Blockchain has been touted as the next Internet, a technology that will revolutionize the way we live. Kim Parlee talks with Brian Wong, founder of kiip and author of The Cheat Code, as his company launches the first ever blockchain mobile ad campaign with AB InBev, the world’s biggest beer company.
Tokenization of Assets from Race Horses to Whiskey
The Security Token Academy presents an expert interview with Benjamin Tsai, president and managing partner of Wave Financial. The company offers early-stage investment, asset management, and treasury management to further the growth of the digital asset ecosystem. In this interview with Adam Chapnick, Security Token Academy’s director of programming, you’ll learn about tokenization and the tokenization process.
What Makes Cryptocurrency Valuable? Tokenomics Part: 2
In this part we discuss economic decisions you’ll have to make about your token– how frequently it should be used, what will it be used for, and how do you actually distribute it. Then we’ll talk about the different types of value that you can create, and what that means for your project.
What Makes Cryptocurrency Valuable? Tokenomics Part: 1
This guide outlines many of the factors that make up a token’s value. This part introduces how the token is minted, where it’s built, what type of tokens have more value and a brief intro to utility and security tokens.
What is an STO? Security Token Offering
Security Token Offerings (STOs), like ICOs, are fundraising tools. However, they have certain regulations which hold the token issuers accountable for their actions. Unlike the regular utility tokens, STOs generate “security tokens” which are real-time digital assets that operate within legal boundaries.
Benefits Provided by STOs
There are three main advantages:
- Superior liquidity options
- Reduced cost against IPOs
- Segmented ownership
Superior Liquidity Options
Fully licensed exchange platforms will now soon be available for security token trading. This will significantly increase trading confidence because of the added credibility. Since a real-world asset can be represented via security tokens, it will enable investors to liquidate security tokens against any product.
Reduced Costs vs. IPOs
In the non-crypto world, only a handful of companies go public because that transition requires a lot of money in the first place. As such, investors have the option of buying the shares of a very few companies.
However, STOs can be started right away since they are a lot cheaper than public companies. They reduce costs by completely removing the middlemen. Also, having more STOs will allow more people to invest in the shares of more companies.
Segmented Ownership
Security tokens will make high-priced assets a lot more accessible for the common man. Security tokens can easily segment an asset into smaller sub-divisions making it possible for an investor to own a fraction of the asset instead of the complete product.
Conclusion: Security Tokens Explained
STOs may become the preferred mode of crowd-funding in the near future. They are a lot more regulated and secure than ICOs while being a lot cheaper than IPOs. STOs also have the potential of opening up asset-ownership to a wide variety of people.
Utility Tokens vs. Security Tokens
A token represents a security or utility that a company has and they usually give it away to their investors during a public sale called ICO (Initial Coin Offering), in the case of utility tokens, and STO (Security Token Offerings), in the case of security tokens.
While utility and security tokens might seem similar on the surface, there’s actually some pretty complex differences behind them. Are they regulated or unregulated? Who can they be sold to? What is the purpose of the token? All of these questions can decided what is or isn’t a utility token. What about the Howey Test?
In 1946, the Supreme Court handled a monumental case. The case was SEC vs Howey which would lay down the foundation for the, now infamous Howey Test. The case was about establishing a test of whether a particular arrangement involves an investment contract or not.
The SEC and Swiss Financial Market Supervisory Authority (FINMA) have broken down tokens into two broad categories:
- Utility Tokens
- Security Tokens
Because most of the ICOs are investment opportunities in the company itself, most tokens qualify as securities. However, if the token doesn’t qualify according to the Howey test, then it classifies as utility tokens. These tokens simply provide users with a product and/or service. Think of them like gateway tokens.
Token Economies at Home
Building blocks and blockchain: preparing kids for the technology of tomorrow — How one tech-savvy parent brought the lessons of a token economy home Entrepreneur, Professor at Singularity University.
This talk was given at a TEDx event using the TED conference format but independently organized by a local community.
The Importance and Challenges of Token Economics
In this panel at the Malta A.I. & Blockchain Summit, token economics is discussed. The panelists are: Sebastian Markowsky – GP Bullhound; Godwin Schembri – KnowMeNow; Wei Zhou – Binance; Sarah Olsen – Gemini; moderated by Olga Finkel – WH Partners;
Olsen discusses the importance of a stable coin and the challenge of regulation.
Schembri talks about security tokens.
Markowsky talks about what type of tokenization is attractive to investors and getting the incentives right. He advocates an interlinked multi-token model for the purpose of utility and security/investment.
Zhou talks about the “Binance Effect,” which he describes as contributing to the perception that a token is premium, since Binance only lists 3% of the tokens that apply. He emphasizes the need for clarity in regulation.
This discussion was part of the Tokenomics & Crypto Conference.
Blockchain 10: Token Economies
A new set of web technologies are enabling a more distributed economic model based upon the blockchain and token markets. These token markets greatly reduce our dependency on centralized organizations and expand markets as systems of distributed organization. In this video we explain the workings of the blockchain, tokens, distributed markets and token investments.
Token Economics 26: Token Prediction Markets
TOKEN PREDICTION MARKETS
Prediction markets are speculative markets, very similar to futures markets, which have been designed so that the prices can be interpreted as probabilities for events occurring and used to make predictions.
Put very simply, prediction markets enable users to trade shares in the outcomes of an event and in so doing to reveal the information that people have about the likelihood of an event occurring.
In a very elegant way, blockchain prediction markets use tokens to reduce uncertainty and find truths about future events. As they align truthful statements with token investments they create a way for people and groups to come to consensus about a shared conception of reality by using markets to create valid sources of information.
HOW IT WORKS
A number of blockchain based prediction markets now exist such as Augur, Stox or Gnosis. Using one of these networks anyone anywhere in the world can create a market for people to try and predict the outcome to some event, such as a sports match, an election, the weather, sales of a company, price fluctuations of commodities, the availability of almonds in Spain next year or the likelihood of a conflict occurring in central Asia at a given time.
Market makers provide initial funding for the market and for this receive some trading fees. Anyone can then buy and sell shares in the outcomes of that market.
Predictions are based on a binary event where something either will or won’t happen. The value of a bet will in most cases reflect the probability of an outcome materializing.
If you place a bet on a coin flip, the outcome will always be 50% heads, 50% tails. There are no external market conditions that will influence the outcome.
Luck plays a major role, and this is called gambling.
But prediction markets rely on the collective wisdom held by a group of people on the probability of a future event materializing. The current market price of a share is an estimate of the probability of an event actually occurring. The prices of each share add up to one dollar. So if you buy a share at even odds it will cost you 50 cents. If you end up being right, you’ll receive a dollar for that share. If you see a market price of 53 cents then it is reasonable to assume that there is a 53% chance that outcome will occur.
As an example, we can think about a market for the hiring of a new CEO of a company given just two candidates, Bob and Jane. In this market, one share for the Bob option pays you a euro if he is hired and pays you nothing otherwise. One share for Jane pays you a euro if you hold the share and she is hired, and pays zero if she is not. Now, suppose you think Jane has a chance of winning that position, how much would you be willing to pay for a Jane share? If a Jane share pays a dollar if Jane wins and she has a 70% chance of winning, then that share is worth 70 cents. You would be willing to pay up to 70 cents for such a share.
Suppose you enter this market and you find that Jane’s shares are selling for just 55 cents, well, that’s a buying opportunity. Something which you think is worth 70 cents is selling for 55, so then, you should buy the Jane option. In buying the shares, you would be pushing up their price. In this way, your predictions, your information, your opinions about which candidate is likely to win become incorporated into the price of a Jane share.
Imagine however you thought Jane had a 70% chance of winning but her shares were selling for 80 cents, then, you would want to sell Jane shares. Even if you really wanted Jane to win the position of CEO. To make more money you would sell the Jane shares and buy the Bob share. In this way we can see how prices come to reflect the market information.
The prediction market really boils down to one number and if there’s anyone in the world who thinks they would know better than this number they have direct financial incentives to trade this market and basically with every trade they make they feed the information into this market and in the end we have a better number from the market.
The outcome becomes more predictable over time. This is because the payoff depends on the accurate prediction of an outcome of an event. As a larger number of people do more market research to come to the most likely conclusion, the predicted outcome will lean more favorable to one side. Current share prices over time come to reveal information about the likelihood of an event occurring according to the information gained from the market participants.
ADVANTAGES
Prediction markets are not a new invention. They are in fact centuries old and have proven their effectiveness many times.
One of the most popular current markets is the Iowa Electronic Markets. In over two decades of testing this market, in presidential elections, congressional elections, and state elections, the market prices from the Iowa Electronic Markets have turned out to be better predictors of the outcomes than have political polls.
The two key features that make them successful is that firstly, they draw upon dispersed information that is consolidated and averaged out. And secondly people have skin in the game, that is to say people are putting their own money on the line and this ensures a correspondence between what they predict and what they believe to be true.
Prediction markets work to align incentives by backing statements up with resources. They work to obtain truthful and relevant information through financial and other forms of incentives. With real money on the line, people have an incentive to think carefully when they’re investing and they have an incentive to collect, process and interpret all of the information available all over the world. The resulting market prices potentially reflect a lot of deep-seated and diverse information in a way which surveys or polling cannot.
Likewise because prediction markets rely on the collective view of many, not just one person’s research, they can efficiently aggregate a plethora of information, beliefs, and data.
These markets work on the principle of the wisdom of the crowd, which states that if you ask enough people something, their average answer is usually far more accurate than anyone expert, which creates a powerful forecasting tool.
The author James Michael Surowiecki posits that there are a number of necessary conditions for collective wisdom: independence of decision, diversity of information, decentralization of organization.
In the case of predictive markets, each participant normally has diversified information from others and makes their decision independently.
The market itself has a character of decentralization compared to expertise decisions. Because of these reasons, predictive markets are generally a valuable source to capture collective wisdom and make accurate predictions.
Equally the ability of the prediction market to aggregate information and make accurate predictions is based on the Efficient Market Hypothesis, which states that assets prices are fully reflecting all available information. For instance, existing share prices always include all the relevant related information for the stock market to make accurate predictions.
Prediction markets create a very dynamic system, as opposed to a seven-year plan or a yearly assessment, prediction markets can incorporate new information quickly and may be continuously updated.
BLOCKCHAIN
Using a blockchain as the IT infrastructure adds additional benefits to prediction markets. By creating prediction markets on a blockchain network we can ensure that the data always remains open and accessible to all parties. It removes the possibility for the centralized authority to alter results, it can thus be trusted, is secure and if designed well blockchain prediction markets may be difficult to manipulate.
Prediction markets may be used to provide liquidity and hedging around all forms of futures markets. We could have a prediction market for “will the price of bitcoin be more than ten thousand dollars on the first of January 2019.”
All futures markets could be migrated to the blockchain using prediction markets. Likewise, all betting, such as online sports betting, could be more securely and efficiently run on blockchain platforms.
Migrating all of these disparate betting, derivatives and futures markets, to the blockchain could create a much more interoperable system where different networks could automatically draw upon the wisdom of a given network through APIs that connect into the price of the token.
These prediction markets could work as networks that aggregate the best knowledge that we have about a given unknown event. With the knowledge in those networks then being accessible for automatic external use in smart contracts via APIs.
A smart contract ensuring a wedding event could plug into a token market predicting the outcome for the weather on a certain day and use the token price to calculate the likelihood and cost of a weather disturbance to formulate the cost of the insurance claim.