September 22, 2023

Should the goods be tokenized?

Goods are usually raw materials or goods that are grown or mined. The commodity market is a place where you can buy and sell them, for example,precious metals, gold, coffee beans, oil, grain, energy, etc. Throughout history, people have used physical goods around the world as a form of representation and storage of wealth. Today, with large corporations, goods are traded on the stock exchange, and transactions worth millions of dollars are constantly on hand.

How can blockchain technology benefit the product market?

Platforms and cryptocurrencies based onblockchain, promise to improve the work of the goods trading industry, solving the problems of trust, their inefficiency and complexity of transactions, in which several parties are usually involved. Blockchain technology allows you to transparently capture complex transactions, track products and reduce fraud, which, apparently, makes it naturally suitable for the product business.

The technology works as encrypted andan unchanging database that does not require control from the central side and can be accessed by all participants. Blockchain platforms can track goods, record contractual agreements, and serve as a reliable register for trade documentation. In addition, the blockchain can digitize information, automatically execute contracts and be used to standardize procedures, participants can reliably manage and carry out settlements on transactions (on authorized platforms, settlement can be achieved in almost real time).

Market variables such as complexitypricing, in particular, what diversity currently exists in pricing mechanisms; transaction volumes, including changes in lot size; requirement for reliable certification of origin; and the seriousness of efforts to achieve more efficient market infrastructure, including how developed current infrastructure is and how useful efficiency gains and more systematic processes will be.

The solutions offered by blockchain technology can improve the functioning of the business in all product markets, but this will affect each of them differently.

Distributed generation is growing in popularityelectricity and localized microgrids that can operate independently of a traditional centralized power grid. And the blockchain is used to develop peer-to-peer (P2P) online platforms that allow localized producers and buyers to trade energy.

Oil, iron ore and diamonds

The use of blockchain solutions is significantEnhances transparency in the supply chain, confirms ownership and origin of goods, and ensures safe and reliable tracking. It would also create a more efficient and liquid market by pushing commodity trading away from bilateral transactions concluded directly between the two parties, to transactions based on electronic platforms that correspond to buyers and sellers.

High Frequency Trading, Special VarietyAlgorithmic trading has also prompted exchanges to develop algorithmic testing tools to prevent predatory behavior. This would accelerate the transition to a state of market liquidity characterized by speed, highly standardized and accessible information, trading platforms and narrow spreads.

Companies that are convinced of the benefitsblockchain, they will have to ensure that they have a sufficient number of qualified specialists in case the technology begins to develop. They should also carefully consider which potential solutions will best support their business, which ones are most likely to be successful, and which ones can be expanded for targeted investment.

Consider the pros and cons of tokenization of goods.

Pricing and Arbitration

Using transactions recorded in the commonledger, participants could compare the price of their party with other parties and, thus, detect discrepancies. Greater transparency will also lead to more fair prices. However, this will affect the profits of merchants who rely on pricing inefficiencies to make money. Price agencies will also need to find new ways to expand their business.

The risks

When calculating in almost real timethe blockchain will largely eliminate the clearing risk and reduce the role of clearing houses, such as clearing trading operations (for example, if the counterparty fails to fulfill its obligations) and physical delivery of goods (fraud and poor quality). quality).

Phased checks protected againstunauthorized access will reduce the physical risks of delivery, especially those associated with fraud, allowing participants to track checks and certifications.

Regulatory oversight

Using blockchain technology, regulatoryreporting can be greatly improved. Today, participants submit compliance reports. Regulators will have automatic access to the shared book (public protocols) and can check transactions in real time. Similarly, grid companies entrusted with balancing electricity or gas supply with demand in electricity markets can check the positions of market participants in real time.

IT investments and new processes

With more transparent, synchronized markets,using blockchain solutions will change the way commodity companies work, especially in the trading of physical goods. Players must determine the best solution for their processes and take into account the additional costs of IT infrastructure. New IT and processes are likely to entail change management as well.

Growth financing

Initial Coin Offers (ICOs) allowcompanies to transform ownership of assets or other rights into virtual, tradable tokens (STO, ICCO, TAO, ETO). Sold in advance to finance investment and expansion. However, you must be aware of the regulatory requirements for each jurisdiction in which investors participate in sales and in which country the fundraising company is registered. ICOs are a cheaper and better choice than other financing options for large industrial commodity projects.

Types of Tokens and Coins

Cryptocurrency valuation comes from coin success inaccording to the characteristics of money. On the other hand, crypto token ratings depend on a different set of factors, such as protocol adoption and reliability. Crypto-product is a general term used to describe a traded or interchangeable asset that can represent a product, utility or contract in the real or virtual world in a blockchain network through exclusive tokens.

Utility Tokens

These are tokens that offer access to the product.or a firm’s service within their platform or ecosystem. Token holders can use their tokens to make purchases of services. This means that the token has a certain utility and receives its value from it. Utility tokens are (mostly) exempted from federal laws governing securities, provided that the tokens are properly structured.

Security Tokens

These tokens represent shares of the business andget their value from traded assets. The potential of the Security token is significant, especially if the company creates its own self-sufficient ecosystem in which transactions are facilitated using tokens. Security token is intended for investment, therefore, it attracts federal rules and regulations on securities.

Examples of Tokens Secured by Goods

Tokens can be used asvirtual currencies that have the same characteristics as any product (for example, gold) that can be traded for profit. Cryptocurrencies provided by the product include tokens associated with gold, silver and oil - each product has its advantages and disadvantages.

The stablecoins supported by the product are one of the most exciting events in the world of cryptography. Commodities, such as gold or diamonds, give tokens stability and value.

Other examples

  • Bananas - Two Russian entrepreneurs and a Thai agronomist go to a banana plantation in Laos ... the real story is for Bananacoin, a cryptocurrency supported by bananas.
  • Cannabium - This token is supported by liquid cannabis extracts (only from legal sources).
  • Powerledger - cryptocurrency supported by renewablethe energy of the sun. As solar energy technology is spreading and becoming more profitable, crypto assets can be used to service remote locations for access to electricity.
  • "El petro»- oil cryptocurrency is unique and interesting. The Venezuelan economy is plummeting. In an effort to continue to export oil reserves in the country, even though local currencies are suffering from inflation (and, perhaps, bypassing international sanctions and rules), the government began to issue cryptocurrencies based on its oil reserves.

So ... Should the goods be tokenized?

The answer to this question really depends onmotivation tasks. Tokenization of goods can be useful for trade in raw materials, bringing liquidity, fractionation to improve the status of ownership, mitigating fraud and destroying contractors.

Before blockchain appears in the world asoptions, the product market is generally good. When it comes to the general population, there is no huge demand for own goods, such as grain, wheat and energy, as an investment. Precious metals such as gold, silver, nickel, yes. But is tokenization better than the actual possession of metal bars? The cost of ownership of these precious metals is not high enough to warrant fractionation.

Blockchain can help standardize pricesgoods in the markets. This may be useful for a business dealing in goods, but bad for commodity traders. Blockchain will also help resolve issues related to product tracking. Could this lead to lower operating costs? Most likely.

It is important to note that in THEORY, blockchain maysolve all these problems. The path to mass adoption of blockchain technology is still long. Products should be tokenized, or at least you should try to do this, as experimenting with blockchain and products will provide an excellent source of data and knowledge that can be applied to other industries and / or markets.

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