Author: Daniel Taylor, Policy Director at Zumo
The X community of cryptocurrency believes the token is dead. Here’s where they are right—and completely wrong.
If one chart could summarize the current state of cryptocurrency tokens, it would be the one from Bloomberg comparing Bitcoin (BTC) to a basket of altcoins. Bitcoin holders are elated, watching it approach all-time highs. Token holders, on the other hand, are battered, watching their holdings dwindle as Bitcoin soars.
The proportion of BTC in the average retail investor's portfolio has dropped to just 11.6%, and this divergence is painful. This is the story of how tokens have failed—and why they still have a chance.
The derailment of the token wagon boils down to three well-known factors.
Ironically, cryptocurrency has succumbed to insider concentration and almost entirely opaque value capture.
In recent years, large crypto projects have allocated most tokens to teams and private backers at launch, leaving only a small portion for the public.
It has become commonplace to assume that most tokens will enter private rounds, and that tokens should experience a 95% depreciation after public issuance.
This is not something anyone should accept.
Utility tokens and governance tokens are misunderstood by investors as passive price appreciation tools. People want to believe that holding tokens passively can lead to price increases, while typically active protocol actions—staking or providing liquidity—are what allow participants to directly share in the value of the network or application.
The price charts of well-known utility tokens and governance tokens reflect this confusion, as well as the general lack of correlation between tokens and equity-like income sharing. And this is still in reference to a few token projects that have any income to link.
Investors are primarily confined to the "cryptocurrency" token market. This means there is no large-scale (legally robust) access to tokenized forms of "real-world" assets, whether stocks, bonds, or any other existing assets.
In short, this is how we got to where we are today: most crypto tokens struggle to maintain long-term constructive market performance.
Nevertheless, it is evident that long-standing structural flaws are finally being addressed. In terms of token fundraising, frameworks like the EU's Markets in Crypto-Assets Regulation (MiCA) demonstrate how regulation can drive innovation and provide guardrails.
With proper disclosure, EU investors now have a regulatory framework to participate in public token offerings. This has sparked a wave of broadly accessible token fundraising projects aimed at revitalizing the essence of initial coin offerings: open public access to early investment opportunities based on value rather than relationships, regulatory exclusion, or privileged status.
In terms of token structure, the emerging regulatory clarity around issuer expectations lays the groundwork for higher-quality assets.
Tokens designed to provide tangible value to investors often suffer from regulatory ambiguity and a desire to avoid being constrained by traditional investment regulations. However, as shown by the UK's emerging approach to token issuance, regulation will now involve crypto tokens regardless. It doesn't matter whether you offer "unbacked" crypto assets or tokens more akin to securities. The applicable concepts—asset trading authorization, market abuse controls, investor information documents, and insider disclosures—are the same for everyone.
Setting aside the burdens and necessary adaptations, this is a good thing in the long run.
Tokens can be designed from the outset to capture value for holders. More importantly, doing anything else will no longer be an option. Strict token disclosures will soon expose manipulative token economics. And the exhaustive due diligence requirements imposed on centralized execution venues will prevent all but the highest quality assets from entering widespread trading.
This does not preclude investors' freedom of choice in decentralized environments. However, in terms of broader token design, it will highlight where the emperor has no clothes.
Finally, in the realm of real-world assets (RWA), crypto investors can expect to invest in a full suite of tokenized assets, not just crypto-native tokens. Providing tokenized RWAs is primarily a legal issue rather than a technical one. How are the underlying assets and rights secured and guaranteed? This sub-industry of tokenization that requires traditional finance needs government involvement.
Both are fully engaged in tokenization. As companies like BlackRock develop their first tokenized products and publicly support the tokenization narrative, governments continue to announce strategies to embed tokenization into next-generation financial infrastructure. Together, this offers investors diversification exposure that cannot be achieved in a "crypto-only" portfolio.
The combined effects of these dynamics are profound. Where direct investment by retail is blocked, the path to primary public fundraising is beckoning. Where projects are disconnected from fundamentals, structured investment frameworks are emerging. Where investment choices are concentrated, a wide range of tokenized investment types is becoming available.
The integrated future is tokenization permanently embedded in capital markets, along with a broad array of decentralized applications that direct value straight to the global base of token holders.
This requires cleansing and reshaping. In the meantime, do not lose faith in tokens.
Author: Daniel Taylor, Policy Director at Zumo.
Related: From Institutional Favor to Capital Chase: A Wave of Exchanges Going Public in the U.S. is Brewing
This article is for general informational purposes only and does not constitute and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Original: “The Death and Rebirth of the Token Market: Regulation and RWA Tokenization Bring New Hope”
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