“We’re witnessing the creative destruction of financial services, rearranging itself around the consumer.” -Arvind Sankaran

Code is consuming everything in our lives. First, code ate information, today code is eating finance. As a result, we will inevitably undergo a period of disintermediation in the coming years. Creative destruction will lead to an era of trustless finance where all actors compete on equal footing. In this coming era, all securities will be tokenized and some will be hybridized with utility features.

Initial Coin Offering (ICO) Mania

Much like an Initial Public Offering (IPO), an Initial Crowd Offering (ICO) is a fundraising tool used by many start ups. This method is preferred because it enables projects to circumvent regulations. For instance, the Securities Act of 1933 requires you to register with the SEC and to verify each investor’s qualification as an accredited investor. With an ICO, start-ups can issue tokens in return for money without any regulatory oversight. However, since the inception of ICOs the regulatory gaps are slowly being filled with legislation.

This method of fundraising became very popular during the 2017 mania. Liquidity could be rapidly achieved once a token was distributed. This enabled investors to secure quick gains before the team produced a working product. On the other hand, this also created an opportunity for malicious actors to dupe countless retail investors. The lack of working platforms, scams, and declining liquidity helped propel the space into a prolonged bear market.

The bear market permitted the reconciliation of malinvestments plaguing the industry. Consequently, well-intentioned teams were able to deliver working platforms and services. Upon establishing a community and a customer base, projects began adding utility features to their respective tokens. For example, Celsius requires all new users to have at least 1 CEL token before using the platforms lending services. More utility features have been added since then, driving up the demand for the token. In effect, platforms like Celsius have given life to the token economy.

Utility Features Will Drive Demand

Platforms genuinely interested in returning gains to investors will come up with innovative use cases for their respective tokens. This will generate a micro monetary system within the platform. Just as one requires USD to engage in business and commerce in the U.S, one may be required to buy a token before using a platform. Initially, most platforms are likely to remain crypto-agnostic in order to establish a robust customer base. However, to incentivize acquisition and use of their tokens, platforms will devise creative utility features.In the context of utility here are a few features that come to mind:

In theory, the utility will create a demand resulting in upward price pressure on the token. The price of the token should go up in tandem with the growth of the platform. Market forces and sentiment will prohibit a linear rise, but the general trend should be positive as the platform acquires a greater market share.

Tokenomic Standardization

Tokenomics is poised to dramatically change the investment landscape. Investors are accustomed to analyzing conventional metrics such as:

Payout Ratios

Company Earnings

Debt Ratios

Credit Ratings

Dividend Strength

The new securitized utility token will add another dimension to the investment review process. Here are a few metrics analyst may use in the future:

The added complexity will be cumbersome at first, but overtime investors will collectively determine which tokenomic models work and which are destined to fail. As a result, future models will achieve some level of standardization.

Tokenization is Underway

One of the first hybrid tokens has already been issued. YouNow has issued native tokens called “Props”. Owners of the tokens are not only entitled to equity but also receive added benefits for using the token on the streaming platform.

Moreover, users are able to gain tokens by engaging with the platform. Using utility tokens to entice participation enables platforms to reward early users and accelerate adoption.

Cognitive Elite: Preparing for the Future

This shift is part of a broader movement to liberalize finance. As we progress towards an era of increasing financial inclusion, people will gain access to investment privileges once only available to the financial elites. Giving individuals equal economic opportunity will initiate a redistribution process. During this phase money will flow to the cognitive elite. The world will belong to smart and savvy individuals who are able to embrace change. The world is not static. To thrive and join the ranks of the cognitive elite you must begin investing in your knowledge today.

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