This short post explores some of the additional value that tokenised assets on blockchains can add, over and above pure financial return.
The assets in question could be shares, or bonds, or other financial securities recorded as tokens on blockchains. Some assets may not even be not regarded as financial securities, due to what they represent and what is promised to the asset holders – these have been described as “utility tokens”.
Today, people typically buy financial securities purely for their financial return. A bond, loan, or other fixed income product, will give investors some amount of yield, usually commensurate to the amount of risk the investor is taking by providing their money.
Equity may give you slightly more than just a return: perhaps a vote at an annual shareholder meeting. However, most people don’t care about these votes. They just care about the share price going up, and dividends, if any. The crypto community describes this succinctly as #NumberGoUp.
Yet increasingly, tokens are being used creatively to incentivise and delight token holders.
For instance, crypto.com (previously Monaco) is a smartphone app that acts as a digital wallet where you can store various fiat currencies and various cryptocurrencies (they hold the crypto themselves, and they hold the fiat in bank accounts).
You can apply for physical card: a prepaid Visa card. To use it, you first load the card with money in the app, either by transferring cryptocurrencies to their wallets or by doing bank transfers to their bank accounts, then you can spend using the card. This is a kind of debit card which is different from a credit card where you spend money you don’t have, then pay your account later.
Monaco funded its project by doing an initial coin offering (ICO) in June 2017 and raised a little over 71,000 ETH, worth roughly $26m USD at the time. Those who participated in the ICO received MCO tokens issued by Monaco.
Although MCO are not shares of the company, holding MCO tokens can give you benefits. (For clarity, although this article is entitled “Shares with benefits”, MCO tokens are not shares. I will discuss shares later.)
You may use the crypto.com wallet and card without using MCO at all. You get some basic credit card benefits. They are not spectacular – something like 1% cash back, and that’s it.
But if you buy MCO tokens, send them to the app, and commit to not selling them by “locking” them for 6 months then continuing to stake (ie not sell) them, the card benefits get better.
At time of writing, here is what the benefits look like if you stake MCO tokens:
You can see that the more MCO you stake, the better the benefits. Better rates of cashback and rebates for popular subscriptions, and travel perks. You can probably guess what demographic this card is targeted at.
After the initial 6 months of lockup has ended, you can choose to have your MCO tokens released back to you. Then you can sell them or do what you want with them. But if you do, your card benefits immediately reduce. Here are the card benefits if you choose to “unstake” your MCO tokens (presumably to sell them):
They aren’t as great as when you have your MCO tokens locked up.
This post isn’t meant to be promotional or a love letter to crypto.com – there are many risks of holding MCO tokens. For instance, to get the 5% cash back card, you need to buy and lock up 50,000 MCO for 6 months. Today, this is the equivalent of roughly $300,000 USD. That’s a lot of money! A small reduction in the price of MCO tokens will probably wipe out your accumulated cashback and card benefits. MCO tokens, as with other cryptocurrencies, are very volatile.
Note: If you do want one of these, you can use my referral code that will get us both $50 after you start using the red card or a higher tier.
Extending the concept
But this is just one example. By having assets recorded as tokens on blockchains, whether the assets are “utility” tokens or financial securities (shares, bonds, etc), it becomes easy for holders to prove they hold the assets using a simple workflow, and therefore issuers can give additional benefits to holders.
Why do employees of companies get perks, whereas shareholders don’t? I mean, as a shareholder, you literally own the company! If you own shares of an airline, why don’t you get miles or cheaper flights for holding these shares? If you own Amazon shares, why don’t you get a discount?
One reason may be because it’s really hard to prove you’re a shareholder. What are you meant to do, take a screenshot of your stock trading account and wave it around at the checkout?
Actually, there are several examples of shareholder benefits that already exist. Here are a couple of lists:
However, the process for claiming your perks can be manual, involving filling in forms or using membership numbers, and perhaps putting these programs together in a manual world can be more troublesome than they are worth.
A trendy take
But the world is changing. The Scottish public company Brewdog are really nailing this. Already a public company, they have recently been crowdfunding to raise more money.
They advertise their fundraise on their product, and have combined crowdfunding tactics such as referrals bonuses with shareholder perks.
We can expect to see more of this in future, as companies digitise their processes to enable them to provide perks more efficiently. Here are the documents if you’re interested in reading them. They are probably the most engaging investor docs I have read!
What about tokens?
With tokens on blockchains, you can very simply prove how many shares you have, how long you’ve held them for, and even commit to not selling them for a period of time by “locking” them as we saw with crypto.com.
How could this be extended? Imagine:
- Investment in a amusement park gets you discounted rides
- Investment in a distillery gets you discounted tastings or access to new vintages
- Investment in a real estate fund gets you discounted rental prices
- Investment in a classic car company gets you discounted rentals or exclusive access
- Investment in a music band gets you discounted concert tickets or backstage passes
- Investment in a theatre gets you discounted tickets (some already do something like this for patrons of the arts)
- Investment in infrastructure projects (bridges, toll roads etc) gets you discounted usage
- And so on…
(Note: Earlier, I picked airlines and Amazon because they are intuitive and people have heard of them. The same concept works for private market, or unlisted, shares.)
What’s interesting isn’t just that this is a neat and efficient way of proving you are an investor in a project, but it’s the ability to commit to not selling your investment, by locking them up.
I think this is just one part of what people mean when they talk about tokens being “programmable assets”. And I’m sure people will find other things to do with these too as the industry evolves.
The future of tokenised assets is going to be interesting!
PS If you enjoyed this post, you may also enjoy my book The Basics of Bitcoins and Blockchains. Just saying.