This past week, at the Eurofi High Level Seminar in Sofia, Bulgaria, Commodity Futures Trading Commission (CFTC) commissioner Brian Quintenz shared his views on the "tokenization revolution" and the evolving US regulatory framework for cryptocurrencies. "I believe it is important to separate the idea of cryptocurrencies, whose main purpose is only to serve as a medium of exchange or a store of value, from the proliferation of 'tokens' generally," he declared.
Note: For our purposes, it's best to understand tokenization as the blockchain-based representation of goods or services.
Quintenz said that tokenization can be used:
- as a "marketing ploy,"
- for potential efficiency improvements in tracking asset ownership, or
- to create secondary markets for intangible goods and services.
In simpler terms, the first category is purely about capitalizing on the "speculative mania surrounding all things 'token.'" To some, blockchain technology is the flavor of the day, a chance to cash in or gain traction with the latest buzzword. Take, for example, Oscar Mayer's new Bacoin, which presents itself as a cryptocurrency but is essentially a digital coupon for bacon. Each Bacoin grows in value depending on how many times it is shared on social media but it can only be redeemed for Oscar Mayer brand bacon, and it can't be cryptographically mined. The marketing campaign is cutesy, but it doesn't drive our society forward.
The second category, Quintenz explained, is about using tokens to "enable and realize the efficiency of the blockchain construct in assigning and tracking ownership." He referred to this as the "back office tokenization revolution," and predicted that this "will continue to have an impact on title transfer and settlement processes." Here, readers may consider the possibility of using blockchain technology for land registry services (though obvious challenges remain).
The commissioner's third category was about "empowering a secondary market's price discovery and valuation functions for products that were previously untransferable." Of the three designations, this is perhaps the most difficult to analyze concretely. Quintenz offered the example of building an economy for storage space on home computers (see: Filecoin).
Fundamentally, commissioner Quintenz's remarks speak to the importance of:
- separating the wheat from the chaff,
- recognizing that technological improvements (blockchain or otherwise) seem likely to increase the velocity of global business, and
- the changing of market structures themselves over time (e.g., as demonstrated by the sharing economy).
Later in his speech, the commissioner remarked upon the absence of oversight authority in the cryptocurrency spot markets. "From our own perspective, the CFTC has both oversight and enforcement authority over derivatives on commodity cryptocurrencies, but only enforcement authority over the spot transactions of commodity cryptocurrencies," Quintenz explained.
In other words, the CFTC can keep an eye on and police the exchange of bitcoin futures. By comparison, for conventional bitcoin exchange, the CFTC has teeth, but the agency can't set customer protection and compliance standards for platforms. Quintenz added, "From my perspective as a CFTC Commissioner, I think the area with the greatest need for enhanced regulatory certainty and oversight is the spot market."
ETHNews previously reported on Commissioner Quintenz's assertion that tokens may "transform" from securities into commodities. Not everybody agrees with his take, including former CFTC chairman Gary Gensler. "I don't think there's any precedent in the law for a security to transform to be something else," Gensler told an audience at the MIT Technology Review's Business of Blockchain Conference last week. "But this is an issue on the table and it's a worthy debate."