human. Doesn't affect the welder welding steel together (physical world), but does affect his/her time-sheet (digital world).

 

Not  the story being sold.

 

SD    

Edited 7 hours ago by SharperDingaan

[SharperDingaan]

17 hours ago, Saluki said:

But giving me a token for part of a Picasso starts to remind me of NFT nonsense.

 

Think of the $10M Picasso broken up similarly to RE, but for a time-limited period; $8M (nominal) held by investors, $2M split between the endowment funds of 3 major galleries, all the severed components put on a secured blockchain. The $8M nominal grows at the inflation rate every year, contributes zero cash, and is essentially a zero-coupon bond with duration equal to the time limited period (the ALM market). The galleries pay the insurance, share the risk, and earn whatever the painting makes as a part of travelling exhibitions, etc (bigger/better/more marketable collection at less cost).

 

Same 'trustworthy' social licence issues as the RE blockchain, and the same/stronger agency pushback. But .... It will not happen until a government (France/UK/Germany) does it, and essentially privatises state owned artworks via sale of the nominal portions to the ALM market. 

 

Notable, in this case, is that it also spins off the worlds best known forgeries via a derivative market of blockchain provenance. Friends in low places advise .... that many of the very best forgers in the world are equally as good painters as the masters they forge; they just don't get the same 'press'. That genuine Picasso, alongside its best forgery in the world; both displayed safely at the Louvre. Can you tell the difference .

 

Incredible opportunities, but mention this in the Louvre .... and you're lower than dog shite, dragged in under your shoe!.

 

SD

Edited 6 hours ago by SharperDingaan

[Saluki]

16 minutes ago, SharperDingaan said:

 

 

Notable, in this case, is that it also spins off the worlds best known forgeries via a derivative market of blockchain provenance. Friends in low places advise .... that many of the very best forgers in the world are equally as good painters as the masters they forge; they just don't get the same 'press'. That genuine Picasso, alongside its best forgery in the world; both displayed safely at the Louvre. Can you tell the difference .

 

 

The "my kid could paint that" crowd have a point in that would be harder to have the skill level to forge a Rembrandt than a Picasso. If you doubt it, think about the Bill Gross story. They had a Picasso that was being fought over (along with everything else) in the divorce. A coin toss decided his artist wife could keep it. When he said he would take it off the wall and send it to her she said not to bother. She already took the real one to her new place and painted a fake one herself and left it on the wall years ago and he never noticed the difference. 

[DooDiligence]

I had to look that one up.

 

https://www.familywealthreport.com/article.php/Deception%2C-Forgery-And-Lies-–-Hiding-Assets-In-A-Divorce?id=179721

 

There's definitely plenty of sources for good forgeries out there. Abstract and impressionists are probably the easiest to copy.

[SharperDingaan]

Friends advise, that this painting has quite the history ; Frans Hals, Two Laughing Boys With A Mug Of Beer. 

https://pricelessblog.squarespace.com/articles/frans-hals-painting-stolen-three-times

 

Third time out, it was stolen, and fenced as an insurance policy against the owner eventually getting caught doing his crimes. The give the painting up for a reduced sentence, the more famous and valuable the painting, the better the bargaining chip. But with this particular painting .... should your name unfortunately ever get added to the previous list of owners .... you will also be famous forever. Immortality for cheap   

 

Apparently, most of what hangs on the gallery walls today are extremely good copies, with the originals stored in vaults. The other side of the street informed accordingly, and the message underlined by one or two copies of other paintings quietly commissioned directly from today's best forgers. You are welcome to continue nicking the inventory, and we'll put on a good show (for insurance purposes), but please limit the damage, and recognise that you only have the copy .

 

Same as the original painters, there are forgers equally as good as the masters, and they are all known.

 

SD

 

Edited 5 hours ago by SharperDingaan

[Longnose]

IMO - Its the tokenization of things is already happening but its happening quietly behind the scenes at the banks, security institutions, and other entities.  They are slowly building out the tech and migrating legacy systems towards internal blockchain systems.  Its reducing opex for these major institutions and enabling new classes of products and such that can be sold or serviced.  They will develop front end solutions that will be more attractive to the random investor who doesnt understand crypto/blockchain. But it will all be built on those rails.  eventually fractional realestate or art or other things will be enabled to be held in your fideltity account via these rails. Who knows it might be 10+ years out still. But i can almost guartee its coming.  Eventually the stocks we see in our portfolio will be held digitally on a blockchain network with our fideltities, schawbs, and IBKR's and more. 

 

Turns out mainstream doesnt want the liberation of holding their own assets. I'll be curious though if at some point in the future the system does allow for the defi side of things where if you personally want to hold your own keys and take the risk of owning your own assets can you play in the broader ecosystem still and use your broker as the on and off ramp.  We will see. But it is still happening IMO. 

[Fly]

19 minutes ago, Longnose said:

IMO - Its the tokenization of things is already happening but its happening quietly behind the scenes at the banks, security institutions, and other entities.  They are slowly building out the tech and migrating legacy systems towards internal blockchain systems.  Its reducing opex for these major institutions and enabling new classes of products and such that can be sold or serviced.  They will develop front end solutions that will be more attractive to the random investor who doesnt understand crypto/blockchain. But it will all be built on those rails.  eventually fractional realestate or art or other things will be enabled to be held in your fideltity account via these rails. Who knows it might be 10+ years out still. But i can almost guartee its coming.  Eventually the stocks we see in our portfolio will be held digitally on a blockchain network with our fideltities, schawbs, and IBKR's and more. 

 

Turns out mainstream doesnt want the liberation of holding their own assets. I'll be curious though if at some point in the future the system does allow for the defi side of things where if you personally want to hold your own keys and take the risk of owning your own assets can you play in the broader ecosystem still and use your broker as the on and off ramp.  We will see. But it is still happening IMO. 

 

So if everything is held on internal private blockchains will there be any investable angle for us besides these JPMs of the world? As far as I know JPM basically did a cut/paste of the Ethereum blockchain and internalized it so it is closed to the public and they have all of the validators. 

[Longnose]

@Fly This is the real question and probably not. it depends on what i was saying about will there be a way for individual to say I want to hold my own assets and can i play on the broader blockchain. I do know these institutions are building blockchain rails internally. what i am uncertain of is if there is a application layer that is cross institutions yet. This can still be private and the validators / nodes can be held by the various institutions.  But this is what would allow you to sell your shares to me if you hold your shares in IBKR and I hold mine in Schwab. it needs to leave one and go to the other and they can both hold their own ledgers internally but the application layer needs to be shared with validators on both sides.  I'm betting this is happening. Also probably happening in health care with your health records. 

 

So yea, it comes down to will they let individual people play in the broader application layer saying I dont want to hold my shares in my wallet and not on schwab? 

 

Realistically there probably not a strong investment thesis other than in theory JPM, and other banks/brokers. should be able reducing opex and improving margin and customer experience as they implement the changes.