DeFi has the potential to create new opportunities for traders around the globe. By establishing a bridge between the traditional finance and decentralized finance, tokenized assets enable new paradigms for value transfer.
Specifically within the DeFi sector, we’ve seen the emergence of a number of native tokens that fall under the “DeFi Basket”.
In this overview, we will touch on what those leading sector assets are, along with highlighting some of the other uses for tokenization under the greater umbrella of assets at large.
This list will be updated periodically. The tokens mentioned on this list are intertwined to a specific DeFi project(s) and are used to unlock specific actions, discounts or services within those products.
- MakerDAO – $MKR and $DAI
- Synethetix – $SNX
- 0X Protocol – $ZRX
- Nexus Mutual – $NXM
- Kyber Network – $KNC
- Aave – $LEND
- ChainLink – $LINK
- Ren Protocol – $REN
- Melon Protocol – $MLN
If you would like to see your token cited on this list, please DM us via Twitter @Defirate.
For questions on how each of these tokens works within the project, please reference our reviews that are linked to each project name. (i.e. MakerDAO)
Tokenization of Crypto Assets
In addition to the numerous platforms working on tokenizing traditional assets, we’ve also begun to see the emergence of interesting crypto assets taking form in Ethereum-based tokens. Whether it’s autonomous portfolios and ETFs, to automated interest-earning stablecoins, the tokenization of crypto assets will provide a new paradigm for savvy crypto investors.
Set Protocol enables automated asset management strategies through the introduction of Token Sets. With this, investors can buy into a single ERC-20 token with a programmable trading strategy.
As it stands, investors can currently purchase trend trading sets, which use the most widely adopted statistical and technical analysis to buy and sell ETH at certain price levels. Other sets include range-bound sets that automate buying at the bottom and selling the top of a predetermined price range along with weighted sets that rebalance based on the portfolio’s percentage allocation. Ultimately, Set Protocol and TokenSets allow investors to hold a single ERC-20 token while gaining exposure to the broader crypto market with automated management.
TBTC is a decentralized and trustless system for wrapping Bitcoin proposed by Keep Project and the Cross-Chain Working Group. The goal of TBTC is to create a trustless system for using Bitcoin on Ethereum-based applications (i.e. DeFi.) and can be seen as a critical piece of infrastructure for the success of the broader ecosystem. As a simplified summary on how it works: Bitcoin is deposited into a multi-sig wallet where the key holders are incentives to act accordingly by locking up other crypto assets as collateral (in this case ETH). Once this is confirmed on-chain, the TBTC smart contract mints the user with a 1:1 equivalent of the token on Ethereum.
For more reading on TBTC, feel free to read our in-depth TBTC overview
WBTC is a multi-institutional framework for wrapping tokens on Ethereum through the use of Merchants and Custodians to issue, burn, and custody of the underlying assets. This proposal was initiated by BitGo, Kyber Network, and Republic Protocol with the firs asset being wrapped Bitcoin (WBTC). This framework provides a generalized mechanism in which crypto institutions can create asset-backed tokens in a transparent nature. Wrapped Bitcoin was the first use of this framework and we could likely see other wrapped assets coming to Ethereum in the near future.
For more reading on WBTC, visit our in-depth WBTC overview.
While wrapped bitcoin is one of the more notable wrapped assets, wrapped ETH actually plays a vital role in the DeFi ecosystem in the short term. The ERC-20 standard defines how tokens are transferred and how to keep a consistent record of these transfers among tokens within the Ethereum Network. With this in mind, ETH does not conform to its own ERC-20 standard making it tougher to directly trade with other ERC-20 tokens. However, multiple steps are being taken to update the ETH codebase to solve this issue and make it more compliant with the ERC-20 standard.
cTokens are an ERC-20 token which represents an underlying loan being supplied out on Compound Finance. cTokens accrue interest over time based on the supply interest rate and therefore, each token becomes redeemable into an increasing amount of the underlying asset.
As an example, let’s assume an investor supplies 100 DAI to Compound when the exchange rate is 50 cDai for 1 Dai. As interest accrues, each cDai is worth more Dai and after a few months, the investor could redeem the cDai for Dai at a better rate and resulting in more than initially supplied Dai.
With cTokens, composability throughout DeFi increases dramatically. As an example, after the investor received the cDai in their wallet, they could deposit the cDai into a liquidity pool on Uniswap to earn additional trading fees on top of the accruing interest.
Tokenization of Traditional Assets
Tokenized assets provide a plethora of benefits for prospective investors over the paper-based incumbents. This includes increased accessibility, accelerated liquidity on the underlying asset, automated compliance and payment distributions and transparent ownership.
The tokenization of traditional assets ultimately provides more efficient financial assets given the open and inclusive nature of DeFi. Whether it’s tokenizing real estate or allowing small companies to easily tokenize and distribute equity in the company to its employees, many projects are working diligently to provide global investors with better assets.
RealT allows investors to own shares in rental properties through a simple, intelligent and user-friendly method. These tokens are in compliance with the U.S. legal system and give investors access to low maintenance property ownership and real-time cash flows on the property. RealT eliminates the $155 billion middlemen from real estate sales and allows global investors to easily gain exposure to the real estate market through holding an ERC-20 token.
Similar to RealT, Meridio enables investors to create and invest in shares of individual properties on Ethereum. By converting individual properties into digital shares on a decentralized network, these assets seamlessly connect global investors and provide the much-needed liquidity in real estate markets. With this, investors experience significantly lower investment minimums and reduce transaction costs. On the flip side, property owners can access additional capital, streamline their transaction processing and own the ability to analyze the asset data.
Securitize is one of the leading platforms for enabling compliant digital security issuance and liquidity on the blockchain. The team has built a flexible ecosystem of smart contract infrastructure and a suite of tools for issuers to manage every aspect of the digital security lifecycle. The core components of the Securitize ecosystem include DS Tokens (ERC-20 compliant tokens), DS Apps (issuance, voting, dividend issuance), and DS services that encompass trust, registry, compliance, and communication services for investors.
Harbor has created a digital platform for automated processes surrounding alternative investment subscriptions, investor management, and secondary transfers. The platform provides white-labeled branding for the subscription experience while also doing investor verification (i.e. automated KYC, AML, and accreditation checks) and investment processing. With this, Harbor meets institutional level security, privacy and compliance requirements for tokenized securities.
One of the pioneers for security tokens, Polymath enables Ethereum-based security tokens using Polymath’s proprietary ST-20 token standard. ST-20 is an extension of ERC-20 that introduces the ability to restrict transfers of blockchain tokens. With this standard in place, security token issuers, investors, exchanges, wallets, custodians, and regulators can have peace of mind that the token standard is in compliance with regulations.
TokenSoft enables issuers, financial institutions, broker-dealers, real estate companies, and funds to meet compliance requirements for digital securities. TokenSoft works with your legal counsel to create a tailored solution to adhere to applicable regulations for the financial institution, securities, and tax laws. Since 2017, TokenSoft has been helping clients with asset tokenization for real estate, bonds, securities, and other legal entities.
Backed by Joe Lubin and ConsenSys, Quidli creates an Ethereum-based platform for equity management for teams to easily issue real tokenized equity. The platform leverages standard agreements built into smart contracts to issue equity while eliminating the costly professional services that it typically takes to issue equity. Moreover, Quidli is completely free for companies with five shareholders or less and only $1/month per user for companies of more than 5 shareholders.
Whether the tokenization of assets is a traditional one, like equity or real estate, or a crypto native asset, like a stablecoin, it’s a major improvement on the incumbents. The ability to have fully compliant and automated assets creates a new paradigm for the future of finance. Ultimately, these instruments provide the foundation for DeFi to continue to disrupt the traditional financial system and provide enormous value to investors.
With regulators beginning to approve Reg A offerings on crypto assets we can only assume that the next few years will be full of growth as the assets sector continues to mature.