At what we hope is the end of a bitter crypto winter, history offers foresight that good times will return, according to the eminent professor Carlota Perez. Web3 is another technological revolution, which is undergoing this familiar boom and bust cycle. Until now, Web3 has succeeded in installing a cluster of technologies with enormous potential for economic growth and transformation, such as DeFi and NFTs. However, these technologies have mostly transacted magic internet money, in the form of crypto tokens.
The thesis increasingly shared within crypto and traditional finance is that the tokenization of real-world assets (RWAs) will form the backbone of the next bull run and unlock the transfer of trillions of dollars of value into crypto. Traditional finance giants including BlackRock and Fidelity, along with RWA startups like Tzero, Securitize, and Polymath, are using the blockchain to tokenize assets that actually comport with the real world.
The current state of play is that RWA tokenization merely reduces the role of intermediaries, whilst enabling faster, cheaper, and more transparent transactions. However, the full potential of Web3 technology is not yet being fully realized, since most RWA tokenization platforms require trust in some sort of intermediary to honor the redemption of the tokenized asset.
Instead of tokenizing physical assets directly, protocols can lock up parties’ commitments to execute a commercial exchange as a type of forward contract, encoded within smart contracts and tokenized as redeemable NFTs. When a dispute happens, it can be handled by an algorithm encoded within a smart contract that refers it to decentralized dispute resolvers. This level of assurance provides harder tokenized RWAs whose reliability enables them to be the foundations of a smarter, more programmable economy.
Once Web3 technologies, such as DeFi and NFTs, are fully utilized to harden tokenized assets, we will not only enable a programmable Web3 economy but also a trillion-dollar opportunity. According to Prof. Jason Potts, “Now that we can tokenize all the world’s physical products and services into a common, interoperable format; list them within a single, public ledger; and enable market transactions with low cost of trust, which are governed by rules encoded within and enforced by the underlying substrate, what then? Then, computable capital enables ‘programmable commerce,’ but more than that – it enables what we might call a ‘Turing-complete economy’.”
As the crypto winter comes to an end, the potential of Web3 technology is being unlocked. Tokenization of real-world assets is enabling faster, cheaper, and more transparent transactions, while protocols are locking up parties’ commitments to execute a commercial exchange as a type of forward contract, encoded within smart contracts and tokenized as redeemable NFTs. This level of assurance provides harder tokenized RWAs whose reliability enables them to be the foundations of a smarter, more programmable economy. According to Prof. Jason Potts, this could enable a trillion-dollar opportunity and a Turing-complete economy.