Tokenization is a life-saving pill for global finance’s diversity problem

cyptouser8 months agoCryptocurrencies News198

Op-ed: Tokenization is a life-saving pill for global finance’s diversity problem

When the subject of financial markets and their future is raised, the implementation of blockchain technology and tokenization of assets gets mentioned a lot. In light of the progressing digitization of many industries, the technology has the potential to democratize investment possibilities, open up new financial opportunities, and in doing so, revolutionize the global economy.

This is a promising avenue to explore, as the future of money is doubtlessly going to be diverse and focused on catering to any number of needs from various audiences. It is implausible that there will be a one-size-fits-all kind of platform or solution.

Let’s explore the premise of tokenized assets more closely to see why they can fundamentally transform the way people approach finances globally.

Tokenization — a tool to democratize financial opportunities

The general premise of tokenization involves giving people much greater access to wealth and financial options by introducing the concept of fractional ownership of assets. In other words, investors get to buy a portion of a high-value asset instead of having to buy the whole thing that could very well be beyond their financial means.

Let’s take a look at a practical example: rising costs in the real estate market have made access to affordable housing progressively more challenging over the years. In the UK, it has already become so expensive as to be a privilege available only to those who have hereditary wealth from their parents to rely on.

By digitizing and dividing real estate properties into tradable tokens, ownership stakes can be fractionalized, enabling people to invest in portions of properties rather than having to purchase the whole thing. This allows for the democratization of access to affordable housing by lowering entry barriers and giving opportunities to investors with limited financial means to enter this market.

The same principle applies to other sectors as well: as it becomes easier for people to buy, sell, and trade fractional ownership of assets, tokenization serves to break down entry barriers and enable greater financial opportunities to a wider array of audiences. This includes millennials and Gen Z investors, who often get the short end of the stick when it comes to dealing with the complexities of traditional financial markets and prefer dealing with digital assets over real-world ones.

Global interoperability of tokenized assets means improved cross-border payments

Beyond introducing new investment possibilities, tokenization can also enhance the transparency and efficiency of financial operations. Utilizing blockchain means that all relevant transactions occur on a network with an immutable and transparent record of all happenings. This ensures that asset ownership can be easily secured and verified, eliminating the need for intermediaries like brokers or custodians, reducing costs and streamlining operations for individuals and businesses alike.

In cross-border transactions, it can remove third parties like banks and payment processors typically involved in conducting international payments. By leveraging blockchain, tokenized assets can be transferred directly between parties, thus reducing transaction costs and processing time. It also provides a higher degree of safety and trust as, once again, blockchain records all transactions in a decentralized and immutable manner.

Furthermore, since tokenization involves representing real-world assets as digital tokens on a blockchain network, it revolutionizes how payment providers collaborate. These providers can leverage standardized smart contracts and open networks to govern the terms of transactions and easily exchange tokenized assets between different payment providers.

Connecting previously fragmented payment systems enables faster and more cost-effective cross-border payments and facilitates collaboration among payment providers across regions. I believe that the tokenization of assets can be a game changer in the cross-border payments stage, as it can empower the financial industry to work as a unified front on a global scale.

Welcome the new, diversified financial age of global economy

Thanks to the emergence of blockchain technology, the future of money is poised to be highly diverse. As more players become able to enter the financial markets, there will be new opportunities to meet them.

With blockchain technology as the underlying infrastructure, cryptocurrencies and tokenized assets can enable secure, transparent, and immutable transactions, ensuring trust, eliminating intermediaries and greater financial autonomy.

Furthermore, since assets from any industry can be tokenized, people will be able to freely customize their financial interactions based on their specific needs and preferences, all without losing in efficiency or speed of their transactional operations.

Blockchain integration promises financial diversity far beyond what fiat currencies and traditional financial assets can offer. The potential for innovation in this space is vast. I trust it to empower individuals to have greater individual control over their wealth and engage in borderless transactions in previously unimaginable ways.

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Tether, the issuer of the world’s largest stablecoin, USDT, is breaking all records in 2023. In its Q1 assurance report, Tether gained an all-time high reserve surplus of $2.44 billion, and a net profit of $1.48 billion

This raised many eyebrows because the world’s largest asset manager, BlackRock, had only $1.2 billion net income in the same period.

Not only does dollar tokenization pay off but it pays off drastically. This is evidenced by profit efficiency per employee, as BlackRock’s profits are secured by 16,500 – 19,800 personnel vs. Tether’s modest 60 – 155 employee count.

Tether’s latest Q2 assurance report from its accounting firm BDO tells the same story. Its stablecoin reserves increased by $850 million, reaching $3.3 billion. Taken at face value, these reports show that Tether cracked the money-making formula while providing critical USDT stability in extreme market conditions.

How? Tether seemingly discovered a money printer in US treasuries. But is there a risk in Tether’s evolving business model? One that could topple the entire crypto market given Tether’s enormous $83.7 billion market cap weight?

Let’s explore.

Tether: Combining Saylor’s Strategy While Leveraging US Debt

Both Q1 and Q2 reports show Tether’s increased reliance on US treasuries. The latest Q2 attestation accounted for Tether Holdings Limited owning at least $86.5 billion in consolidated assets.

Out of that, $83.2 billion is in liabilities, revolving around Tether’s core product – USDT – stablecoin issuance pegged to the USD and backed by cash and cash equivalents. USDT is mostly backed by US government debt, as 64.5% of Tether’s total assets are in US Treasury Bills, at $55.8 billion.

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GMX launched in early September 2021 as a decentralized perpetual exchange offering swaps and leverage trading and it made a big splash in the DeFi community.

If you haven’t heard about GMX, let’s get you up to speed: GMX’s launch on Arbitrum was seen as a major DeFi milestone. Aside from proving Arbitrum as an effective Ethereum L2 scaling solution, GMX stood out for two big reasons:

  1. The first DEX and perpetual market to launch on the Arbitrum ecosystem.

  2. A shared liquidity pool system minimizes price impact on trades of all sizes without affecting the market price.

Within a month of launch, GMX grew its TVL to over $30 million, averaging ~$1.4 million in daily trades. GMX has evolved into a liquidity mining program, an NFT marketplace, and a yield farming platform. Its ongoing growth puts it at TVL of over $450 million and boasts a 24-hour trading volume of $1 million at the time of writing.

GMX’s growth and adoption also accrued value to the GMX token. The GMX token market price on Sept 13th of 2021 was $14.74. One month later, it was $22.33. A year later, it is $46.27, and at the time of writing, it sits at $36.66 — a more than 200% price appreciation since launch.

Looking back, it’s safe to say that GMX’s launch on Arbitrum was a great success. Demand for a decentralized perpetual market on Arbitrum was and still is – high.

But why did a perpetual market and shared liquidity pool system impact Arbitrum’s growth? And what does this have to do with Kinetix and Kava Chain?

Perpetual Propulsion

The evolution of DEXs and derivatives markets (like perpetual swaps) in crypto presents builders with novel tools to push DeFi forward and provide users with incentives for early adoption.

Kinetix Finance, a state-of-the-art v3 perpetual DEX, brings the same potential to Kava Chain that GMX brought to Arbitrum. The flywheel effect works like this: the launch of the first DEX and perpetual market protocol on an ecosystem creates positive market sentiment, which accelerates liquidity growth and user activity on the protocol and, by extension, its ecosystem.

GMX offered Arbitrum users the flexibility of perpetual swaps without an expiry, so it drew a larger pool of seasoned and novice traders into the ecosystem, contributing to more liquidity and activity.

This led to a surge in the TVL, reflecting a heightened capital allocation within the Arbitrum ecosystem. The non-expiring nature of GMX’s perpetual contracts stimulated higher trading volumes among these new users, who could adjust their positions without being bound by contract end dates.

This heightened activity enhanced the overall liquidity of Arbitrum and incentivized more people to onboard and participate in the Arbitrum ecosystem.

So why is Kinetix Finance ripe to experience the very same flywheel effect?

The Kinetix v3 DEX & Perpetual Market

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