Tag Archives: #Cryptographic Assets

Ticket scalpers? Blockchain could fix that!

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Music fans of a certain age and demographic have been complaining loudly about the use of “dynamic pricing” when trying to buy tickets for their favourite band’s highly anticipated reunion tour. (There must be a pun in there about “Don’t book online in anger”?)

Part of the rationale given for using a demand-based pricing system is to disincentivise scalpers. The higher the cost of the ticket in the primary market (not the same as the ticket’s face value), the smaller the potential mark-up in the secondary market. Except that some tickets with a face value of $150 were priced at $450 at the box office, only to be re-advertised in the secondary market for several thousand dollars. In other words, the touts have simply increased their margins, in response to the so-called dynamic pricing mechanism.

Without offering any sort of apology or mea culpa, the said band have now announced additional tour dates, tickets for which will be allocated and sold in a form of ballot. Stop me if you think I’m being cynical, but by quickly adding dates to an existing tour itinerary, it shows that the band knew there would be excess demand, because it’s not that easy to reserve major (and highly profitable) venues, even 12 months in advance. And if they can run a ballot system now, why couldn’t they have done that in the first place?

All of which simply shows how out of touch bands like this are with technology and market dynamics. In short, ticket sales and allocations could have been achieved far more equitably if the band and their promoters had chosen to use blockchain, crypto and web3.0 solutions.

Here’s a simple list of options that could have been used:

1. Issue all tickets as NFTs (non-fungible tokens)

2. Limit the number of tickets per digital wallet and/or the number of wallets per ticket buyer

3. Ensure the use of soul-bound tokens to link wallet ownership and ID to specific individuals (to limit the number of tickets per wallet, and to limit the resale of tickets)

4. Run social media campaigns, quests and airdrops to allocate and distribute tokens that entitle holders to a place in the ticket queue – e.g., the more active a wallet holder is in the band’s fan community, the higher their chance of securing a priority place in the ticket queue

5. Pre-publish the expected ticket price ranges, and enable wallet holders to vote on the minimum/maximum price they would be willing to pay (using something like Snapshot)

6. Cap the amount an NFT-based ticket can be sold for in the secondary market or write the token smart contract to allocate a percentage of the resale value as a commission to the ticket issuer

Of course, the UK competition regulators are taking a close look at this ticketing fiasco, to see if so-called dynamic pricing breached fair trading or other consumer protection laws. If punters were not aware that they may have to pay far more than the advertised or face value of a ticket, this would appear to be unfair and unconscionable conduct. It’s potentially a form of under-quoting – advertise the ticket at a artificially low price, then force buyers to pay well over the face value at the actual point of sale (under the guise of “market demand”), knowing full well that the fans had little or no choice in the matter.

One final thought – knowing the volatile history of this band, the chances are that the concerts (or at least some of them) may be cancelled. Hopefully, the ticket agent and box office operators won’t be counting the advance ticket sales as recognised revenue, rather they are required to hold the funds in a verified escrow account until the performances are delivered and the ticket revenue actually earned….. (again, something that could be easily factored into a smart contract – no release of funds until the loud-mouth sings?).

Next week: Cooking the books?

 

 

 

RWAs and the next phase of tokenisation

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In the blockchain and digital asset communities, there are currently three key topics that dominate the industry headlines. In the short term, the spot Ethereum ETFs are finally due to launch in the USA this week. Then there is the perennial long-term price prediction for Bitcoin. In between, much of the debate is about the future of asset tokenisation, specifically for real-world assets (RWAs). Add to the mix the cat and mouse game of regulatory oversight/overreach and the rapid growth of fiat-backed stablecoins, and there you have all the elements of the crypto narrative for the foreseeable future.

The general view is that tokenising traditional assets such as real estate, equities, bonds, commodities, stud fees, art and intellectual property, and issuing them as digital tokens on a blockchain has several benefits. Tokenisation should reduce origination and transaction costs (fewer intermediaries, cheaper technology); reduce settlement times (instant, compared to T+1, T+2, T+3 days in legacy markets); democratize access to assets (using fractionalisation) that were previously available only to wholesale investors; and give rise to further innovation. For example, imagine hybrid tokens that comprise equity ownership; a right to a share of revenue streams; and membership discounts. Think of a tokenised toll road, or a sports stadium, or an art work that gets hired out to galleries and is licensed for merchandising purposes.

There are still quite a few issues to iron out, such as: the technology standards and smart contract designs that will originate, issue, distribute, track, cryptographically secure and transfer the digital tokens, both on native blockchains and across multiple networks; the role of traditional players (brokers, underwriters, custodians, trustees, transfer agents, payment agents, and share registries), and whether they are needed at all once assets are secured on-chain; and verification, certification and chain of ownership (given that an asset expressed as a digital token is very similar to a bearer bond – my private keys, my asset).

Last week, Upside in Melbourne hosted a panel discussion entitled: “Tokenise This! Unlocking the Value of Real World Asset Tokenisation”. The speakers were:

Richard Schroder, Head of Digital Asset Services, ANZ Bank

Lisa Wade, CEO, DigitalX

Andrew Sallabanks, Head of Strategy and Operations, CloudTech Group

Alan Burt, Executive Chairman, Redbelly Network

Shane Verner, A/NZ Sales Director, Fireblocks

Each of these firms has been working on a number of tokenisation projects such as stablecoins, real estate, government bonds, credit portfolios, fund of funds, and even stud fees. The key message was “faster, cheaper” is not good enough – RWA tokenisation solutions must offer something that is much better than traditional processes, and does not add friction (if anything, it should reduce current friction).

There were frequent references to fiat-backed stablecoins. In some ways, the tokenisation of real estate, bonds and equities is an extension of the tokenisation of money (as illustrated by stablecoins). However, there was no specific mention for the role of stablecoins in RWA tokensiation, for example, as on/off ramps, and as settlement instruments for the pricing, transfer and valuation of RWAs.

From an Australian perspective, the prospect of regulation (particularly for custody, crypto exchanges and brokers, and payment platforms that use stable coins) looms large. Generally, this was welcomed, to provide clarity and certainty. But without some specific provisions for crypto platforms and digital assets, if everything is brought under the existing ASIC/AFSL regime it will exclude many startups and smaller providers due to exorbitant capital adequacy and insurances etc.

Finally, despite the nature of the organisations they work for, all of the panelists agreed that “cryptographic trust is better than institutional trust”.

The potential for tokenising traditional assets has been around for several years. And while it is still relatively early in its evolution, the few listing and trading platforms for tokenised assets that have already launched have struggled to gain traction. They have few listings, limited liquidity, and minimal secondary trading – so, lack market depth. It feels that while the market opportunity may be huge (and the enabling technology is already here), there needs to be a more compelling reason to adopt tokenisation. Hopefully, that will emerge soon.

Next week: Album Celebrations

 

The Crypto Conversation

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A short post this week – mainly to give a shout out to my colleague, Andy Pickering, and the rest of the team at Brave New Coin. Andy kindly invited me to help celebrate the 250th edition of The Crypto Conversation, his regular podcast that has featured a pantheon of leading characters from the crypto and blockchain industry. On this recent edition, we talk about my journey into crypto, the highs (and lows) after six years in the industry, some aspects of “trust”, the usual Crypto Conversation “Hot Takes” and of course, a slightly contentious discussion on science fiction. Enjoy.

Listen here:

Spotify

Apple

Libsyn

Next week: The bells, the bells….

 

To be or NFT?

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If there’s one consistent lesson to be learned from Blockchain and crypto is that the enabling technology often outpaces our understanding of the viable use case, commercial application or sustainable business model. For example, smart contracts have only recently proven their value with the rise of decentralized finance (DeFi). Even then, they are not perfect and if not well-coded can result in hacks, losses or other damage. Plus, until scaling (transaction throughput) and gas fees (transaction costs) are properly resolved, mass adoption is still some way off.

CryptoPunk #7523 (Image sourced from Reuters)

The latest crypto phenomenon is the market for NFTs (non-fungible tokens). Artworks in the form of digital files are being created, auctioned and traded for serious (or very silly?) amounts of money – just Google EtherRock, Beeple, CryptoPunk or Rare Pepe for recent examples.

NFTs are not just confined to digital art – animation, video, music and text are all being created in the form of NFTs. In addition, NFTs are being minted to represent ownership or other IP rights for physical artworks, real estate assets, collectibles and luxury goods.

Why would anyone pay the best part of US$12m for the original digital file of CryptoPunk #7523, a copy of which I have displayed above?

Perhaps we need to consider the following:

First, the image above is simply a low-res web image, easily reproduced via copy and paste – it’s not the “real” image as represented by the code or digital file embedded in the NFT. The original file is owned by the NFT buyer, and if it is an edition of one, then that is the only authentic version. Scarcity (as well as kudos) is a key market driver in NFTs – but only if someone else attaches financial value to the work (just as in any art market).

Second, owning the NFT does not necessarily mean you own the copyright or other rights associated with the art work. (I may own a Picasso painting, but I don’t own the image contained in the work.) So, apart from holding an NFT in your digital wallet or displaying it in a virtual art gallery, the only right you have is to re-sell the work. This means you can’t commercialise the image for t-shirts, on-line redistribution or reproduction (unless the owner has agreed to grant such rights within the NFT). (My use of the image here would be covered by the “fair use” principle, for the purposes of illustration and/or critical analysis.)

Third, unless you are able to export the NFT from the marketplace or platform that sold it, the NFT may “vanish” if the platform goes offline for any reason. (Doubtless, platforms need to enable token transfers to other market places and to users’ own digital wallets, otherwise there could be a lot of stranded and/or worthless NFTs in years to come.)

Fourth, the creator of the original work may be entitled to a % of the resale value of the NFT. This is obviously an important consideration for artists and other content creators, and I see this as a positive development. By extension, musicians, authors, film-makers and designers can more easily track and control the downstream revenue generated by the use and licensing of their works by third-party marketplaces, streaming platforms or 3D printing and fabrication services.

Fifth, NFTs support improved authentication, provenance and chain of ownership, as well as bringing more transparency to the world of art auctions – valuations, bidding and prices could all be hashed on the Blockchains that track the NFTs.

Finally, if NFTs are seen as a form of bearer bond (linking ownership to whomever controls the token), they could also be used to package up a portfolio of different crypto or digital assets, and auctioned as a single lot. The buyer could then unlock the disparate assets, and combine them into subsequent bundles – bringing a new dimension to block trades and the transfer of large bundles of stocks.

Next week: I got nothing