2 NFT or not 2 NFT

Value in the Era of Intangibles

Today intangibles constitute over $25 trillion of market value and represent almost 90% of the net worth of Fortune 1000 companies. This figure has grown steadily since the ‘70s as the network effects from intangible assets began to grow exponentially driving attendant returns for such intangible rights as brand, reputation, and intellectual property. Together with other forms of so called “alternative assets” such as real estate, mined materials (including their extraction rights), fine art, music rights, carbon credits, data rights, and even productive capacity, these assets have typically had liquidity challenges, been hard to value and authenticate, and had price dynamics that are “hidden”. As a result, they have been accessible for investment to just the wealthiest 1% of humanity.

(Semi) Fungible Fashionistas

Before the pandemic, Lorna was a quant at a major investment bank. Even though she labored under the stresses of bosses who worked aspiring fund managers to a bone, the “chin-up-soldier-on” discipline -- that had been inculcated starting at her private boarding school and that had helped her overcome the rigors of an MSc in Physics at Imperial College -- continued to pay dividends as she worked through the demands of tuning hedging strategies in choppy markets.

Trading Songs as Stocks

If a music distributor could tokenize rights to the lyrics and songs from its stable of music artists to generate cash flows that are not exposed to the convoluted cycle of payments in that industry, it could gain more resources to back emerging talent and enhance its competitive advantage. Token holders get participation in the music distributor’s incomes from licensing its catalog. This can enable participation in the long tail incomes that some rights can generate.

Funding Farmers through Crop Tokens

By working with farmers and crop data gleaned through IoT and related instrumentation systems, it is possible to create yield models for agricultural produce and tokenize assets and derivative securities built on the expected yields of soy, corn, rice and other agricultural staples. Farmers gain cash for investing in innovations (such as vertical farms, new seed hybrids, …) without having to raise capital through debt or equity offerings. Token holders gain opportunities to participate “directly” in the revenue stream and contracts for projected gains from increased investment in farming automation or crop traits that may be offered by a particular token issuer. These are distinct from shareholders who are exposed to market risks, operating leverage, dividend policy, and other factors that can influence share price.

The Profits and Pitfalls of Tokens

These examples illustrate the ecosystem benefits of tokenizing alternative assets --democratized access for investors to a more diversified portfolio of asset classes; liquidity for creators and producers; and fair, transparent exchanges for all. Such benefits could be designed to extend far beyond the patronage of a particular artist or the token community around a corporate entity. For example, carbon credits and offsets or social impact contributions can be programmed to trigger when, say, the token velocity or other parameters reach certain thresholds. These benefits offer a new dawn for cooperatives that can combine and distribute equitable incomes. For example, an architects’ collective monetizing the designs of its members or a co-op of aerospace parts producers creating liquidity for 3D printing capacity can find market makers who would be willing to underwrite new financial instruments that link their assets to token ecosystems. [In other articles in this collection I have written about the emergence and value of such co-ops.]

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