I was reading about Tokenization and it seems multiple major banks are planning to issue their tokenized assets. We already know Robinhood is trying to tokenize even the stocks. And of course tokenized fiat currency via Public or private sector is going to be the future (US stablecoins, EU Digital Euro etc)
Based on what I understand, players who want to issue tokens have two options
build their tokens using existing blockchain
Build their own blockchain
I was thinking that tokenization (if it flies) puts Ethereum or future such chains (if disrupted) in a good position to be the backbone of this industry. I think there are more such chains already. It seems Ethereum blockchain is well placed for this because it has highest market share for stablecoins already.
But I am not able to understand how to value these blockchains. Is it going to be like a commodity (like internet) and main value would be created by companies issuing tokenized applications OR it’s going to be like social media/app store where platform collects rent from all its vendors and customers ?
Does anyone have any resources which explains how the tokenization actually work and who does what. Let’s say JPM wants to issue bonds as tokens. What value does ETHEREUM network provide in this business model?
To be honest - at least this use case kind of make some sense to me. I still need to learn why selling financial products via tokenization is better than current way. Maybe it might need less intermediaries. I think its evolution of tech stack used in financial markets (paper shares, mutual funds, ETF, fractional shares, Tokens). I am mainly talking about the Ethereum blockchain value and not necessarily the currency ETH.
I see ETH more like a way to own shares of Ethereum network. So if the value of Ethereum network is X , number of ETH in circulation is Y, then price of ETH is X/Y.
Cheap establishment of trust between parties. That can be used for quick settlements and more pools of liquidity. Also enables all kinds of constructs to be built from it (e.g. options, gambling, indexes, etc.) with lower cost.
The network effect favors ETH, but there is still a market. Since the idea of ETH was not to trap business and extract value, it is pretty open (contrast with e.g. Apple). Costs can be avoided with L2 and cross-chain technologies. Or by not using such blockchains at all.
Since ETH is proof-of-stake the owners will want a certain return for allocating their assets. The value secured by the network can also not exceed the value of the network or it risks corruption.
Maybe those make some minimums and maximums you can work with for estimations?
Thanks for the inputs… its good to see blockchain tech finally coming to life with this.
I see that Tom Lee is planning ETH treasury company. Most likely they can get yield for staking ETH if network utilization grows.
Google Private vs. Public Blockchain. I don’t think banks like Robinhood etc. want to make themselves dependent on Ethereum?! Such things are often on private blockchains, which only authorized participants have access to (Bank A, B and C). Then there is no need for Ethereum.
In my understanding:
Bank A, B and C establish a organization for this purpose
This organization operates the private blockchain
Bank A, B and C get access to the blockchain
In the end, only a few advantages of the blockchain remain.
Based on what I read, Robinhood is currently using Arbitrum which is an Ethereum layer 2 solution.
So not sure what does it mean by „there is no need for Ethereum“?
Do you mean theoretically they can use another solution or already today they don’t use anything related to Ethereum?
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Same thing for JPM
J.P. Morgan’s new deposit token, called JPMD, is being issued and piloted on the Baseblockchain , which is a public Layer 2 blockchain built on Ethereum and developed by Coinbase
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I think these solutions are not dependent on platform but if Ethereum is competitive then why don’t they just use it?
Maybe I’m misunderstanding something, that could be possible. But so far I’ve only seen blockchain projects from banks where you can only access them via the bank (and its partners). It is often not possible to operate your own node and thus participate in the blockchain in a controlling way, the blockchain is in the hands of the bank. And I don’t understand why such blockchains have to be based on Ethereum. The bank could just as easily run a blockchain itself.
Does anyone know how https://www.sdx.com/ does this? They do mention Ethereum in a few places, but not in relation to the main product, but because they offer ETH stacking.
I think Ethereum was originally designed to be computer of the internet . So maybe there is a preference from security / scalability etc
But it’s not the only game in town. So perhaps more innovation in this space will come if tokenisation becomes a big thing
From what I read, to me it seems like Ethereum is positioned more like a utility driven blockchain which makes it more interesting for banks because the main product is not ETH, it’s the token which bank issues. ETH is just providing the technological support
From what I understand, you are tying to assess the economic success factors of blockchains / DLT and their coins based on emerging use cases.
True, Ethereum was built with programmability in mind (“smart contracts”) and it is one of the earlier blockchains. To derive that ETH as a coin might win the race with other utility coins is far-fetched in my opinion.
Case in point: Binance coin was initially launched as an ERC-20 token on the Ethereum blockchain but later migrated to the BNB Chain. It is a cryptocurrency that powers the BNB Chain ecosystem and is also used for trading and fee payments on the Binance cryptocurrency exchange.
As BNB is currently on 6th rank of all cryptocurrencies (CoinMarketCap), it exemplifies what can happen when real-world use meets high velocity and great utility.
Solana, BNB Chain, TRON, XRP, Nano, IOTA, and major Layer 2 Ethereum networks all offer considerably lower fees than Ethereum’s mainnet, all with their own coins which in my view is what people will want to hold and transact with. I compare these coins to washing machine coins: useful but not investment material.
I started this journey believing that ETH is to BTC what silver is to gold. My view has shifted considerably away from that.
Do Users on a Layer 2 Ethereum Network Need to Pay Ethereum Network Fees?
How Layer 2 Networks Work
Layer 2 (L2) solutions are protocols built on top of the Ethereum (Layer 1) blockchain that aim to enhance scalability. They do this by processing transactions off the main Ethereum chain and then periodically settling batches of these transactions back on the Ethereum mainnet. Common Layer 2 solutions include rollups (Optimistic and ZK rollups), plasma chains, and sidechains.
Paying Fees on Layer 2
Transaction Fees on Layer 2:
When you perform a transaction on a Layer 2 network (such as Arbitrum, Optimism, or Polygon), you generally pay transaction fees in the native asset of the Layer 2 network (e.g., ETH on Arbitrum, MATIC on Polygon).
Settlement on Layer 1:
Periodically, the Layer 2 network must submit a summary (or proof) of its transaction batch to the Ethereum mainnet for final settlement and security. This batch submission requires gas fees to be paid on the Ethereum mainnet, and these are typically paid in ETH.
Who Pays the Ethereum (Layer 1) Fees?
Regular Users:
Most users interacting only on Layer 2 networks pay fees within that Layer 2 ecosystem. They do not directly pay for every Ethereum mainnet (L1) transaction. Their experience is generally faster and less expensive compared to mainnet usage.
Operators/Validators:
The entity (or sequencer/operator) responsible for batching and settling Layer 2 transactions pays the Ethereum mainnet gas fee to publish the batch or proof. These fees are usually collected from Layer 2 users as part of their transaction fees.
Occasional Direct L1 Fees:
If you bridge assets between Layer 2 and Ethereum mainnet or withdraw funds back to Layer 1, you will typically encounter and need to pay Ethereum mainnet gas fees for those actions.
So based on this comment. It seems there are two fees. Layer 2 fees (b2c transactions ) which goes to the layer one chains. And layer 1 fees which would be considered like B2B transactions and is paid to Ethereum network by the layer 2 firms. Of course the lower the number of B2B transactions, lower will be staking yield on ETH.
And personally I am more interested in understanding the business models. It seems to me that Ethereum is becoming backbone for lot of new innovation. It’s actually providing utility (which is not a given in crypto market) . I am not so sure of decentralised apps and tokens are more efficient / secure than traditional models though. Jury is still out it seems
I don’t plan to invest in any of the crypto coins per say. I don’t invest in individual companies too. Idiosyncratic risk is better to avoid
Based on what I understand, BTC & ETH have nothing in common. Somehow they trade together because they are both cryptocurrencies but that’s where the similarity stops in terms of use. I wouldn’t be surprised if at some point they trade quite differently with each other as the fundamentals are quite different in these blockchains
One surprising fact I heard which I didn’t expect is that since launch of ETH (as of 1 aug 2015), the returns have been 10X compared to returns from BTC during same period. I somehow thought it was other way around.
Binance Smart Chain (on which the BNB token is issued) is basically an Ethereum copy that got turned into a centralized blockchain to surf on the hype of the moment (ICOs, everyone and their grandma trying to spawn tokens, …) while subsidizing the transactions to attract activity and pump their token price. The main point was essentially to make that company, and particularly its former CEO who owns close to 70% of the tokens in circulation, a shit ton of money.
It’s essentially a glorified database that is tied to a single man : great utility is probably the last thing anyone would say about that chain.
More generally : as long as these market existed, utility has never been remotely linked to market cap rank.
Yes. An L2 by definition settles transactions on the L1 (Ethereum), which in a simplified way consists in posting data in bulk by grouping transactions. This is paid in ETH.
Wrong. While you indeed pay with the native asset on Polygon (and some other few), this is a sidechain, not a L2. This is a different approach for attempting to solve scaling problems that dates back before L2 were possible / introduced, and that is mostly destined to disappear.
People often refer to the concept of Ethereum (open source, decentralized, public programmable blockchain) as an attempt at creating the Internet of Value.
If you consider Internet (the network) as a content network, that would be the equivalent where exchange of value rather than data would be the goal. Having a common open platform to allow that would be a formidable public good rather than thousands of privately held networks (banks, brokers, payments intermediates …).
The network allows to do that, as long as you manage to model your “value” into a contract (aka : a token). Now having that technically possible does not necessarily lead to adoption as a solution. One of the big hurdles remains the law/regulations : if your token is not recognized as a legal representation of whatever you’re tokenizing, then you’re not getting anywhere.
As things become clearer on the regulation side, you start to see companies trying to build over there.
As far as gain in utility for financial instruments I can think of : instant settlement (vs T+1/+2 in most cases in TradFi), easy and fluid composability (which was proven by DeFi over the past years).
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