Those cute, illustrated avatar NFTs were once one of the most popular tokenization trends and of course, who among us doesn’t want a tokenized rock or ape or penguin as a Twitter profile pic flex? But there are quite a few other interesting ways that tokenization can keep pushing crypto into the future. Crypto culture, for better or worse, has long been intertwined with meme and internet culture. But among the wealth of memes, the driving principles of decentralization are slowly, surely changing the entire digital landscape.

Even before the dawn of Bitcoin and the rest of the crypto space we know today, the concept of decentralization has always been about increasing data security, transparency, and reducing trusted third parties. Whatever trendy fads come and go in the ecosystem, the ones that truly revolutionize are the ones with those decentralization principles at the core. Here are five trends in tokenization that embrace transparency, increase security, and reduce trust.

It would really be a shame if, in trying to escape the downsides of traditional finance, we ended up with the exact same problems in crypto. The reality is that there are still some fees in crypto, as much as we all hate to see them. You’ll likely catch a funding fee, commission fee, and conversion fee, among others, but there are also smart ways to manage your crypto wallet and transactions that will cut down on the amount of fees eating into your profits.

Identity and data security

Everyone is constantly talking about a lack of data security online. But, until now, there haven’t been solutions. If you want to participate in the modern world, you’re forced to make your digital identity vulnerable.

3d image man pressing security lock for tokenization trend Every time you create an account online, you’re asked to give your personal information to another entity that stores it in another centralized database. You have very little control over the protection of that data, as we know from the constant barrage of data breaches. From Target to Experian to Facebook, we’ve all heard of digital identities and data being compromised. Decentralized identity through tokenization will allow users to store their personal information—from the government, their employer, their school, medical providers, etc.—in a digital wallet.

Parties wanting to verify identity or credentials can then confirm only the necessary information through tokenized data. For example, mortgage lenders could verify credit score and income thresholds without needing all the specifics of your employment and pay stubs. This tokenization trend is desperately needed and on its way as big players like Microsoft and IBM are developing implementations.

Tokenized peer-to-peer lending

In 2020, tokenized lending blew up during DeFi summer. Platforms like Avae, Compound, and MakerDAO made peer-to-peer lending through liquidity pools and smart contracts extremely popular. By tokenizing loans and allowing investors to provide liquidity in increments, more lenders and borrowers are able to enter the space, increasing total liquidity and reducing the amount of capital needed by any singler lender. Tokenization also makes an exit strategy much easier because investors can sell out of their lending position, even if the term of the loan has not fully elapsed.

This tokenization trend is set to continue as innovations move forward for things like cross-chain functionality, developing new ways of mitigating risk, and as platforms continue to wrestle the ever-existing tension between decentralization and regulation. Influential voices like Mark Cuban are bullish on peer-to-peer DeFi lending, having said that it “simplifies borrowing for personal purposes.” If you and I can lend directly to each other using an automated smart contract, at an amount that’s convenient for us, big, centralized lending institutions can fade out of the picture.

Intangible asset NFTs

I’m sure you’ve already heard about the “red hot potential” of tokenizing intangible assets like patents, copyrights, trademarks, and other kinds of intellectual property (IP). There has been all kinds of buzz around minting art, music, movies, and every other kind of NFT using smart contracts to document and maintain ownership. We all love the idea because of how difficult it has been to fully track and monetize IP in a digital age when duplication is so easy.

Even though this trend is well known already, I mention it because, while the idea is strong and implementation is becoming real, tokenization of intangible assets still has some kinks to work out. Securities regulation is still a gray area and how to maintain and enforce legal control in the real world is being worked out.

It will probably always be a technological race between creators of IP and low-down moochers who want to profit off other people’s work—it has been since the Napster days on back to dubbing cassette tapes. But this NFT trend is not going away, and the faster current legal standards and regulations can become symbiotic with decentralized smart contracts, the faster tokenized, intangible assets will become usable and secure for creators.

Physical assets

Trying to buy or liquidate a physical asset can be one of the most tedious, drawn-out processes imaginable. Buying real estate or snagging the art you want at an auction is nightmarishly complicated for those of us who don’t like paperwork and waiting. Tokenizing can make owning physical assets a lot easier, faster, and more liquid. Fractional ownership can also create a sharing economy for large, expensive assets. The value of an island, for example, can be divided and sold to as many people as there are tokens.

mansion in the hillsMoving deeds and titles onto the blockchain is coming. And next steps for this trend involve the same hurdles standing in the way of tokenizing anything—linking blockchain transactions to the real world. Getting outside information (e.g. asset value and other relevant information like occupancy rates in an investment property) into smart contracts can be done through oracles. There is also infrastructure needed for claiming assets that can be physically moved (like cars, art, gold) and those that can’t (land). All of this is pivotal to make real-world assets easily tradable in tokenized form.

Tokenized supply chain

Logistics systems are complicated. It just takes one little global pandemic for everyone to realize how important supply chain management is. When people want their frozen peas, they want them! You know what I mean?

Tokenization for supply chains is another big trend everyone is eager to see develop. Right now, there are lots of complications in accurately and transparently tracking products from suppliers to manufacturers to distributors to retailers to customers. From drugs to manufactured goods to food, there’s a lot of stuff moving around the world, and people are studying how to improve the process.

Currently, the systems being used are both centralized and siloed. Communication along the whole chain is difficult, inefficient, and often still too analog. Not to mention, with lots of involved parties from end to end, there is a level of trust required that smart contracts on the blockchain can help eliminate. By executing every transaction with smart contracts, the entire process can become more transparent and secure.

Summary

Innovation in technology tends to build on itself, increasing exponentially over time. Cryptography led to cryptocurrency, which led to smart contracts, which led to tokenization, which is leading to innovations in data security, peer-to-peer lending in DeFi, global supply chains, intellectual property, and, yes, even Twitter avatars. Just like with computers, the internet, and smartphones, the easier to use and more complete technology becomes, the less people have to understand it in order to use it.

Hopefully, these trends in tokenization are signs that crypto is moving in that direction and more and more people will have an easier time entering the space.

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Michael Hearne

Michael Hearne is the CEO of Decentral Publishing and the host of the Uncensored Crypto docuseries.