Tokenization has become a key trend with digital currencies and cryptostrategies in financial services. Tokens seem to be raising hundreds of millions in real time left and right. For an existing financial services firm, should you look at a token strategy and if so, how should you look at it?
It’s clear the market for crypto currencies, alternative coins (altcoins) and initial coin offerings (ICOs) has gone haywire. Yet its important to keep in mind it follows a normal market cycle with a new and unproven technology, where there will surely be errors made, but the attention will also drive longer term research and development and much needed improvements in the underlying technologies utilized, such as the bitcoin blockchain and ethereum blockchain.
This attention in the market has also clearly attracted operators who are leveraging a hot trend in order to acquire equal attention and capital through e.g. ICOs. For raising capital an ICO may indeed be revolutionary, but it’s clearly not suitable for every single endeavor.
Token First – strategies
There’s an interesting thought exercise to consider when evaluating the suitability of a token in a particular strategy. Similar to how ridesharing applications such as Lyft and Uber cannot function without a mobile handheld (mobile-first), several token driven initiatives cannot function without their own token where that token becomes a key driver of their strategy and business. In this situation we can talk about a ‘token-first’ initiative, and in this instance, if the business cannot exist without the token a token generating event of some sort, will be warranted. The token care represent a utility token, where it’s the only type of currency that could achieve the goals of the business in its development economy due to a key characteristic of the token itself, such as distribution or lack of friction.
Tokens themselves are hardly innovative, it’s their application that has become more mature (yes – despite the stage of the market we’re in) and the technology around them. Look at loyalty points or virtualized accounts, these are a variation of a token correct? Yes the decentralization of the crypto token may be the biggest value in new market opportunities and applications.
Decentralization Add Transparency
A key element we often hear, is that utilizing a decentralized public ledger like a public blockchain, will add credibility and transparency to a novel application. While that may be true, it’s not so simple. Depending on the application itself and the implementation of the distributed ledger, cyber security may be a large concern as may adherence to local laws, such as securities regulations and best practices such as anti-money laundering and know your customer checks (AML and KYC respectively).
While technology is developing and affording us new opportunities, its important to remember it as an enabler or tool, and not a means in itself.
Where does this leave us? Should you or should you not leverage a token in your financial application or strategy. Like many answers, it will come down to context.
Tokens are becoming increasingly used and strategies around the world are being applied where tokens represent an economic cornerstone in a novel application. Whatever the strategy its important to take a hard look at the full picture and ask yourself, is the token a necessity or a nice to have feature.
This attention in the market has also clearly attracted operators who are leveraging a hot trend in order to acquire equal attention and capital through e.g. ICOs. For raising capital an ICO may indeed be revolutionary, but it’s clearly not suitable for every single endeavor.
Token First – strategies
There’s an interesting thought exercise to consider when evaluating the suitability of a token in a particular strategy. Similar to how ridesharing applications such as Lyft and Uber cannot function without a mobile handheld (mobile-first), several token driven initiatives cannot function without their own token where that token becomes a key driver of their strategy and business. In this situation we can talk about a ‘token-first’ initiative, and in this instance, if the business cannot exist without the token a token generating event of some sort, will be warranted. The token care represent a utility token, where it’s the only type of currency that could achieve the goals of the business in its development economy due to a key characteristic of the token itself, such as distribution or lack of friction.
Tokens themselves are hardly innovative, it’s their application that has become more mature (yes – despite the stage of the market we’re in) and the technology around them. Look at loyalty points or virtualized accounts, these are a variation of a token correct? Yes the decentralization of the crypto token may be the biggest value in new market opportunities and applications.
Decentralization Add Transparency
A key element we often hear, is that utilizing a decentralized public ledger like a public blockchain, will add credibility and transparency to a novel application. While that may be true, it’s not so simple. Depending on the application itself and the implementation of the distributed ledger, cyber security may be a large concern as may adherence to local laws, such as securities regulations and best practices such as anti-money laundering and know your customer checks (AML and KYC respectively).
While technology is developing and affording us new opportunities, its important to remember it as an enabler or tool, and not a means in itself.
Where does this leave us? Should you or should you not leverage a token in your financial application or strategy. Like many answers, it will come down to context.
Tokens are becoming increasingly used and strategies around the world are being applied where tokens represent an economic cornerstone in a novel application. Whatever the strategy its important to take a hard look at the full picture and ask yourself, is the token a necessity or a nice to have feature.
About the author - Markus Lampinen
Internationally awarded digital finance entrepreneur, active in pioneering new securities models worldwide. Has worked in digital finance since 2009, recruited over 100 individuals, built up a operations on six continents and been recognized as one of the top 100 thought leaders in crowdfunding. Markus has pioneered new funding models in the US and Europe, advised policy makers worldwide - including the SEC, the European Commission and Italian regulator CONSOB - for more effective markets, and worked with visionary organizations such as the World Bank and the Kauffman Foundation to improve frameworks for digital finance. Markus has studied computer science and economics (M.Sc).
Internationally awarded digital finance entrepreneur, active in pioneering new securities models worldwide. Has worked in digital finance since 2009, recruited over 100 individuals, built up a operations on six continents and been recognized as one of the top 100 thought leaders in crowdfunding. Markus has pioneered new funding models in the US and Europe, advised policy makers worldwide - including the SEC, the European Commission and Italian regulator CONSOB - for more effective markets, and worked with visionary organizations such as the World Bank and the Kauffman Foundation to improve frameworks for digital finance. Markus has studied computer science and economics (M.Sc).
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