Tokens: No Longer a Dirty Word as the Third Wave of Tokenization Hits

Tokens: The new token layer has the potential to be as transformative as HTML, says Weiwu Zhang, the Founder of Smart Token Labs.

Tokenization has been maligned and misunderstood due to an obsessive focus on speculative trading in currencies (fungible tokens) and collectibles (non-fungible tokens) over the past few years.

Now we are entering a new market phase and the hype around altcoins and NFTs is dying down. So, we may see projects double down on infrastructure and building that could unlock the true potential of Web3. That potential includes a more integrated web with a vastly improved user experience. And, the creation of entirely new and open markets (much like we saw with the advent of the mobile internet).

It’s in this context where we will see the true potential of tokenization (and tokens) start to become fully understood. This includes a recognition that tokens are far more than ownership rights to enable new forms of trading and speculation.

Tokens are, in fact, an entirely new digital primitive. They’re a new type of building block and connective layer between blockchain, smart contracts, user agents and services. This is a connective layer that can onboard mainstream use cases. It creates a central bridge between Web2 and Web3.

This new token layer, which is enabled via TokenScript, has the potential to be as transformative as HTML and will come to define the third wave of tokenization.

The Third Wave of Tokenization

In the context of tokenization, we have seen two distinct waves over the past few years.

Wave one was fungible tokens as currencies for speculation and trading. The evolution we’ve witnessed is that early users started out by using cryptocurrency, then after a few rounds of up and down, its value became recognized. Essentially, you can trade and speculate. Of course, there is more to it than that – but in the main, this is how everybody valued altcoins.

Wave two followed with non-fungible tokens as collectibles for speculation, with some bespoke utility. At first the value of ERC 721 tokens was viewed suspiciously. But over a few years it became more understood and the whole wave of NFTs based on generative art and profile pictures (PFPs) came to the fore. Again, there is much more to NFTs in terms of utility and use cases. But trading and speculation dominated the narrative and monopolized the focus of users and builders.

Tokens: Third Wave

The third wave is upon us, and we see it being defined by smart tokens with a programmable interface for connectable, composable and actionable rights.

Smart tokens will act as a bridge and a connective layer between user rights and permissions through the Web3 stack of blockchain, smart contract, user agents and services. And across and between Web2 and Web3, the role of smart tokens will be redefined and transformed. They will ultimately bring us much closer to the full promise of frictionless markets and an integrated web.

Smart Tokens Deliver The Web3 Promise

To illustrate how tokenization can uniquely deliver on the promise of frictionless new markets and an integrated web – let’s take a look at car ownership.

At its core, the concept of tokenizing car ownership is about tokenizing car ownership rights. Who has the right to control the car? The right to drive it, register it, or insure it? The right to loan it or rent it or otherwise grant access to it?

All of these rights like ownership and insurance exist today but involve interactions between the car owner and service providers that are far from seamless. Rights related to secondary markets for rental are possible, but it’s not frictionless.

With tokenization, we create a blockchain token that functions as an anchor of trust. As a programmable smart token, any and all rights can be bound to the token. And a programmable interface means the token can interact with any Web2 or Web3 site or service. It can enable the things described above in a way that’s both trustless and permissionless.

Tokens: Use Cases

At Smart Token Labs, we’ve been working on these very use cases for the past four years. This is while building out TokenScript as the framework for smart tokens. We built car ownership tokens for Karma Automotive. They represent rights for registration, insurance and rental services, with the ability to express these rights and permissions directly to Web2 sites and services.

In this next wave of tokenization, the future web will emerge as a fusion of Web2 and Web3. Smart tokens and cryptographic technologies are being used to create a level of integration that hasn’t been seen before.

We will also see the next generation of disruptive businesses emerge at the intersection of Web2 and Web3. The next Uber, Airbnb and YouTube will be built on the foundation of programmable smart tokens.

What About dApps?

It has been obvious for some time that dApps cannot deliver the user experience necessary to onboard mainstream users to Web3. Despite good intentions, we’ve gone down a path of replicating the closed build model of Web2. This is instead of delivering the open promise of Web3.

Composable, portable and interoperable smart tokens, with limitless logic and function, are the key to delivering new open markets and a more integrated web. We believe the third wave of tokenization will finally deliver on this.

And that tokenization will no longer be a dirty word.

About The Author

Weiwu Zhang is the Founder and CTO of Smart Token Labs, which is creating a new standard for a tokenized future through composable smart token bridges. Weiwu has more than 9 years of blockchain experience, from alt currency design to trading algorithms. Previously, Weiwu served as a blockchain architect for the Commonwealth Bank of Australia – the largest financial institution in Australia.