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25 July 2023


Cemil Şinasi Türün

I would like to tell you about asset-backed tokens coming into prominence in 2023. Backed-asset tokens are not much of an issue in the present, we always talk about Bitcoin and Altcoin, but the market of the tokens I explain below will grow at a dazzling speed and reach a volume of trillion US$ in two or three years.

The idea of tokenizing assets could become quite popular, as tokenization offers many more benefits to asset owners. Owners can keep some or all of those tokens in their blockchain wallets, sell them or trade them for another asset or token whenever they want, and perform all these transactions outside banks and conventional centralized exchanges.

According to an article I read, these tokens are expected to rise to a volume of € 916 billion just in Europe (Source 1). Furthermore, Blockchain Council’s website informs that this category was US$ 2.3 billion in 2021 and is expected to rise to US$ 5.6 billion in 2026 (Source 2). The difference between these two estimations is huge, and the former is closer to my projections, because it covers the stablecoins including Tether. If I am right about the developments I think will happen, this category’s value will skyrocket and reach multiple trillions of US$. Before explaining the reason of such increase, let me explain what is an asset-backed token and what categories are they available in.

In general, digital assets are divided into three categories: crypto currencies reaching a total volume of US$ 1.2 trillion as of July 2023 according to the Coinmarketcap website; and asset-backed tokens in a different category.

Please view the graphic given below:

All boxes tinted light blue or dark blue above are asset-based tokens.

Financial asset-backed tokens:
Financial asset-backed tokens do not include the coins and tokens like Bitcoin and Ether we trade in the crypto currency markets in the present, as shown in green above, they are a category by themselves. Utility tokens and payment tokens shown in green above are not banned by the SEC in the U.S. or the SPK in Turkey. Payment tokens are a narrow category by themselves and do not include the stablecoins like Tether (USDT) indexed to the US$. European Union governs payment tokens under the electronic currency laws.

In terms of value, most of the financial asset-backed tokens are indexed to fiat moneys. They include USDT and USDC, called stablecoin but being tokens for all intentions, indexed to the US$, and TRYC indexed to TL. It is probably wrong to call them asset-backed, because they are backed by nothing, FED and other central banks of large countries mint them unbacked!

Furthermore, I include the CDBCs which central banks plan to issue in this category, but please be warned that if central banks issue digital currencies in not the blockchain space but the Distributed Ledger Tech (DLT) i.e. in a private network instead of a public network, I will cancel this box.

In addition to them, there are financial tokens indexed to such debt instruments as bonds. debentures and sukuk. We will see in the near future that such conventional debt instruments as bonds, debentures and sukuk traded within the BIST in Turkey will be traded as financial tokens in the cryptocurrency markets like DeFi and CeFi). I show them in blue above.

As to the second dark blue box, I tinted tokens indexed to share certificates in blue and put them under the asset-backed financial tokens. However, we should be aware that most of the thousands of altcoins listed in the Coinmarketcap consist of tokens similar to share certificates. For example, tokens of the decentralized exchange UniSwap (UNI) are substitute to its share certificates, backed up by assets, minted against shareholding, and include all rights and responsibilities. Why did not I inserted this box under the green box captioned Cryptocurrencies? Because by definition  Bitcoin and Ether are not based on any asset, they are considered based on algorithms i.e. software. Those in share certificate format, including the tokens of UniSwap, are programmed at ERC-20 software class and correspond to business hare certificates held and invested in by investors.

Commodity-backed tokens

What I would like to emphasize most is this category. We will witness prices of commodity-backed tokens to increase in the new world order that financial sanctions implied against Russia, especially the exclusion of Russian people and businesses from the SWIFT system, will cause. I emphasize the tokens based on tradable goods including wheat, barley, corn, millet, hazelnut, rice, petroleum, olive oil and all legumes. All of these products can be tokenized. Even all metals including silver, gold, palladium, boron, nickel and chrome can be and are tokenized. For instance Russia is a major exporter of palladium and the company dominating its market obtained a license from the Russian Central Bank last year to tokenize palladium.

This category contains the commodities listed above and I think now you can see trillion-level values will be reached if and when commodity-based tokens are traded in centralized and decentralized crypto currency markets.

Real estate tokens are a category based on immovable properties and backed in a physical way. Such real estates as field, land, house or building are tokenized. Technical and legal works for this purpose are in progress. They should be the subject of another article.

In fact, I should have included NFTs in the category of asset-backed tokens. The reason why NFTs form a category by themselves is that they cover physical, artistic and ethereal products. For example I can NFT a caricature, an artistic performance lasting one hour, a software course lasting one hour, and a farmhand’s daily work. Therefore I concluded that NFTs must have their own category and did not put them under the asset-backed tokens.

Cause and Effect:
I tried to explain that asset-backed tokens will rise in near future. Now focus on the reasons: The Bretton Woods agreement of 1944 replaced the gold standard for the fiat currencies with the U.S. dollar. To cut a long story short,  it is suffice to say that the Bretton Woods regime is destined to collapse as a result of the chain reaction started by Russia’s attack to Ukraine.  The new regime that will replace it will stop printing unbacked money and start a system based on asset-backed tokens. The boxes shown above will soon be a part of your life and cash not backed by assets will disappear in not too distant future.

Note: The first version of this article was published on 22 March 2022 in BTCHaber.com.

Cemil Şinasi Türün
Chairman of Advisory Board

1) https://thetokenizer.io/2021/06/01/tokenization-in-europe-current-state-and-future-outlook/
2) https://www.blockchain-council.org/blockchain/asset-tokenization/