Getting Physical with Blockchain
How do physical assets fit into blockchains? In this article, Wojciech Gryc explains how this can be done and provides a few examples.
Most of the excitement in crypto today focuses on digital assets: governance tokens, community memberships, NFTs, and more. There’s an incredible amount of innovation here… But how do we bring physical assets onto blockchains?1
Bringing assets onto crypto and fractionalizing them is still a new territory, both legally and from a logistics perspective. We’ll discuss how this is done, but let’s begin with a few examples of what this looks like:
FTX lets you buy tokenized stocks; crypto assets that are tied directly to individual stocks, as well as some of their underlying rights, like dividend distributions.
Klima DAO and Toucan enable you to buy and trade tons of CO2 that have been successfully removed from the environment.
You can buy 2000 lbs of tungsten on OpenSea.
ConstitutionDAO is looking to buy the only privately-owned copy of the US constitution and have members of its DAO fractionally own it.
Bacon Coin enables you to buy coins that are staked to mortgages and houses.
The examples above illustrate just how versatile coins representing real-world assets could be. Whether you’re trading carbon credits, art, or houses, you can do so in a fractionalized manner… This can create completely new asset classes and ways of bartering and exchanging value2.
How does this work?
Building a coin that tracks or is pegged to a specific real-world asset comes with challenges. In most cases, such an asset still needs a centralized authority or owner to monitor and track the underlying asset.
This can be done in two ways: (1) have the team managing the coin tie the asset to the coin itself, or (2) have an external party manage this staking and connection to the coin. For example, Bacon Coin directly manages the mortgage contracts and their tokenization to bHome. The same is true for the ~2000 lbs of tungsten you can buy. On the other hand, FTX and ConstitutionDAO both use (or plan to use, in the latter case) a third-party organization who manages the stocks and assets on behalf of coin holders.
This management of the asset begs the question: do we need an oracle-like entity to merge real-world assets into crypto space? In short: yes.
Key points include:
- The Klima case study
- A (real) world of opportunity for crypto
- Coins tied to specific cities
Read the full article, Putting Real-World Assets on Crypto, on 10MillionSteps.com.