Opinion: Tokenization, not crypto, is the future of Canada’s digital economy
Mining equipment on display at the Thailand Crypto Expo on May 14 in Bangkok, Thailand. Lauren Desica/Getty Images Asiapac
Mark Wiseman is a Canadian investment manager and business executive who is a senior advisor to Lazard Ltd., Boston Consulting Group and Hillhouse Capital, and chairman of Alberta Investment Management Corp.
The twin threats of inflation and further financial meltdown are real and require immediate action from policymakers – and they arise at a time when disruptive global events have darkened the economic outlook.
To be effective, both monetary and fiscal policy must be implemented surgically, centralized, data-driven and with accountability. When the likes of Conservative leadership candidate Pierre Poiliver advocate for “opting out” from inflation and creating economic value with bitcoin or other cryptocurrencies, we should also be cautious. The political appeal of such voices overlooks both the economic reality and the larger opportunity in this digital space: tokens.
Having been an investor for more than two decades, including several years managing the pension investments of millions of Canadians, I care about the principle of intrinsic value: pricing assets based on their inherent characteristics and, in turn, a reasonable risk- Generating an adjusted return from those assets.
Unlike traditional investment options, cryptocurrencies have been – and are – highly volatile; their value is linked to speculative activity as opposed to intrinsic value.
While one can imagine how central bank digital currencies or stablecoins could transform our financial system and create significant efficiency value down the road, the real advantages that exist today are the blockchain and distributed-ledgers behind cryptocurrencies. is in technology.
Tokenization is a tool created by such technology and has the potential to instantly create and redistribute value to everyday Canadians. It allows property owners with intrinsic value – from real estate to securities, to commodities, to fine art (or the digital equivalent) – to tokenize their assets in a form that is usable on a blockchain application. Is. In practice, this enables property owners to transfer partial ownership of their assets to a publicly traded company by issuing equity, but in a much more accessible manner.
Tokenization leverages smart contract functionality (the same technology that supports many cryptocurrencies) with the potential to unlock immense value and liquidity for many investors, large and small. It is the aspect of blockchain and distributed ledgers that our political leaders and regulators should focus on.
The tool is incredibly attractive because it can provide investors with easy ways to buy, hold and trade assets with real underlying value, including digital assets like the NBA’s incredibly successful Topshot – a platform that allows fans to Allows to trade collectible NFTs of past plays (think of them as digital trading cards).
Cryptocurrencies, which have no apparent intrinsic value, are an impressive demonstration of the power of the blockchain. But like early BlackBerry products, it turns out that the software that runs many cryptocurrencies, such as bitcoin, is far more valuable than the initial application.
Tokenizing and selling partial ownership of one’s assets can improve liquidity and increase the transparency of the value of their assets, allowing them to more easily borrow against them. Valuing an artwork is extremely difficult, but if a sculpture is tokenized and a liquid market develops in those tokens, finding value for the object becomes a whole lot easier. After tokenizing a skyscraper, a token holder will be able to secure financing against their tokenized portion of the building, as opposed to pledging the entire structure to receive the funds.
If Canada becomes the leader in tokenization, retail investors will be able to access assets beyond public equities and bonds, to which they are now mostly limited. Institutional investors – many of whom have already begun to significantly increase their investments in private companies, real estate, infrastructure and other alternative investments – are desperate to find shelter for their capital, particularly in equity markets. Given the recent ups and downs.
Tokenization will allow them to invest in assets that would otherwise be unavailable, creating potential value for both buyers and sellers. With fewer barriers to selling partial ownership of large infrastructure projects, this class of investor can expand the types of large projects they can invest in.
Undoubtedly, regulation will be an important consideration. Publicly traded companies have a large number of disclosure rules that they must comply with, which can cause many asset owners to shy away from listing their assets on public exchanges. Regulation must ensure that sufficient information is available about the underlying asset so that investors buying tokens understand what they are buying, without burdening them to the extent that it prevents asset owners from participating.
If we are to take the lead as a country in the blockchain and distributed-ledger technology sector, it is the token to which we should be focusing our efforts – not on the misguided idea that the inflationary pressures created by excess bitcoin demand. supply in the economy can solve
In fact, the support for cryptocurrencies by voices like Mr. Poiliver, fueled by criticism of our central banks, shows why we need such independent institutions. Politicians are kept away from them for good reason – just look at what happened to Turkey’s economy when President Recep Tayyip Erdogan ignored and eroded the authority of the country’s central bank in favor of a misguided, politicized monetary strategy.
Instead of political theater on the move of a venerable institution, Mr. Poiliver and other cryptocurrency proponents should be more responsible and advocate for leading Canada into tokenization. This requires investing in the training, technology and governance structures required for this revolutionary technology, and creating a system of laws and regulations to support it.
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