Capital markets News

WEF panel: tokenization is to venture capital, what eBay was to ecommerce

world economic forum wef jeremy allaire circle

Today at the World Economic Forum (WEF), its Head of Blockchain & DLT, Sheila Warren chaired a panel exploring blockchain tokenization. Jeremy Allaire, the CEO of Circle, gave a metaphor for tokenization as enabling the long tail of capital.

He pointed to the early days of the internet, where nobody imagined there would be an industry in creating cat videos. Without mentioning Etsy or eBay, he pointed to the trust mechanisms that were created to allow us to buy goods with confidence, sometimes hand-made, from complete strangers.

“Risk and reputation systems and efficient logistics and discovery platforms that made it possible for a very, very, very long tail of product creators to reach consumers,” said Allaire.

Likewise, he believes that particularly for entrepreneurs, in future access to capital will be far broader than is currently available from venture capitalists.

Much like eBay addressed the issue of confidence in remote sellers, Allaire envisages the world resolving the current trust issues that have resulted in cryptocurrency scams.

Neha Narula, Director of the Digital Currency Initiative at the MIT Media Lab, addressed this trust challenge.

“We want to have consumer protection. We want to have market integrity. People who are issuing assets should disclose information about what exactly those assets represent. And we want to make sure that those assets are really tied to their representation in the real world,” said Narula.

This raises the tricky issue of how to regulate these assets across multiple jurisdictions.

Tokenizing a wide variety of assets was discussed, from property to owning a fraction of a piece of art by Andy Warhol. The two that attracted the most discussion were enabling a farmer in rural India to raise finance by selling his future crop yields, and a sports star selling the rights to his future income.

The latter is controversial as Brooklyn Nets point guard Dinwiddie has announced plans to tokenize his contract with the Nets. A member of the audience voiced the potential moral hazard of encouraging the athlete to put in little effort if he already has the money in hand. He stated this is an economic problem, not a technical one.

While the speakers acknowledged the hazard, MIT’s Narula pointed out that currently, there isn’t the infrastructure to experiment. While she expects some projects to fail dramatically, there is the potential to expose an opportunity that is currently missing.

Narula outlined tokenization as being a form of digital transformation. “Once you do this, it becomes much cheaper, much quicker, much faster to actually break down a Warhol into a million different tokens, for example,” she said.

Image Copyright: WEF