The Emergence of Enterprise Tokens

Two recent announcements have brought this topic to the fore:

Firstly, the re-ordering: I am attempting to introduce the concept of a continuum for these blockchain-related assets, which is driven by the degree that an ‘off-chain’ relationship or entity is involved in the backing, obligation or trust of the on-chain asset.

Starting from the left-hand side of the diagram, I have included two sub-types of Financial Asset Tokens.

The ‘Depository Receipt’ (1a) can be imagined as an on-chain state that is a digital representation of some type of asset or some form of value held ‘somewhere else’ which most likely would be termed the custodian. The Depository Receipt moves from owner to owner on ledger based upon the appropriate rule set, while the underlying asset remains happily in the same spot at the custodian. As you will read below, this has been the main area of focus for early CorDapp projects.

The ‘Native Asset’ (1b) is a slight move right on the continuum, as it introduces the concept of the asset or value being issued directly onto the blockchain. As a subset of a Financial Asset Token, this can be imagined as a recognizable financial asset like bonds or equity or bank deposits, that has some sort of obligation back to its issuer. The big difference from a Depository Receipt is that the token is not a representation of an asset somewhere else…the token is the asset. A large part of the recent ‘Security Token’ space would fall under this concept.

The Native Asset model holds the most near-term upside and I would suggest will be the main area of focus for CorDapp token projects, and in fact might emerge as the defining use case for Corda. The bulk of the hard work for Corda in 2016–17 (the focus on the legal-world to code-world interlock, robust contract code, a strong identity layer) was undertaken precisely to solve the problem of how to represent real-world agreements on a blockchain in a canonical/enforceable way. And Native Asset Tokens may prove to be the perfect place for the corporate world to embrace enterprise blockchain as a positively disrupting force.

Moving right, we enter the world of mostly ‘crypto assets’, where the off-chain obligations reduce to near-zero. The GDF term ‘Consumer Token’ (2) attempts to rebrand what are broadly thought of as app-tokens, where the token is the mechanism for the ‘app-economy’ participants to consume goods, services or content. Some crypto examples might be projects like FileCoin, Augur...while the ‘old school’ example would be airmiles. We have started to venture into ‘tote bag’ territory as it relates to what level of obligation that the token issuer has to the token holder. Yet there is still some ‘real world’ trust that remains, as the app provider in the end controls the rules of the game and heavily influences what the tokens can actual be used for. Going back to the airmiles example, we all know the dread of Delta or BA unilaterally re-basing or expiring hard-earned frequent flyer miles with little or no notice!

Finally, on the far right are Payment Tokens (3), which attempt to be crypto-asset version of a general purpose store of value or medium of exchange. The GDF includes the prospect of Central Bank Digital Currency (CBDC) in this bucket, but for the above model I would argue that CBDC fits more into the Depository Receipt or Native Asset bucket, depending on the implementation. The mental model for Payment Tokens is quite easy: think Bitcoin.

It might be surprising to learn that Corda-based token examples began back in 2016. What isn’t surprising: that this work is emerging from the models of Financial Asset Tokens described above.

As laid out above, there was a purposeful initial focus for Corda use cases on Depository Receipts and Native Asset Tokens, as both the business process and regulatory backdrop was by far the clearest for enterprise use cases. We’re now seeing some ‘green shoots’ for the regulatory outlook for consumer/payment tokens, and with the strong Corda foundation in place (identity, finality, legal interlock), our community is starting to explore these use cases more.

Coming back to the Cordite project, Richard Crook shared a short post on the concept of a decentralized autonomous organization (DAO) based on an existing legal framework. I am sure that most banker-types would run screaming for the hills whenever something like ‘DAO’ is uttered, but Richard makes a compelling case that this is could be designed as a technological implementation of an existing, well known structure: what he calls the ‘Digital Mutual Society’.

The attributes of an enterprise token are beginning to take shape. The token needs to be novel but of course useful (the introduction of a token cannot increase friction!). The legal and regulatory construct has to be from a solid foundation, with a clear integration and interplay with existing laws and structures (such as the role of a custodian, settlement finality, adhering to securities law). Yet I would suggest that more projects need to be done, and openly debated/discussed, to help flesh out the full picture.

Thanks to the following folks for their input for / review of this post: Richard Gendal Brown, Isabelle Corbett, Jesse Edwards, Chris McCann, David Nicol, Kevin Rutter, Roger Willis.

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