Liquidity determines the value of Tokenization

Comment by: Sebastian Serrano, Ripio founder and CEO.

For the past decade, the crypto industry has attempted to reinvent finance by pretending to be good assets. While innovative, this approach misses the core economic truth of where tokens actually create value.

In these early stages of blockchain adoption, tokenization operates at the center, not the periphery of the economy. The industry's first instinct – to promote illegal assets – was a miscalculation. The most successful tokenization effort involves the world's most liquid asset (the US dollar) in the form of a USD-backed stablecoin.

Today, companies are experimenting with tokenized versions of other highly liquid assets such as treasury bills, cryptocurrencies and, increasingly, stocks. This is not accidental. Tokenization is most powerful when applied to assets that already have high demand and standardized legal and financial frameworks. Liquidity is a prerequisite for tokenization to move from innovation to infrastructure.

Show people what they want

Token should start with properties that are already in high demand. Money, sovereign debt and major financial instruments form the basis of the global economy. They are used every day by governments, corporations, and individuals. When you tokenize these assets, you are not trying to create demand from scratch. Trillions of dollars are improving the rails they run on.

If we look at our recent history, we can see that electricity was first used not by art, but by factories. Blockchains are no different. They reach their potential with cash and core financial primitives, not edge case assets.

Stablecoins have succeeded. They map directly onto an existing massive use case. Stablecoins move dollars globally, quickly and cheaply. Tokenized treasuries are gaining a lot of interest for the same reason. Institutions represent a real, highly desirable asset that they hold at scale.

A token where collisions are large and expensive increases the maximum value. Bonds move trillions of dollars, but they do it efficiently. Token compresses settlements from days to minutes. Tokenization allows assets and cash to move together in real time without relying on intermediaries. That changes the cost structure and risk profile of financial operations.

Network effects emerge around very high-demand assets such as cash and sovereign debt. When you clone them, they interact instantly. Everyone can build around the same mathematical unit. This is why stablecoins are the backbone of on-chain financing.

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NFTs and highly recognized RWAs are opposites. They are divided by design. Each property is unique, legally ambiguous and standardized. This prevents them from being a common economic cover. They may have traditional or speculative value, but may not capture the wider financial network effects.

Market effects of liquid assets token

You can add programmatic capabilities to virtual assets, split ownership, or automate certain workflows. However, they do not open up new economic combinations. The property still does not trade frequently. She still doesn't have a deep market.

With liquid assets, however, tokenization opens up entirely new financial features. Continuous settlement, streaming payments, automated collateral management. These are some of the novelties that a token can bring.

There are other considerations. Can you use a given token asset as collateral? This is an important question, and the answer depends largely on liquidity. Above all, liquid assets can be safely integrated into automated systems as collateral. Their reviews are clear and updated in real time.

Illiquid assets, on the other hand, have infrequent trades, realistic valuations, and wide bid-ask spreads. Their nature makes them very difficult to use as containers. A token doesn't solve that problem. This will reduce the demand for the property.

Capital efficiency for liquid assets is also improved significantly. Simulated fluid devices can be re-hypothesized, segmented and programmed in real-time. Capital moves quickly through the system. But tokenization does not create a sustainable market for unlicensed assets.

Reduce risk through transparency

Dollars, government bonds and large corporate debt have well-established legal status, issuer liability and regulatory frameworks. Tokens can be incorporated into existing financial regulations, making institutional adoption more straightforward.

It is more difficult for NFTs. Questions of ownership, protection, enforceability and investor protection may outweigh technical merits. In practice, these uncertainties increase rather than reduce risk. For a large, institutional token, it's natural to focus on liquid assets first.

Token futures are defined by economically central assets. Clearly, the crypto sector's early experiments with NFTs were important and confusing. It has been difficult for NFTs to succeed in the long run. They were focused on the wrong type of assets.

Stablecoins have proven this by improving the world's most liquid assets. Tokenized government bonds and equities are the logical next step. This is how blockchains move from experimental technology to mainstream financial infrastructure.

Comment by: Sebastian Serrano, Ripio founder and CEO.