Tokenization is Here: Is Web3 Ready to Keep Up?
Web3 seems to have taken a back-seat to GenAI hype!
Tokenization is a hot topic, and it will undoubtedly start transforming all asset classes in the next five years. When that happens, McKinsey sees Web3 as the perfect place to use them.
McKinsey is only half right: Web3’s blockchain architecture is the perfect place for retail tokenized assets. Note that I said retail assets, not wholesale.
It’s not just McKinsey that thinks so. BlackRock, WisdomTree, and Franklin Templeton have all tokenized money market funds available for purchase on the blockchain.
Now, here’s what McKinsey gets wrong: Web3 development is slow, and GenAI has stolen its thunder.
While purchasing a security on the blockchain is undoubtedly a part of the Web3 experience, it isn’t a full-fledged Web3 experience. It is but one of many capabilities needed for a functioning Web3, and that is, sadly, still a long way off.
👉TAKEAWAYS
Potential Benefits of Tokenization
🔹 Faster transaction settlement, fueled by 24/7 availability. At present, most financial settlements occur two business days after the trade is executed
🔹 Operational cost savings, delivered by 24/7 data availability and asset programmability. This is particularly useful for asset classes where servicing or issuing tends to be highly manual and hence error-prone, such as corporate bonds.
🔹 Democratization of access. By streamlining operationally intensive manual processes, servicing smaller investors can become an economically attractive proposition for financial services providers.
🔹 Enhanced transparency powered by smart contracts. Smart contracts are sets of instructions coded into tokens issued on a blockchain that can self-execute under specific conditions.
🔹 Cheaper and more nimble infrastructure. Blockchains are open source, thus inherently cheaper and easier to iterate than traditional financial services infrastructure.
👊STRAIGHT TALK👊
Tokenization is real, and the ability to sell fractional ownership of assets on a blockchain is a future we should all look forward to.
The problem is that selling a tokenized asset on a blockchain is hardly Web3.
Web3’s goals are far bigger: “Web3 is said to offer the potential of a new, decentralized internet, controlled by participants via blockchains rather than a handful of corporations.”
This is a -big- goal, and unfortunately, I don’t see Web3 making the kind of progress that gives me faith that it will be built anytime soon.
That’s why I have a problem with this paper. Selling tokenized money market funds on a blockchain is great, but it isn’t Web3 yet.
Calling it Web3 is letting the marketing department get ahead of reality.
Where am I going wrong?
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