Imagined with AI
In this blog, I will try to cover aspects of token arrangements models, which will drive the way forward in developing business models around tokenisation. There are broadly two types of tokenisation. Intrinsic tokenisation which enable business for the organisation. Another is extrinsic tokenisation, this enables interoperability of on chain Or Offchain tokens to interact with external APIs or oracles to drive business operation.
Key definition and Summary
1.Definition of Tokenization: Tokenization is the process of creating a digital representation of traditional assets on a programmable platform, allowing issuance, recording, and transfer of assets using applications on this infrastructure. Source:BISIH
2. Digital Tokens: Digital tokens are digital database entries that store information and functionality. They can represent financial or real assets, serving as a medium of exchange and value on digital platforms.
3. Programmable Platforms: Programmable platforms, such as Distributed Ledger Technology (DLT), enable participants to develop and execute applications that update a shared ledger, facilitating the trading and settlement of assets like money.
4. Token Arrangements: Token arrangements refer to the infrastructure supporting the use of digital tokens in financial transactions, potentially incorporating multiple programmable platforms and enabling complex financial functions, unlike traditional separate ledgers for money. Token arrangements support multi-asset, multi-function, and multi-party transactions, allowing for innovative applications that bundle financial services, automate processes, and integrate pre- and post-trade services on a single platform.
Token arrangements are structured to manage digital assets, transactions, and interactions across blockchain ecosystems in various ways. Each type of arrangement is designed to address specific needs within multi-asset, multi-party, or multi-platform contexts. Here’s a breakdown of the primary types of token arrangements:
1. Multi-Asset Token Arrangements
Multi-asset token arrangements allow multiple types of assets to be represented, managed, and exchanged on a single blockchain platform. These assets can be both tangible (such as real estate or commodities) and intangible (such as intellectual property or digital files). This arrangement provides flexibility in managing diverse assets under one system, enhancing liquidity and interoperability.
Hypothetical Use Case:In the IBM-Maersk TradeLens example, various shipping documents—like bills of lading, invoices, and customs forms—are tokenized and managed in a unified system.
Benefits: Reduces complexity in managing different asset types, streamlines compliance, and allows stakeholders to access all relevant information in one place.
2. Multi-Party Token Arrangements
Multi-party token arrangements facilitate collaboration among multiple stakeholders or organizations. These arrangements are commonly used in joint ventures, partnerships, or consortiums where each party needs controlled access to shared resources, data, or revenue streams. Tokens in a multi-party arrangement can represent revenue shares, voting rights, or ownership stakes, allowing transparent and rule-based interactions.
Hypothetical Use Case: In the Walmart-Flipkart IJV, tokens could represent revenue shares and inventory, tracking revenue distributions and operational costs among Walmart, Flipkart, and their external vendors.
Benefits: Improves transparency, ensures fair distribution of resources and profits, and fosters trust among parties by creating an immutable record of contributions and entitlements.
3. Multi-Platform Token Arrangements
Multi-platform token arrangements enable interoperability between different blockchain networks or systems, often integrating blockchain with legacy systems. This arrangement allows data, assets, or processes to be transferred across platforms seamlessly, enhancing collaboration and extending blockchain’s utility beyond a single system.
Hypothetical Use Case: In Bharti-AXA General Insurance, policy and claims tokens can interact with various systems, such as underwriting, claims processing, and customer service platforms, ensuring that customer data and claims histories are accessible across platforms.
Benefits: Facilitates interoperability, reduces data silos, and allows businesses to maintain a single source of truth across platforms, improving operational efficiency and data accuracy.
4. Hybrid Token Arrangements
A hybrid token arrangement combines elements from multi-asset, multi-party, and multi-platform types, providing flexibility to manage complex, collaborative ecosystems. This type of arrangement is typically customized to fit unique business needs and often includes mechanisms for role-based access, data privacy, and compliance.
Use Case: An example might be a supply chain system that manages different assets (products, invoices, and shipments) across various parties (manufacturers, suppliers, retailers) and platforms (ERP systems, customs platforms, etc.).
Benefits: Offers flexibility, maximizes interoperability, and allows highly customizable access and data-sharing arrangements for complex business networks.
5. Federated Token Arrangements:
Federated token arrangements are decentralized but governed by a coalition or consortium, where authority is shared among trusted participants. This type of arrangement is typically used in industries with stringent regulations, where certain members (like regulators or auditors) need oversight or veto powers over certain processes.
Use Case: In banking, federated token arrangements can allow various financial institutions to transact on a shared ledger with oversight by central regulatory bodies.
Benefits: Balances decentralization with accountability, enables regulated transparency, and allows participants to retain some control over shared assets.
These types of token arrangements offer different levels of flexibility, security, and collaboration for businesses in multi-dimensional digital ecosystems. The specific choice of arrangement depends on the unique requirements of each business, including the type of assets, number of parties, and need for cross-platform functionality.
What’s in for ecosystem
The future of token arrangements in the context of decentralized finance (DeFi) is poised for significant transformation, driven by technological advancements, evolving regulatory landscapes, and increasing adoption of blockchain technology. Here are several key trends and potential developments that can shape the future of token arrangements within DeFi:
1. Increased Interoperability:
As DeFi platforms continue to proliferate, the need for interoperability among different blockchain networks will become critical. Future token arrangements are likely to facilitate seamless communication and transactions across multiple blockchains, allowing assets and tokens to move freely between platforms. This could lead to the development of cross-chain protocols and bridges that enable users to leverage the strengths of different ecosystems without facing compatibility issues.
2.Enhanced Regulatory Compliance:
As governments and regulatory bodies begin to establish frameworks for DeFi, token arrangements will likely evolve to integrate compliance mechanisms directly into their structures. Future platforms may feature built-in KYC (Know Your Customer), AML (Anti-Money Laundering), and tax compliance functionalities, ensuring that transactions adhere to local regulations while maintaining user privacy and decentralization principles.
3. Advanced Financial Products and Services:
Token arrangements in DeFi will likely enable the creation of increasingly sophisticated financial products. This could include tokenized derivatives, insurance products, and decentralized credit markets that leverage smart contracts to automate and secure transactions. The ability to bundle various financial services—such as lending, trading, and insurance—into a single token arrangement could create more comprehensive financial solutions.
4. Greater Adoption of Decentralized Autonomous Organizations (DAOs):
Token arrangements will play a pivotal role in the governance of Decentralized Autonomous Organizations (DAOs), which are increasingly used in DeFi. These organizations will utilize token-based voting systems to enable community-driven decision-making, allowing users to participate in the governance of projects and platforms. This shift towards decentralized governance structures will enhance community engagement and ownership.
5. Evolution of Token Standards:
As the DeFi space matures, we may see the emergence of new token standards that enhance functionality and interoperability. For instance, token standards could include additional features such as programmability, composability, and enhanced metadata capabilities, allowing developers to build more complex applications that cater to diverse financial needs. This evolution could streamline the integration of various asset types on single platforms.
6. Increased Security Measures:
With the rise of DeFi, security concerns remain a top priority. Future token arrangements will likely incorporate advanced security protocols and insurance mechanisms to protect users from hacks and vulnerabilities. This might include insurance pools that safeguard user funds and enhanced auditing processes to ensure the reliability of smart contracts.
7.Sustainability and Eco-Friendly Solutions:
As environmental concerns surrounding blockchain technology gain traction, the future of token arrangements may prioritize sustainability. DeFi projects could explore eco-friendly consensus mechanisms, carbon-neutral tokens, or integration with green assets to align with global sustainability goals. This shift could help attract socially conscious investors and users.
8. Mainstream Adoption and User Education:
The growth of DeFi will hinge on mainstream adoption, which will require significant user education and simplified user experiences. Token arrangements will need to provide intuitive interfaces and educational resources to help users navigate complex financial products. Partnerships with traditional financial institutions may also facilitate a smoother transition for users unfamiliar with decentralized systems.
The future of token arrangements within decentralized finance holds immense potential for innovation, inclusivity, and efficiency. By embracing interoperability, compliance, and user-centric design, token arrangements can contribute to a more robust DeFi ecosystem that empowers users and democratizes access to financial services. As the landscape evolves, collaboration between developers, regulators, and users will be essential to realize the full potential of token arrangements in DeFi.
Asset Tokenisation-The way forward was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.