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What Is Fluidity Stack and how Is it Changing Asset Tokenization?

Tokens in a Vat of Water Surrounded by Pipes

December in 2018 has been the polar opposite of December 2017 in the cryptoverse. While bitcoin and the altcoins were establishing new all-time high values during the last year’s monumental bull run, the bears seem to have completely pulled down the industry in 2018.  Today, bitcoin is having a tough time crossing the $4,000 mark. Similarly, the majority of the altcoins have taken a massive beating throughout the year, trading as low as 90 percent from their all-time high prices.  

While the industry seems to be full of apprehension, uncertainty, and pessimism, it becomes essential to ask the ever-looming question: What now?

Is Tokenization the Future of Crypto?

Interest in Bitcoin, and at large, in the cryptocurrency industry has waned by a great extent. Although the downfall has forced many investors and speculators to exit the market, staunch believers of the technology persist.

Some claim that the plunge in market valuation may prove to be beneficial for the industry in the long-term, as it rids individuals who are only there to make a quick buck, and gives enough breathing space to the developers and believers to keep building. One such group of developers is the team at AirSwap.

A Medium post published by Michael Oved, on December 6, 2018, talks about the establishment of the “new pipes of the modern financial system” with the help of Fluidity Stack.

Tokenization is one of the most promising ideas translated to reality through the distributed ledger technology (DLT). Proponents of blockchain technology opine that the ability to automate asset functionality could prove to be the breakthrough factor for the emerging technology. It has the potential to bring all of Wall Street’s opaque operations on to an open, P2P, and decentralized network. A teaser to the immense potential of the technology is already available in the form of stablecoin-backed bonds.

Fluidity was launched in May 2018 with an aim to digitize real-world assets to facilitate their robust and frictionless movement. Later, in October 2018, the team at Fluidity joined forces with Propellr, a digital end-to-end securities platform with an efficient infrastructure to digitize securities.

The partnership resulted in the launch of The Two Token Waterfall. The platform provides an efficient infrastructure to the entire capital stack of alternative investments in a digital format. The name “two token” comes from its offering of two separate digital tokens based on the priority of payments. The senior priority payments token replicates debt securities, while the junior token replicates equity.

The structure eliminates the problems associated with market efficiency by ensuring that all the participating players in the ecosystem have equal access to information. Further, the fact that the entire capital stack is replicated allows for easy pricing of both tokens (debt and equity.) The transparent nature of the platform, coupled with the carefully designed tokens could lead to the emergence of liquid secondary markets.

Results are already piling in too, as Manhattan’s first tokenized condominium worth $36 million is now open for investors to purchase. The tokenization of the property makes it more convenient for investors to invest without any interference from banks. Substantiating on the benefits of tokenization, Ryan Serhant, the broker in charge of the first of its kind real-estate deal, told Forbes:

“The market in New York is always strong, but it can take some time to sell for the right price in a new construction building. With blockchain tokenization, we can remove the unruly pressure of traditional bank financing, which is much healthier for the project and all of the stakeholders. Tokenization is paving the way for a new forefront in real estate development.”

The deal bears a strong resemblance to the recently tokenized Andy Warhol painting. Warhol’s $5.6 million painting “14 Small Electric Chairs” was sold on blockchain-based art investment platform Maecenas to accredited participants. The cryptocurrency auction raised close to $1.7 million for a 31.5 percent stake of the artwork. The auction was solely conducted on a smart contract and saw more than 800 bidders sign up for it.

Notably, the painting was tokenized into Ethereum-based digital certificates which facilitated the interested parties to buy fractions or portions of it using ETH, BTC, or Maecenas’ native crypto, the ART token.

Overcoming the Hurdles of the Real Estate Industry

While industries such as logistics, and supply chain and have benefited greatly due to the rapid advancement of technology, real estate still suffers from some of the traditional problems associated since its inception. One of the major chinks in the armor of the industry is its lack of liquidity.

Oved noted in his post that blockchain technology can immensely disrupt the stagnant industry of real-world assets in the near future. The symbiotic relationship between the technology and the industry could work to the advantage of both. The blockchain community could also benefit as an increasing number of assets come online and allow for frictionless trade.

Similarly, the securities market could stand to gain due to the elimination of costs associated with paperwork and redundant back-office work.

The team at AirSwap believes that once these digitized tokens are available for trade, they will eventually find their place in liquid secondary markets. However, they must also duly comply with all applicable laws and regulations.

Token issuers will have the option to make their asset available for trade on AirSwap, primarily on the Ethereum blockchain. The team also has plans to develop customized products and services to support the new asset class and allow for their integration into the existing AirSwap ecosystem.

Conclusion

The Two Token Waterfall is just the beginning of a long journey for Fluidity. By automating more of the stack and expanding the framework of the platform, more opportunities to create and distribute value will likely emerge. Oved highlighted that the platform’s tokenization structure would extend horizontally to cover more asset classes.

Fluidity’s vision consists of the creation of an institutionally-adoptable infrastructure for trading, reconciling, settling, servicing, and reporting for a vast array of assets.

With 2019 being touted as the year of stablecoins, it will be interesting to see how the less volatile cousin of cryptocurrencies impacts the industry. The increasing popularity of the digital asset class could play to the entire ecosystem’s eventual success.  Although the current morale of the cryptoverse is at an all-time low, successful, well-thought-out tokenized projects could pave the way for much required “stability” which could propel the industry to new heights in the future.

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