Of the 2,000+ cryptoassets issued or mined, many, including those with lofty valuations, don t even have a functional product associated with them. Further, these are also not yet currencies as we discuss in the Crypto economics section.
So, is crypto a solution looking for a problem? No, there are real problems in the global financial services ecosystem that cryptoassets are looking to address. More participation from the broader financial services ecosystem, will help drive trust and scale for the tokenized economy and help the crypto market grow and mature.
The staying power of many cryptoassets will be defined by their ability to reduce friction and inefficiencies that currently exist within the global economy. Volatility is widely quoted as a significant limitation for the use of crypto for any use case. While volatility is certainly a problem, it is important to recognize that these assets are still fairly immature and will become less volatile as they mature. There are also significant efforts that are underway across the industry for the creation of what are called “stablecoins” to address the volatility problem.
Cryptoassets may change the financial services landscape significantly with the emergence of the tokenized economy. While it's still early stages and it's hard to predict how the next 10 years will play out, the tokenized economy will likely be one of the more impactful innovations enabled by crypto.
Alongside a wave of interest frominstitutions in popular cryptoassetssuch as Bitcoin, there has beenan increasing market focus ontokenization. Crypto products andservices are starting to pivot and theglobal financial services ecosystem isalso beginning to re-tool itself for the tokenized economy. See the Crypto Landscape and Token Economy.
Two types of products and services are emerging for this economy: the cryptoassets or tokens represented by the dotted lines flowing through the various layers in the illustration and the infrastructure that enables the issuance, facilitation (e.g., exchange and custody), and utility (e.g., store of value, ownership, and rights) of these tokens. Token generation is relatively easy, and more tokens will continue to proliferate within the ecosystem.
However, that does not mean that every token can be trusted to meet market needs. “Trustware” will be an especially important layer for this economy. Unlike traditional financial assets, trust will be driven not only by independent organizations like regulators and auditors, but also by technology through innovations such as consensus mechanisms.
Institutional participation is required to facilitate scale and increase trust for this emerging economy. A single institution may take on multiple roles, but there are certain information barriers that will need to be maintained. For instance, a token issuer cannot also play the role of the only trust agent for that issuance. While the industry is building infrastructure in anticipation of widespread use of tokens, a greater demand for these tokens must be developed. This will happen only if products meet market needs.
Achieving product-market fit is a journey, and cryptoassets are in promising but mostly early stages of this journey. It is important for token issuers and generators to ask some key questions about product-market fit:
As tokens evolve and their respective use cases achieve adoption, the associated infrastructure will also improve to enable greater institutionalization.
Today’s internet leaders look different than they did in the late 1990s or did not even exist when the dot-com era began. We recognize and expect a lot of pivots, mergers, acquisitions, and failures that will redefine the crypto landscape in a few years. Just as internet protocols like TCP/ IP and HTTP enabled the sharing of information in an open way, the blockchain-based tokenized economy will enable the digitization, storage, and trusted exchange of value.