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Real-world resources need real-world utility
Disclosure: The views and opinions expressed herein are solely those of the author and do not represent the views and opinions of the crypto.news editorial.
Ask anyone or look at any poll on Twitter and “real world assets” will be considered catalysts for the next bull run. While we agree with this sentiment, we must keep one thing in mind. Assets, as we know them, have very little utility beyond speculation, and to achieve mass interest we must go beyond speculation to create actual utility.
Improving utility services promotes user adoption; as people experience the benefits of tokens in their daily lives, they will begin to see them as indispensable allies in their lives. So if the next bull run is triggered in part by the tokenization of real-world assets, then we must also pursue real-world utility.
Beyond dApps to self-referential tokens
Decentralized applications are still centralized thinking. Although their backend uses decentralized technologies, they still operate under the traditional premise that the important thing is the application, not the token. In a dApp-centric world, the app is the utility, not the tokens. It provides the functionality and hosts the interface that provides access to that functionality.
To get real utility in the real world, we need to go beyond the app and put the utility into the token. All you need is a wallet; tokens carry all other utilities. The token becomes a dApp itself and takes that utility wherever it goes.
The token should be the communication channel between the issuer and the owner; it should provide the owner with all information on the underlying prices and assets. It should be able to be connected to a wallet and provide the full experience without another dApp. All these elements increase the value of the token itself, simply making the token self-referential.
This also future-proofs the experience, as token holders can access the utility on any platform they choose and app developers don’t need to redesign an application for every new operating system that emerges.
Off-chain utility
The utility of tokens has also only been examined through the lens of on-chain. While blockchains are great for creating some utilities, such as ownership and user rights, they are not great databases for all things. They are slow, public and immutable. These aren’t great qualities for applications that require latency, the ability to easily update and fix bugs, and for situations where token issuers don’t want all of their customer data to be public.
The fork between these two worlds allows token utilities to be managed as easily as any website, keeps data private, and runs experiences with web2 latency. This unlocks a world of use cases that on-chain logic can’t solve alone.
For example, we created the Smart Cat game as an example of a token with an interactive application with a visual front end. To do this effectively, you need both on-chain and off-chain logic: on-chain to handle ownership, while off-chain to handle the front-end game logic for a smooth and enjoyable user experience.
By allowing tokens to move beyond the limitations of the blockchain and embrace off-chain logic, we can begin to explore real-world utility that makes sense to the world beyond simply being on-chain assets, ironically isolated from the “world real” that they represent.
Greater price discovery
A simple real-world utility that any token could carry is information, and a simple and powerful set of information that any token could carry would be price discovery. This simple utility can be applied to any token, since any token is an asset and has value.
Take a game token, for example. You are playing a character and have reached level 9 out of 10, unlocking new game levels for you. The token can now let you know that the going rate for a token at level 9 is $X and, in the same interface, allows you to rent or sell the asset. While that information is dynamic and stored off-chain, it is transferred with the token giving it new utility.
This information is conveyed as a utility, helping the end consumer to know the full value of the good and the seller to convey the true value of the good. It’s a simple real world utility.
Advanced digital experiences
In addition to token gating and proof of ownership, advanced utilities such as communication channels or tokens themselves that are applications can open a new era of functionality.
For example, you shouldn’t need to download a car app; your token may allow you to access critical functions such as unlocking, finding or starting your car. This removes all consumer friction from the car buying experience. No apps to download, no registration required and no information settings; it’s all transmitted with the token.
Real-world utility, such as asset management, could allow you to manage your assets directly from the token. Price discovery on your car rental and sales rates allows the owner to maximize their equity. With a simple click of the button on the token, the owner can rent the vehicle at those rates, apply for a loan, or sell the car.
Additionally, the token issuer can communicate directly with the token. Manufacturers can notify you directly via token of any defects, service needs or offers. Real-world utility both on and off-chain can enable a better car ownership experience and create greater value for society.
In the real world
Real-world usefulness should, of course, extend to the real world as well. The more a token is able to integrate into the world around it, the greater its value. The car token can easily connect to your gas station, keeping up with all service logs, and game assets can go beyond being static proofs of ownership to become dynamic interactive experiences. Not between games, but between games and the outside world.
Just as a token can carry information, it can carry on-chain and off-chain logic. This is a utility that can let any third party know how to interact with the token in real time. For example, you go to McDonald’s and connect your game token to the kiosk where you order your food. McDonald’s can read the token and offer to take you to the next level if you upgrade your meal to the next size. Upgrade your meal and they instantly improve your gameplay. All through the token.
We are very early in the world of token utility, but as we enable real-world assets, we should consider an equal dose of real-world utility to go along with them. We need to go beyond the basics of proof of ownership and token gating to create enough value for the world to care about tokens beyond speculation.
Innovations like allowing tokens to become the center of our digital worlds, seeing them as communication channels, helping owners better manage their assets, and enabling others to have greater price discovery are just some of the ways we can get started. All this is possible today if we are ready.
Matthew Sweezey
Matthew Sweezey is the chief strategy officer at Smart Token Labs, a blockchain-based service network that facilitates the execution of token logic. Mathew is a former co-founder of Salesforce Web3 Studio, where he helped create Salesforce’s first commercial web3 products and worked with the world’s largest brands on their web3 strategy.