Hopefully you have read Musing on Tokenization Pt. 1, where we discussed crowdsales of digital assets, and a bit about how the landscape is emerging. But if not, that’s okay too.
So now we know that we are able to use these emerging platforms like Ethereum and OpenLedger to create digital assets that represent whatever we desire. We also know that there is emerging phenomenon of ICOs (Initial Crowdsale Opportunities) or token launches where you can sell your tokens to investors and users of the application to raise funds. Now we have to explore how we will create a digital token that powers an idea or application, ensuring that it is desirable to all parties who may be involved in the application.
There are a few different trends that seem to be emerging regarding structuring one of these tokens. The essential categories are shaping up to be something like this:
- Financial Instruments
- Application Credits
- Revenue Distribution
There are definitely some which don’t fit into any of the categories, but I find that tends to happen when you try to categorize new things. Anyways, let’s go through these one at a time. Our main goal will be to show how comprehensive solutions are created and what a “complete lifecycle” of the token should look like.
This is a big one. The banks have just started to figure out how digital assets can help them. When I say financial instruments, these digital tokens can take on anything from a simple P2P loan, to the most complex quadruple leveraged, double-swapped, reverse flipped transaction you can think of. Complex systems like this used to be exclusive to large corporations and banks, but digital asset protocols provide the freedom to people to get involved in any sort of transaction at a small dollar amount, with less nonsense attached.
Let’s do an example. We are going to do a token launch to raise the down-payment on a single-family home purchase. This will be essentially acquiring a piece of crowdfunded debt through a digital token.
The house is smack-dab in the middle of San Francisco. It’s a monster mansion and is going for $100K. Now, as some of you may know, HUD has a great program for residential home buyers where you only need 3.5% for a downpayment. So that’s like $3.5K (if I carried the 9 properly).
We go on to an application that can create digital assets. Let’s use BitShares in this example. We need $3.5K for the downpayment and probably some closing costs- so say $5K total. Now in return for the $5K we are going to provide digital tokens to backers. The cumulative value of the tokens will be representative of 10% of the homes value! This provides future returns to investors of about double, not taking into consideration possible appreciation on the house. Upon sale, distributions are made to the backers.
#apptoken #tokenization #ico #crowdsale #appcoin — You’ll be seeing a lot of this in the near future (and the now). Apptokens are like fuel for an application. They are tokens that make stuff happen. We are just now seeing some of the possibilities for apptokens. A majority are being built on the Ethereum platform, but there are also some on WAVES too.
Let’s do an example. We are expert woodchoppers. Our craftsmanship is so spectacular that people are just lining up to learn how to chop wood from us. We can’t even handle the demand, so naturally we create a VR application that simulates the woodchopping process. A team member in holographic form appears to help the aspring lumberjack to hone their skills.
“Alright, so where’s the token? This isn’t special. Everyone is building stuff like this these days”, you might be thinking. Well, instead of charging USD to power this application, we charge 10 apptokens (which we call WUD). The tokens power the application, like an arcade game. Now eventually we partner with chainsaw stores, national forests, American Eagle (for the lumberjack shirts), and get them all to also accept our apptoken. Now we have a tokenized ecosystem.
Eventually we get to a point where we never need to return to the US dollar, and create a complete ecosystem. This is where things start to get into the Denationalization of Money talk. FA Hayek, Hakim Bey, Robert Swann, etc but that is beyond the scope of this article.
So, this model is great. It’s like dividends but better. Unfortunately in the states, people are like “Is this okay? Is it not okay? Is it too much like securities?”
Well in the end, these types of things will be happening quite often. Ancient US securities laws will need to be updated. If not, people will just do all of it dark and it will actually be the government losing out because people won’t be able to claim income. So they should really change/update the laws and provide clarity. Whether they should be entitled to a cut of earnings is beyond the scope of this article.
Wait so what is it? Oh, right.. Well a revenue distribution token is exactly what it sounds like! You get a certain amount of money up front, and in return you pay your backers a share of the revenue. So hopefully you make enough revenue with your killer concept to make your backers happy.
Maybe I want to sell ice cream. It will cost me $500 to get started. I need a freezer on wheels, cups, spoons, materials to make ice cream, and a boombox.
So I create a token that will be $1 each. the 500 tokens represent 10% of all future revenue. Payouts happen monthly.
A few months later, I am absolutely killing it in the ice cream game. Something about my “Mint Chip Swirl Bonanza” has really gained traction and is flying off the shelves. I net $10K. Now my holders get paid out $1k and will continue to get paid for the life of the asset. The asset is always liquid too, which is another added benefit.
We are just now beginning to understand how versatile digital assets can be. Soon they will be popping up everywhere. In the next part of this series we will be discussing regulations and scams. So be on the lookout!
Thanks for reading. If you want to create your own digital asset/tokenized ecosystem for anything you can think of, at Cryptodex, we can help. Reach out for assistance in creating, marketing, and expanding your digital asset ecosystem today.
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- Bancor: The Fluidity Protocol - June 12, 2017
- Jake Vartanian – The Significance of EthEnt for Ethereum - March 11, 2017
- Jake Vartanian – How Blockchains and Digital Assets Make Investments Liquid - February 15, 2017
- Jake Vartanian – Musing on Tokenization Part II - January 24, 2017
- Jake Vartanian – Musings on Tokenization - December 3, 2016