Decentralization is the main focus of web 3.0. But it's gone beyond holding and managing your data without third-party interference. Web 3.0 has evolved into a phase where you can do everything, including token creation, yourself, without hassle.
Tokenization-as-a-service (TaaS) is a new win for web 3.0 daily users. What is TaaS, and how does it work?
But first, let's understand what crypto tokens are.
What Are Crypto Tokens
Crypto tokens are cryptographic strings (usually bytes) used to represent digital access, actions, services, functionalities, or assets. Tokens can come in different forms, depending on the goal. However, while they exist on a blockchain, they're not the same as crypto coins.
Crypto coins are native to a blockchain. But tokens are derivatives of a blockchain and are blockchain-specific. Tokens can track assets on a particular blockchain like Solana or Ethereum. Hence, you can't use tokens created on the Ethereum blockchain on other ones besides Ethereum.
For instance, a token that helps users access a set of functionality is a utility token, while the one that aids payment is a payment token.
A token that grants access to an asset or an initial coin offering (ICO) is a security token.
Tokens tracking digital assets are non-fungible tokens (NFTs). Thus, asset tokenization involves attaching a token to a physical asset. It could be a house, artwork, music, gold, diamond, or any other physical valuable.
Some tokens also give holders the authority to vote on specific decisions for a project; these are called governance tokens.
The applications of tokens are broader than it seems as they intertwine. For example, an NFT can serve as a utility and security token at the same time. Although most tokens circulating the crypto market today have a purpose, companies use them to deliver value to their customers and followers.
For instance, if you hold a Moonly NFT, you get full access to the Moonly NFT tool. Invariably, it's not the art that gives you access but the token attached. Hence, each art has a unique token that distinguishes it from another.
Attaching tokens to artworks to become NFTs is one way to use them. They can come in different forms. The $DUST protocol, for instance, is DeGods NFT's utility token.
Whether a token tracks a digital asset or a service or exists independently, it can be utility, governance, or security regardless—depending on the creator's goal.
Pros of Tokenization
Here are the pros that tokenization brings to the table:
- Fractionation: Fractionation is an attribute that allows the splitting of a digital asset. It holds that a creator can divide an asset into several tokens and sell each token at a fraction of the original price. Thus, many people can share joint ownership of an asset.
- Borderless: Tokenized assets are also subject to borderless transactions. Hence, you can sell or buy a token regardless of geographical region.
- Value: As mentioned, tokenization is a unique way for companies to provide value to their customers and give them a sense of ownership of their products.
- Revenue: Since people can buy and sell tokens, it offers a legit way to generate income. Royalties also help creators generate passive income for subsequent token sales where applicable.
- Security: Tokenization involves securing an asset on a blockchain. Since blocks have many security layers and are immutable, tokenized assets are also unique and non-reproducible. This is why they're non-fungible, unlike native crypto coins.
- Liquidity: Tokenized assets are easy to convert into liquid cash, making them a source of wealth when they rise in value.
- Investment opportunity: Tokenized assets, including NFTs, offer long-term investment opportunities as holders trap their money in valuable digital assets.
- Transparency: It's easy to trace and verify transaction history on the blockchain. Thus, tracking digital asset transactions becomes easy, increasing security and enhancing investors' trust.
- Faster transaction time: Some companies tokenize their services by allowing customers to purchase their products using dedicated tokens. Transacting with such tokens is typically instant and less costly since it only involves signing a smart binding contract on a blockchain.
Cons of Tokenization
The major setbacks of asset tokenization include:
- Although the blockchain is secure, poor contract or wallet security measures could lead to the theft of digital assets since they're accessible over the internet.
- Since tokens are products of smart contracts, signing a malicious agreement can lead to the loss of assets. Phishing and social engineering are some ways hackers wipe crypto wallets.
- Most tokenized assets lack regulation, resulting in scams like fakes, impersonation, rug pulls, and pump and dumps. While there are many ways to spot fake NFTs, ensure you do your research before investing.
What Is Tokenization-as-a-Service?
Therefore, a tokenization-as-a-service (TaaS) is a cryptographic utility for tokenizing digital assets, services, or functionalities. In involves creating custom tokens without maintaining a code base or worrying about token management.
The TaaS concept is simple—it allows users to generate tokens for the different purposes we've mentioned earlier. And a TaaS tool, also called a tokenization tool, does the whole job in a relatable user interface.
Using a TaaS, you can convert physical items into digital collectibles registered on a blockchain and recognized in the metaverse. With it, anyone can tokenize any item.
For example, if you've made a cloth design, you can store it in an NFT vault and upload its image on a TaaS platform as metadata and generate a unique token to track it. That way, you can sell your design to anyone as a token rather than the physical item.
Thus, a TaaS can also allow you to create and update the metadata on generated tokens. These metadata are usually tracked commodities, as they've been tokenized. TaaS is a new way for less technically savvy creators to make tokens for their users or themselves.
One of the ways we provide TaaS at Moonly is that while allowing you to create custom tokens for yourself or your users, we provide storage for external metadata like images, logos, and symbols attached to your custom tokens.
Although the features of a TaaS may vary, it may also include advanced functionalities like token minting, burning, and chain-specific token creation, among many others.
A TaaS can be completely free. However, some come at a cost—but this is usually a fraction of the native cryptocurrency involved. The number of tokens you can generate is usually limitless.
Benefits of Using Tokenization-as-a-Service
- It creates a leveled playground for everyone to tokenize their assets regardless of their technical background or knowledge.
- It reduces the operational cost of managing asset storage and tokenizing assets yourself.
- Token creation using TaaS is often faster and can be more efficient.
- Some TaaSes provide a community base or marketplace where you can sell your tokens more rapidly.
- TaaS offers built-in features, including token fractionation, minting, and staking, among many others.
Downsides of TaaS
Despite the upsides, TaaS can have a few setbacks.
- A TaaS can be expensive, depending on the token type. However, this isn't a general rule. Some TaaSes are cheap, while some are even free.
- Anybody can impersonate a token using the original creator's name or logo. This is a general downside of tokenization, though.
Leverage the Power of Tokenization-as-a-Service
Ease and efficiency are some drivers of business growth. Tokenization-as-a-service offers powerful tools for tokenizing services, assets, or activities in web 3.0 on the go with little or no technical background.
Thus, as said earlier, anyone can tokenize and sell their physical assets or services in web 3.0 without hiring a developer or managing storage infrastructure. It's all about decentralization for everyone, after all. And as you've seen, the benefits of using a TaaS for tokenization outweigh its downsides. As we expect TaaS to boom more and more in web 3.0, it's time to start anticipating and utilizing them as content creation game changers.