Why Crypto 2.0 really matters...

Crypto 1.0 was trailblazing ... an absolutely brilliant tech and market discontinuity created by bitcoin, and a host of subsequent altcoins, which basically had and continue to have one key use case: speculation.

It's not right or wrong, but let's call a spade a spade.

Crypto 2.0 is happening now, with stablecoins proposing low-volatility cryptocurrencies, which deliver "the best of both worlds"...

• the high speed, low cost and extended functionality of crypto (like easy person-to-person transfers), and
• the stability of a major fiat currency

One recent report tallied over 120 stablecoin projects either live or in-the-works, another describes in detail the State of Stablecoins in a 78-pager document (https://www.blockchain.com/research).

It makes total sense to open up crypto to use cases of consumption and commerce ... For example, who, in their right mind, would want to take a loan in bitcoin? A loan of $200k that may end up turning into $20k ... or $2 million, by the time it needs to be reimbursed!

While I think there is ample room for coins that offer a “1:1 fiat guarantee” I believe the end-game is “1:1 real-world assets guarantee.”

The reasons are multiple…

Value aspect - because it meets the same desired objectives plus additional ones, all combined with the speed, security and drastically reduced operational cost base of blockchain:

• Stability, so that it can be used to consume, not just speculate ... but also for investment and asset protection
• Storage of value, in elements with intrinsic value
• Protection of the holder’s purchasing power. Unlike fiat, whose value declines over time with inflation, the underlying assets appreciate with time
• Global, ubiquitous access
• Liquidity/exchangeability
• Robustness to market stress. This attribute is accentuated by the use of a basket of real-world assets (more on this below), which also means more diversification / less risk for consumers
• Fully collateralized
• 100% transparency. These stablecoins should, ideally, be issued by companies that are regulated, audited, trustworthy, with impeccable governance

Further upside - if executed well, the basket of real-world assets could mirror the weighted/relative value of real estate, stocks, gold, oil, carbon credits, etc. For example, real estate would account for 60% of the basket (based on research showing a global combined value of $217 T in 2015), stocks for approximately 20% (around $70 T), while gold would account for circa 2% (based on $6 T as the aggregate value of all the gold ever mined), etc. The basket would include a wide range of asset classes, in the right proportions:

• real estate
• stocks
• bonds
• fiat
• gold, diamonds and other commodities
• carbon credits
• works of art
• private equity funds
• venture capital funds
• intellectual property rights
• other

It's what I call: A Slice of the World? ... it's what a Martian would buy if s/he came to Earth and felt bullish about the economic prospects of humans. :-)

Back to our world, Crypto 2.0 will also provide an opportunity to democratize ownership of certain asset classes that are otherwise difficult to physically transfer or subdivide (or even assess/certify), such as diamonds and works of art. Often times, assets such as private equity and venture capital funds, as well as works of art, are accessible to institutional investors and the super wealthy, but not to small and medium-sized investors.

Psychological aspect - this may appear irrelevant, but crypto thought leaders do not put much credence in fiat (it’s an edge case, but fiat in pre-war Germany or in the Argentina of the 70’s wasn’t worth the paper it was printed on).

In summary - real-world-assets backed crypto coins will pave the way for crypto to be used for consumption, for investment (not speculation, as is the case today) and will, tangentially, also enable the securitization of interesting asset classes, which today are out-of-reach for the average investor.

So, the question is: why do we need crypto for this? can it not be achieved by traditional "containers of value," such as shares, treasuries and mutual funds? ... Well, not if we want to take full advantage of blockchain and tokenization technologies, which enable: fractional ownership, instant execution, person to person transfers without expensive intermediaries, around the clock availability, smart contracts, enhanced access and liquidity for many classes of assets, immutable / transparent / auditable transaction and ownership records, and much more.

I believe Crypto 2.0, as defined above, really matters ... and holds potential for truly massive value creation and financial inclusion.