Learning From Past Economic Cycles

As we possibly approach the conclusion of a stringent crypto downturn (or “bear market”), history may be serving as a guidepost, hinting at the resurgence of better days. 

According to distinguished scholar Carlota Perez, the adoption of new technologies follows a foreseeable sequence: ebullient highs give way to crushing lows, which are then succeeded by prolonged periods of expansion. 

This was exemplified in the aftermath of the dot-com bubble burst in 2001, a time when many thought the internet’s economic prospects were over. 

Two decades later, however, the tech sector has flourished, amassing trillions in value.

The Echoes of History: DeFi and NFTs on the Horizon

Web3 technology, accompanied by its subsets—Decentralised Finance (DeFi) and Non-Fungible Tokens (NFTs)—is on a similar rollercoaster ride. 

DeFi is forging a new financial landscape that circumvents the conventional middlemen, and NFTs are beginning to deal with the challenges of digital uniqueness and democratised artistry. Despite these breakthroughs, both are predominantly anchored to the unstable crypto token market.

According to Perez’s theories, each initial surge of exuberant investment is trailed by a collapse, often due to inflated expectations. 

Yet, the technology’s core components generally persist, laying the groundwork for the subsequent upswing. 

A burgeoning agreement among experts suggests that the conversion of real-world assets (RWAs) into tokens will fuel the next upswing in crypto, setting the stage for a new epoch in blockchain and mainstream finance.

The Ongoing Revolution: Financial Giants and Startups Lead the Way

The transformation towards a token-based economy is not just a futuristic idea; it’s already underway. Large financial institutions, such as BlackRock and Fidelity, are spearheading this movement alongside specialised startups like Tzero, Securitize, and Polymath. 

They are employing blockchain technology to bring tangible assets into the digital realm. This means that various forms of value—be it fine art, commodities like gold and oil, or even financial instruments like stocks and bonds—are being converted into digital tokens that can be easily traded, transferred, and managed on blockchain platforms.

This revolutionary shift carries significant benefits. For instance, tokenisation reduces the complexity and costs associated with transactions, provides greater transparency, and offers enhanced liquidity. 

Additionally, it opens the door for fractional ownership, where high-value assets like artworks or real estate can be owned by multiple individuals in the form of tokens, democratising access to investment opportunities that were previously available only to the affluent.

The Oracle Problem: A Kink in the Chain

However, this rapid innovation is not without its challenges. One significant obstacle is known as the “physical asset oracle issue.” In essence, this issue concerns the assurance that the physical asset underpinning a digital token is what it purports to be, and that it can be reliably claimed by the token’s holder. 

After all, while the blockchain can flawlessly track the ownership and transactions related to a digital token, it cannot verify the condition or even the existence of the physical asset that the token represents.

Addressing the physical asset oracle issue is crucial for the full realisation of the benefits of tokenised real-world assets (RWAs). 

Solutions are being developed, ranging from third-party verification services to smart contracts that lock in conditions for the release of the physical asset. However, it remains a pivotal challenge that must be overcome to unlock the complete transformative potential of this emerging digital economy.

So while the journey towards a fully-integrated, token-based economy is well underway, spearheaded by both established financial players and agile startups, the road ahead still has some curves. 

Solving the intricacies like the “physical asset oracle issue” will be key to moving forward.

Web3’s Ingenious Approach to Real-World Hurdles

In the wake of technological advances, Web3 enthusiasts are not simply resting on their laurels when it comes to the ‘physical asset oracle issue.’ Instead, they’re charting new territories with inventive solutions that bypass the traditional bottlenecks associated with asset tokenisation.

Intelligent Contracts: Beyond Simple Tokenisation

The crux of this revolutionary approach lies in utilising intelligent contracts, commonly referred to as ‘smart contracts,’ but with a twist. 

Rather than directly tokenising the real-world asset—be it a painting, a Rolex or a piece of real estate—these contracts are used to codify the intentions of the parties involved in the trade. 

In simpler terms, smart contracts serve as binding digital agreements that specify the conditions under which the asset will change hands, thus serving as a robust legal and technical framework for the transaction.

Tokenised NFTs as Forward Contracts

Adding another layer of innovation, these smart contracts then employ tokenised Non-Fungible Tokens (NFTs) as forward contracts. These unique tokens represent the promise of future asset delivery or service fulfilment, effectively serving as placeholders until the physical asset is exchanged or the service is rendered.

By taking this approach, the complexities associated with directly tokenising the physical asset are avoided, paving the way for smoother transactions.

Decentralised Arbitration: Algorithmic Problem-Solving

Another significant advantage of this model is its capacity for decentralised arbitration. Should disagreements or disputes arise between the trading parties, these can be resolved algorithmically. 

Smart contracts can include stipulations that trigger impartial, decentralised arbitrators to resolve conflicts, ensuring a swift, transparent, and cost-effective resolution process. 

This replaces the need for centralised intermediaries, which can be slow, costly, and subject to bias, thus keeping with the decentralised ethos of blockchain and Web3 technologies.

Looking Forward

The Web3 community is providing groundbreaking solutions to real-world challenges in asset tokenisation and trust. 

By sidestepping the need to directly tokenise real-world assets and introducing intelligent contracts and decentralised arbitration methods, the pathway is cleared for more efficient, less contentious, and broadly more effective transactions. 

This marks a significant stride forward in the journey towards a fully realised, tokenised economy.

How We Can Help

At EfficiencyAI, we combine our technical expertise with a deep understanding of business operations to deliver strategic consultancy services that drive efficiency, innovation, and growth.

Let us be your trusted partner in navigating the complexities of the digital landscape and unlocking the full potential of technology for your organisation.