The tokenization of everything

When BlackRock’s Larry Fink says that “every asset” can be tokenized, we naturally think about stocks, bonds, and commodities — things that trade on exchanges.

But there are many more assets than that in the world — things found only on a company’s balance sheet or P&L statement, for example, like accounts receivable. Or rights encoded in legal contracts, like lease agreements.

These are incredibly valuable, of course, but the only way for an investor to get exposure is by buying a big messy bundle of them (sometimes known as a “stock”).

That might not be the only way to do it. The authors of a research paper believe that these atomic-level assets could be traded, too — as tokens on a blockchain.

The researchers propose “a more granular approach” to tokenization, in which crypto tokens represent “a specific, independently measurable component of an asset” — a portion of a mine's output, say, or a square meter of a company's rights to use some government land.

The authors call these “Element Tokens,” and say they would be “designed to be fully collateralized by the underlying asset components.”

To help us imagine these components, they describe a diversified mining company that issues an E_Au token redeemable for a share of its output of gold (“E” being element and Au being the chemical symbol of gold) and an E_Cu token redeemable for a share of its output of copper.

(I’m not sure why the E is always italicized, but it does make the whole thing seem reassuringly scientific to me.)

It’s easy to see why this would be useful: Investors pay more for discrete risks than they do for a bundle of them (some of which they won’t want). Our mining company could therefore lower its cost of capital by selling E_Au tokens to investors only interested in gold and E_Cu tokens to investors only interested in copper.

But that’s not all!

The company might also issue a “land right” token — E_land — representing a claim on the company’s mines (or a single mine, even), and a “license right” token — E_permit — representing a claim on the company’s permission to dig giant holes in the ground.

If so, the prices of all these tokens would reveal what the market thinks each component of a project or company is worth. In turn, these market signals would allow an economy’s resources to be allocated far more efficiently. 

A Hayekian dream, if there ever was one.

To keep the Element Tokens efficiently priced, the authors also propose an “Everything Token.” In the above example, W_mine would re-bundle the gold, copper, land, and permit tokens into something like an ETF, creating a claim on the economics of the entire mine or project.

And because they’re on blockchains, investors could mint an Everything Token by depositing the correct ratio of Element Tokens into a smart contract — or burn an Everything Token to receive the underlying bundle of Element Tokens.

This would get complicated, of course.

“It is worth noting that the complexity of managing multiple tokens might be a barrier for some investors,” the authors concede.

But they expect the crypto industry would develop the platforms, protocols, and wallets needed to make sense of it all: “The trend in decentralized finance is towards composability and user-friendly aggregation, suggesting that such tools would emerge as the market matures.”

Fortunately, such a tool is emerging. It’s called Blockworks Intel.

This morning, Blockworks announced a new “market intelligence app,” which offers research, financials, screening, filings, and news for every relevant asset currently traded on blockchains.

As of right now, the screener page suggests there are 48,262 tokenized assets relevant to the world.

But the app has been built with something much larger in mind: the “tens of millions of assets” Blockworks believes will be moving onchain and the AI agents that will be analyzing them.

If tokenization makes investing so granular that investors have millions of assets to choose from, it won’t make economic sense for human analysts to study them one by one. The assets will need to be simple, machine-readable claims with rights enforced by smart contract, so that AI agents can evaluate and invest in them programmatically — perhaps with data provided by Blockworks.

If so, it really would revolutionize investing.

— Byron Gilliam

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