From cryptocurrencies to NFTs, blockchain technology has reshaped ideas of what an asset can be. In some cases, it is also transforming the ways in which investors can make money. Activities such as staking – where users receive payouts for delegating their assets to blockchain networks, so that they can run more smoothly – provide new forms of revenue unique to the digital age.
Some innovations, such as crypto-linked ETFs, are bridging the gap between crypto and traditional finance. But the evolution of crypto assets is taking two distinct paths, and such offerings only mark the beginning of how digital and traditional finance could intertwine, says Olivier Roussy Newton, Co-founder and CEO of DeFi Technologies, a company that provides regulated and secure access to decentralised finance.
“The largest trend and growth that we’re seeing [for crypto assets] is these real-world asset use cases, including the prospective digitisation of currencies like the US dollar or the euro on blockchain. That opens up a plethora of opportunities,” he says.
Creating liquidity in the digital world
Other shifts are taking trading into uncharted digital territory. There has been a rapid increase in what exactly can be traded via blockchain: while NFTs and digital artworks may have grabbed headlines, in some jurisdictions real estate can also be traded on chain. “Assets that are traditionally illiquid – art, music, real estate – are very hard to transact, or transacted only very rarely. But once they are tokenised, which means that you have a digital representation of these assets, they can be traded more easily,” says Agostino Capponi, a Professor of Industrial Engineering and Operations Research at Columbia University.
These transactions, however, won’t necessarily be digital replicas of similar offline purchases. After a real-world asset has been divided into tokens, those tokens can also be divided and fractionalised. Just as investors do not need to buy a whole bitcoin, there is also no need to buy a whole token, artwork or property. “You don’t have to trade the entire piece of art, but you can trade a part of it. You can trade perhaps the face or you can trade the hands and so on,” says Capponi. “That allows users to own a fraction of an asset and trade on different platforms more easily, therefore, developing a more liquid market.”
A promised power shift
Another of blockchain’s key promises is the decentralisation of power. Modern financial services are built on intermediaries tasked with the onerous job of handling information that is highly complex, fraught with privacy issues, or not released to the general public for strategic reasons, according to Tarik Roukny, Associate Professor of Finance at the Faculty of Economics and Business at KU Leuven. This puts large amounts of power into intermediaries’ hands, not only allowing them to extract fees, but also creating a highly concentrated market that limits competition.