• Shuonan Chen

Through Blockchain to Tokenization

What do the largest and most widely recognized companies in the world – from AT&T to GE, GM and Walmart – have in common? You might respond that deep path dependence holds them all into the tradition of their industry and business model, and you would be partially correct. However, you might be surprised to hear what else they have in common—they all have ongoing involvement in blockchain. In fact, if you look at the top Fortune 500 companies, you might be surprised at how few of them do not have any direct involvement in blockchain. Just looking at the top 15 Fortune 500 companies, only 2 of them do not have any public involvement in blockchain.

Let’s indulge in a thought experiment for a moment. On one side, imagine some of the most well-established companies in the world. On the other side, think of some of the most well-known blockchain startups. Think of the best startups within each sector, ranging from notary to copyright to anti-fraud. Then, mix and match between the two categories to see what types of creative partnerships you can imagine.

Now, with some research, you might be surprised to find how many of the partnerships you just imagined are true, whether it be in the form of investments, business deals or other types of partnerships. I won’t go into the details here, but I have explored them in depth through a seminar I’ve taught at UC Berkeley.

Case studies of this type are a really good place to start, as these relationships indicate where some of the top enterprise opportunities lie. These partnerships are being formed at unprecedented speeds, and they have not only been cross industry, but also cross geography.

A look into these partnerships will also reveal just how truly global blockchain initiatives have been. For instance, companies including Alibaba and PwC as well as Walmart and JD.com have partnered on new blockchain initiatives to improve food safety and traceability.

Many of the ongoing blockchain projects creating innovative uses of blockchain also lead to tokenization— specifically new opportunities of tokenization for established companies and startups alike.

An established company might think tokenization is less relevant for its business development. Looking at the same group of top 15 Fortune 500 companies, none currently has stated publicly any direct involvement in tokenization and only two companies have collaborated with startups that have tokenized. However, one of the most prominent trends for established companies is reverse ICOs, or the tokenization of established businesses. While this is, with few exceptions, mostly conceptual for US-based companies, it has already gained a lot of momentum in China, where prominent crypto funds have been working systematically on reverse ICOs for established companies.

For startups, the new opportunities that tokenization brings are more evident. First of all, tokenization enables an entirely new way of fundraising. The latest data shows that 210 ICOs raised a total of US$3.9bn in 2017, and 78 ICOs have already raised a total of US$2.9bn in 2018 just year to date. This has certain implications.

First, just as the companies using blockchain often have a truly global nature, so too has tokenization has enabled startups to be global from day one, for the first time in economic history. In fact, most startups offering token sales raise their funds from a global base of investors through an international road show.

Second, tokenization enables an entirely new business model that better aligns incentives for different stakeholders in the ecosystem. The adaptability of tokens’ content allows for flexibility in pricing that was not possible before. For instance, the SaaS (software as a service) business model allowed for companies to pay per seat, as opposed to just a lump sum in the perpetual license model. However, tokenization can enable companies to charge for precise usage in ways and circumstances previously impossible.

Third, tokenization allows companies to significantly lower costs. For instance, it can enable distributed models that do away with the previously centralized cost of storage and computing. It can also enable smart contracts that automate transactions to lower operational costs.

Fourth, tokenization can improve business efficiency. For example, it can improve business efficiency given its data structures, as it allows for easier transfer and sharing of data, whether intra-company or inter-company. It can also enable encryption mechanisms that improve data security.

Lastly, tokenization enables the building of a community of stakeholders that can better attract talent. In fact, there are various projects that have proven the tokenized model can mobilize incentives that bring talented individuals to contribute.

Overall, expressed in the simplest terms possible, any successful company, whether established or startup, only need do three things: raise money, make money and hire people to make money. Tokenization allows businesses to do all three of these better—with better models of fundraising, better aligned business models and better incentives for attracting talent.

Despite the obvious opportunities brought by tokenization, I do want to conclude with a note of caution. Better will always prevail, but subject to core principles, including supporting a fair, efficient and transparent market. Ultimately, it is important for each business, whether established or startup, to seriously and carefully consider both the opportunities and the risks that the new applications of blockchain and tokenization can bring.

Shuonan Chen

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