Precious metals tokenization – this year greatest game-changer
Maciej Zieliński
28 Jan 2021
Last year, the price of gold broke through historic highs pulling in increased investment in other precious metals as well. Given the very good forecasts for the current year, we discuss why it is time to tokenize them.
Both gold and silver have been popular investments for thousands of years. Currently, precious metals are finding more and more industrial and investment applications, while the scale of their extraction still remains relatively limited. As their value increases, so does the degree and dynamics of Blockchain technology development. There are many indications that tokenization of precious metals may become one of its most significant applications.
Tokenization of precious metals - why it makes sense?
Precious metal-backed tokens can be traded continuously and globally, making them far more liquid than virtually any other form of precious metal ownership. They are also easier to store securely and do not carry the risk of theft associated with physical storage of the metal by the purchaser.
Because tokens are created using blockchain technology they are traded in a decentralised manner. This means that no person or institution can influence the process of buying and selling them if it does not comply with the established rules. Furthermore, the nature of decentralised markets forces the entity issuing the tokens to follow best practices, such as transparent auditing and safekeeping of the assets backing the tokens. The buyer of tokens therefore has virtually direct access to the assets held without the need for physical storage.
Tokenization of precious metals = security
It is security that is the greatest asset of this decentralisation. At present, the precious metals market is not free of scams and uncertainties. The recent case of JP Morgan, which is under criminal investigation for manipulating silver prices, is a clear illustration of this. The decentralisation of the precious metals market is capable of providing a new level of transparency in transactions. Yet it is the lack of this that is responsible for most of the theft, fraud and manipulation associated with traditional markets.
Silver tokenization
Silver Cryptocoin is a Danish company that wanted to allow investors a more convenient way to buy and store silver. To this end, it relied on tokenization. Instead of buying physical silver, an investor can buy its digital equivalent on the Ethereum blockchain. The resulting ERC20 token is fully backed by bullion safely stored by the company. The investor can conveniently sell their tokens on cryptocurrency exchanges or directly on a peer-to-peer basis.
It was Nextrope that created a dedicated token purchasing platform for the company, which it integrated with the Ethereum blockchain. If you want to know more about the whole project, check out our portfolio.
Certainty of origin
With the slow depletion of existing deposits, public interest in the ethics of extraction methods is growing. In the 21st century, the clarity of the origin of precious metals has become almost as important as their price. At the same time, in the case of gold, for example, the share of illegal and informal mining has virtually only increased since 2000.
In addition to creating a new investment mechanism, blockchain is able to completely modernise the precious metals supply chain. The origin of precious metals can be made fully transparent by using decentralised certification technologies such as IDWorksand securing all relevant information through a private blockchain (e.g. Corda's R3 network).
In short, blockchain technology allows for the unalterable recording and independent verification of data relating to each stage of the supply chain of a specific raw material. As a result, it becomes possible to precisely trace its path and detect any attempts at manipulation or fraud.
Gold price chart from May 2016 to today
Tokenization of precious metals - future prospects
Of course, many commodities benefit from tokenization, but it is perhaps the tokenisation of those with the highest value that has the most advantages. Precious metals are one of the best assets for protecting capital from inflation and market fluctuations. And with tokenization, trading them becomes simpler than ever. Therefore, in addition to the existing tokens secured by gold or silver, those using other precious metals should soon appear. What will be next? Platinum? Palladium? The possibilities are endless...
All indications are that precious metal tokenization will be one of the hottest fintech trends in 2021!
What is Berachain? 🐻 ⛓️ + Proof-of-Liquidity Explained
Karolina
18 Mar 2024
Enter Berachain: a high-performance, EVM-compatible blockchain that is set to redefine the landscape of decentralized applications (dApps) and blockchain services. Built on the innovative Proof-of-Liquidity consensus and leveraging the robust Polaris framework alongside the CometBFT consensus engine, Berachain is poised to offer an unprecedented blend of efficiency, security, and user-centric benefits. Let's dive into what makes it a groundbreaking development in the blockchain ecosystem.
Berachain is an EVM-compatible Layer 1 (L1) blockchain that stands out through its adoption of the Proof-of-Liquidity (PoL) consensus mechanism. Designed to address the critical challenges faced by decentralized networks. It introduces a cutting-edge approach to blockchain governance and operations.
Key Features
High-performance Capabilities. Berachain is engineered for speed and scalability, catering to the growing demand for efficient blockchain solutions.
EVM Compatibility. It supports all Ethereum tooling, operations, and smart contract languages, making it a seamless transition for developers and projects from the Ethereum ecosystem.
Proof-of-Liquidity.This novel consensus mechanism focuses on building liquidity, decentralizing stake, and aligning the interests of validators and protocol developers.
EVM compatibility means a blockchain can interact with Ethereum's ecosystem to some extent. It can interact supporting its smart contracts and tools but not replicating the entire EVM environment.
EVM-Equivalent
An EVM-equivalent blockchain, on the other hand, aims to fully replicate Ethereum's environment. It ensures complete compatibility and a smooth transition for developers and users alike.
Berachain's Position
Berachain can be considered an "EVM-equivalent-plus" blockchain. It supports all Ethereum operations, tooling, and additional functionalities that optimize for its unique Proof-of-Liquidity and abstracted use cases.
Berachain Modular First Approach
At the heart of Berachain's development philosophy is the Polaris EVM framework. It's a testament to the blockchain's commitment to modularity and flexibility. This approach allows for the easy separation of the EVM runtime layer, ensuring that Berachain can adapt and evolve without compromising on performance or security.
Proof Of Liquidity Overview
High-Level Model Objectives
Systemically Build Liquidity. By enhancing trading efficiency, price stability, and network growth, Berachain aims to foster a thriving ecosystem of decentralized applications.
Solve Stake Centralization. The PoL consensus works to distribute stake more evenly across the network, preventing monopolization and ensuring a decentralized, secure blockchain.
Align Protocols and Validators. Berachain encourages a symbiotic relationship between validators and the broader protocol ecosystem.
Proof-of-Liquidity vs Proof-of-Stake
Unlike traditional Proof of Stake (PoS), which often leads to stake centralization and reduced liquidity, Proof of Liquidity (PoL) introduces mechanisms to incentivize liquidity provision and ensure a fairer, more decentralized network. Berachain separates the governance token (BGT) from the chain's gas token (BERA) and incentives liquidity through BEX pools. Berachain's PoL aims to overcome the limitations of PoS, fostering a more secure and user-centric blockchain.
Berachain EVM and Modular Approach
Polaris EVM
Polaris EVM is the cornerstone of Berachain's EVM compatibility, offering developers an enhanced environment for smart contract execution that includes stateful precompiles and custom modules. This framework ensures that Berachain not only meets but exceeds the capabilities of the traditional Ethereum Virtual Machine.
CometBFT
The CometBFT consensus engine underpins Berachain's network, providing a secure and efficient mechanism for transaction verification and block production. By leveraging the principles of Byzantine fault tolerance (BFT), CometBFT ensures the integrity and resilience of the Berachain blockchain.
Conclusion
Berachain represents a significant leap forward in blockchain technology, combining the best of Ethereum's ecosystem with innovative consensus mechanisms and a modular development approach. As the blockchain landscape continues to evolve, Berachain stands out as a promising platform for developers, users, and validators alike, offering a scalable, efficient, and inclusive environment for decentralized applications and services.
Resources
For those interested in exploring further, a wealth of resources is available, including the Berachain documentation, GitHub repository, and community forums. It offers a compelling vision for the future of blockchain technology, marked by efficiency, security, and community-driven innovation.
FAQ
How is Berachain different?
It integrates Proof-of-Liquidity to address stake centralization and enhance liquidity, setting it apart from other blockchains.
Is Berachain EVM-compatible?
Yes, it supports Ethereum's tooling and smart contract languages, facilitating easy migration of dApps.
Can it handle high transaction volumes?
Yes, thanks to the Polaris framework and CometBFT consensus engine, it's built for scalability and high throughput.
As simple as it may sound, the decision on the release schedule of tokens is anything but that. It's a strategic choice that can have significant consequences. A well-thought-out token release schedule can prevent market flooding, encourage steady growth, and foster trust in the project. Conversely, a poorly designed schedule may lead to rapid devaluation or loss of investor confidence.
In this article, we will explore the various token release schedules that blockchain projects may adopt. Each type comes with its own set of characteristics, challenges, and strategic benefits. From the straightforwardness of linear schedules to the incentive-driven dynamic releases, understanding these mechanisms is crucial for all crypto founders.
The linear token release schedule is perhaps the most straightforward approach to token distribution. As the name suggests, tokens are released at a constant rate over a specified period until all tokens are fully vested. This approach is favored for its simplicity and ease of understanding, which can be an attractive feature for investors and project teams alike.
Characteristics
Predictability: The linear model provides a clear and predictable schedule that stakeholders can rely on. This transparency is often appreciated as it removes any uncertainty regarding when tokens will be available.
Implementation Simplicity: With no complex rules or conditions, a linear release schedule is relatively easy to implement and manage. It avoids the need for intricate smart contract programming or ongoing adjustments.
Neutral Incentives: There is no explicit incentive for early investment or late participation. Each stakeholder is treated equally, regardless of when they enter the project. This can be perceived as a fair distribution method, as it does not disproportionately reward any particular group.
Implications
Capital Dilution Risk: Since tokens are released continuously at the same rate, there's a potential risk that the influx of new tokens into the market could dilute the value, particularly if demand doesn't keep pace with the supply.
Attracting Continuous Capital Inflow: A linear schedule may face challenges in attracting new investors over time. Without the incentive of increasing rewards or scarcity over time, sustaining investor interest solely based on project performance can be a test of the project's inherent value and market demand.
Neutral Impact on Project Commitment: The lack of timing-based incentives means that commitment to the project may not be influenced by the release schedule. The focus is instead placed on the project's progress and delivery on its roadmap.
In summary, a linear token release schedule offers a no-frills, equal-footing approach to token distribution. While its simplicity is a strength, it can also be a limitation, lacking the strategic incentives that other models offer. In the next sections, we will compare this to other, more dynamic schedules that aim to provide additional strategic advantages.
Growing Token Release Schedule
A growing token release schedule turns the dial up on token distribution as time progresses. This schedule is designed to increase the number of tokens released to the market or to stakeholders with each passing period. This approach can often be associated with incentivizing the sustained growth of the project by rewarding long-term holders.
Characteristics
Incentivized Patience: A growing token release schedule encourages stakeholders to remain invested in the project for longer periods, as the reward increases over time. This can be particularly appealing to long-term investors who are looking to maximize their gains.
Community Reaction: Such a schedule may draw criticism from those who prefer immediate, high rewards and may be viewed as unfairly penalizing early adopters who receive fewer tokens compared to those who join later. The challenge is to balance the narrative to maintain community support.
Delayed Advantage: There is a delayed gratification aspect to this schedule. Early investors might not see an immediate substantial benefit, but they are part of a strategy that aims to increase value over time, aligning with the project’s growth.
Implications
Sustained Capital Inflow: By offering higher rewards later, a project can potentially sustain and even increase its capital inflow as the project matures. This can be especially useful in supporting long-term development and operational goals.
Potential for Late-Stage Interest: As the reward for holding tokens grows over time, it may attract new investors down the line, drawn by the prospect of higher yields. This can help to maintain a steady interest in the project throughout its lifecycle.
Balancing Perception and Reality: Managing the community's expectations is vital. The notion that early participants are at a disadvantage must be addressed through clear communication about the long-term vision and benefits.
In contrast to a linear schedule, a growing token release schedule adds a strategic twist that favors the longevity of stakeholder engagement. It's a model that can create a solid foundation for future growth but requires careful communication and management to keep stakeholders satisfied. Up next, we will look at the shrinking token release schedule, which applies an opposite approach to distribution.
Shrinking Token Release Schedule
The shrinking token release schedule is characterized by a decrease in the number of tokens released as time goes on. This type of schedule is intended to create a sense of urgency and reward early participants with higher initial payouts.
Characteristics
Early Bird Incentives: The shrinking schedule is crafted to reward the earliest adopters the most, offering them a larger share of tokens initially. This creates a compelling case for getting involved early in the project's lifecycle.
Fear of Missing Out (FOMO): This approach capitalizes on the FOMO effect, incentivizing potential investors to buy in early to maximize their rewards before the release rate decreases.
Decreased Inflation Over Time: As fewer tokens are released into circulation later on, the potential inflationary pressure on the token's value is reduced. This can be an attractive feature for investors concerned about long-term value erosion.
Implications
Stimulating Early Adoption: By offering more tokens earlier, projects may see a surge in initial capital inflow, providing the necessary funds to kickstart development and fuel early-stage growth.
Risk of Decreased Late-Stage Incentives: As the reward diminishes over time, there's a risk that new investors may be less inclined to participate, potentially impacting the project's ability to attract capital in its later stages.
Market Perception and Price Dynamics: The market must understand that the shrinking release rate is a deliberate strategy to encourage early investment and sustain the token's value over time. However, this can lead to challenges in maintaining interest as the release rate slows, requiring additional value propositions.
A shrinking token release schedule offers an interesting dynamic for projects seeking to capitalize on early market excitement. While it can generate significant early support, the challenge lies in maintaining momentum as the reward potential decreases. This necessitates a robust project foundation and continued delivery of milestones to retain stakeholder interest.
Dynamic Token Release Schedule
A dynamic token release schedule represents a flexible and adaptive approach to token distribution. Unlike static models, this schedule can adjust the rate of token release based on specific criteria. Example criteria are: project’s milestones, market conditions, or the behavior of token holders. This responsiveness is designed to offer a balanced strategy that can react to the project's needs in real-time.
Characteristics
Adaptability: The most significant advantage of a dynamic schedule is its ability to adapt to changing circumstances. This can include varying the release rate to match market demand, project development stages, or other critical factors.
Risk Management: By adjusting the flow of tokens in response to market conditions, a dynamic schedule can help mitigate certain risks. For example: inflation, token price volatility, and the impact of market manipulation.
Stakeholder Alignment: This schedule can be structured to align incentives with the project's goals. This means rewarding behaviors that contribute to project's longevity, such as holding tokens for certain periods or participating in governance.
Implications
Balancing Supply and Demand: A dynamic token release can fine-tune the supply to match demand, aiming to stabilize the token price. This can be particularly effective in avoiding the boom-and-bust cycles that plague many cryptocurrency projects.
Investor Engagement: The flexibility of a dynamic schedule keeps investors engaged, as the potential for reward can change in line with project milestones and success markers, maintaining a sense of involvement and investment in the project’s progression.
Complexity and Communication: The intricate nature of a dynamic schedule requires clear and transparent communication with stakeholders to ensure understanding of the system. The complexity also demands robust technical implementation to execute the varying release strategies effectively.
Dynamic token release schedule is a sophisticated tool that, when used judiciously, offers great flexibility in navigating unpredictable crypto markets. It requires a careful balance of anticipation, reaction, and communication but also gives opportunity to foster project’s growth.
Conclusion
A linear token release schedule is the epitome of simplicity and fairness, offering a steady and predictable path. The growing schedule promotes long-term investment and project loyalty, potentially leading to sustained growth. In contrast, the shrinking schedule seeks to capitalize on the enthusiasm of early adopters, fostering a vibrant initial ecosystem. Lastly, the dynamic schedule stands out for its intelligent adaptability, aiming to strike a balance between various stakeholder interests and market forces.
The choice of token release schedule should not be made in isolation; it must consider the project's goals, the nature of its community, the volatility of the market, and the overarching vision of the creators.
FAQ
What are the different token release schedules?
Linear, growing, shrinking, and dynamic schedules.
How does a linear token release schedule work?
Releases tokens at a constant rate over a specified period.
What is the goal of a shrinking token release schedule?
Rewards early adopters with more tokens and decreases over time.
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