This week we’re launching the developer preview of Token SDK—a developer toolkit and set of standards that will do for Corda, what ERC20 did for Ethereum. A lot of you will be thinking, hang on, I’m already building out token solutions on Corda! Todd McDonald blogged about the Emergence of Enterprise tokens back in July 2018. And you’re right, Corda from day one allowed developers to build out tokens.
With the launch of the Token SDK, you can now create native tokens on the Corda blockchain platform, with:
- A common way to define types of token
- A common way to issue tokens
- A common way to use and trade tokens
The history of tokens
In a sunny Florida citrus grove in 1946 the Howey Company leased sections of their orange groves to investors. Investors in this scheme bought plots of land, and the Howey Company promised that they’d maintain and work the land and pay out part of the profit to investors.
The SEC got wind of this and blocked the sale. Why? Well, this was no ordinary sale of land, but rather the scheme was an investment contract creating the current definition of what counts as a ‘security’.
It’s 2008, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System is posted to the Cypherpunks mailing list. The world is introduced not only to Bitcoin, but some altogether more unique: digital property.
Back in 2019, you wake up, it’s the day that hot new FinTech is going live with their new IPO, you jump onto their website, hit a few buttons, and several tokens representing these shiny new shares are transferred into your Corda node. You’ve not even brushed your teeth yet.
By lunchtime, you’ve traded private equity, bought shares in a racehorse, you part own a new landmark and swapped out your Airmiles for train tokens.
All with no intermediaries, no custodians.
I was recently at the Museo Nacional del Prado in Madrid, regarded as one of the world’s best art galleries. It was there I came across the set of paintings known as the Black Paintings, a group of fourteen paintings by Francisco Goya. They’re intense and haunting and really struck me, and though incredible pieces of art, I wouldn’t want one at home. Despite that, The Black Paintings got me thinking about how impossible it must be to own a great piece of art.
Art, despite its many investment qualities, when simply collected, is an illiquid asset. The exchange of art takes place at an auction house, the sale is very much dependent on who turns up on the day, and you’ll give up 10–25% of the value for the privilege. If your piece fails to sell at auction, well, that’s not a good look — in fact, it probably means you won’t be able to relist it for a good while.
During the time you wait, you can’t mark-to-market because the price is only determined when an actual transaction takes place between the seller and buyer of the piece of art (you could ask a dealer or auction house, but again, that’ll cost you money).
And in terms of price discovery, inputs such as provenance, how fashionable the artist is, is the artists work already oversold this year, are all very hard to determine.
Instead imagine a world where anyone can add art to their portfolio, simply by buying exposure through a token, where stakes in the piece are traded on an exchange like any other asset. You’d be able to gauge real-time prices by just looking at the tokenized art market; all served up with indisputable chains of provenance.
As it happens, this was my second visit to Madrid, and I did what I’m sure many people do: I forgot to bring along the transport card I purchased on the first trip, so I bought another. I’m now the proud owner of twenty unused ride tickets. If my tickets were tokenized, I could have sold my unused rides, without risk of fraud to another passenger, or even better, reused the same tokens on another transport system in another country for an entirely different form of transport.
Or even further, what if I had the option to convert distance, like a distance train token to a distance taxi token. If my transport is delayed, I could execute a subsidized conversion of distance tokens to hotel tokens. That’s interoperability in action.
In the world of finance
Since the move to fiat-based currency forty years ago, the vast majority of money in the world lives in electronic databases spread throughout the financial system. From that perspective, fiat money is not really a thing — it is a promise to pay. Making financial transactions today simply means adjusting our many ledgers to reflect changes in these promises.
There’s little or no waiting in the blockchain world. That’s because blockchain enables direct and irrevocable transactions between counterparties, with almost immediate transfer of funds. This could theoretically enable near real-time settlement for almost any financial transaction, a long-time industry dream.
Let’s take one of the simplest securities — the humble share, these have been available for purchase since the days of Ancient Rome, yet even the most advanced stock exchanges in the world today still require two days to clear a purchase.
Imagine this scenario — you’re a large investment bank, and you issue an option for a particular security. Because you’ve issued that option as a token on the Corda blockchain, you no longer need to be involved in the lifecycle of that option. You don’t care who currently owns it, how it’s being used, or who’s trading it. All you need to know is that every event of that option’s lifecycle, was pre-programmed by you, and is carried out with full regulatory oversight. You’re assured of multilateral automation and frictionless transactions, no matter where that option may go. It can move between exchanges, it can be split into further products and have additional derivatives against it, naturally also tokens. And when the time comes for the option to be exercised, instant settlement.
Or how about an interest rate swap. If you don’t know what that is, it’s a financial product in which one stream of future interest payments is exchanged for another, e.g. I’ll pay you 5% on £1million every month for the next three years, and you pay me the Bank of England rate plus 2%. In a more connected, tokenized global system, it’s not hard to envision a scenario in which you pay me some fixed percentage, and I pay you the rental yield from my home or revenue from my business. Now, the complexity of building a system that can handle this sort of interoperability may sound impossible, but that’s what Corda can do today, and tokenization is the gateway.
Why tokens on Corda?
Secure crypto assets: Corda’s unique privacy, security, regulatory friendliness, strong identity layer, and tight integration with the existing financial system.
Speed and Scale: You’ve probably already read about Corda demonstrating that DLT can support trading volumes in the US Equity Markets of 6,300 trades per second.
This is because Corda is optimally sharded. Corda nodes don’t process transactions unrelated to them, and as a result, transactions per second on a network level increases linearly as you add nodes.
The UTXO model that Corda employs has proven to be the most robust, powerful way of recording tokens on the blockchain. Rather than a stateful contract that everyone interacts with, you hold your own tokens. Your states are both stored by and controlled by your node.
An all-in-one solution. Use the open-source Corda Settler to settle your tokens into fiat through traditional payment rails, reducing settlement time, cost and counterparty risk.
Join those already building tokens solutions on Corda today.
- SDX (SIX Digital Exchange) are not only building the digital exchange of tomorrow on Corda but setting the foundation for a new environment of rules, regulations, and standards that will build trust in the way digital assets are handled
- IVNO are re-shaping legacy financial infrastructure, providing efficiencies to global institutions such as Collateral Mobility, Effective Cash Transfer and Atomic Settlement (DvD) on Corda — all utilising the Ivno collateral-backed token built on the Token SDK
- ValueOnChain are tokenizing the real economy through automated issuance of debt and equity and in doing so bridging the gap between private equity and listed companies
- Tradewind Markets with their gold and silver trading platform and HQLAx with securities lending — all employing tokens with legal underpinnings and support from real-world custodians and asset issuers
There are over $256 trillion of real-life assets in the world today. The doors are open, come on in.
Where to next?
- Check out the Token SDK here and find the Token SDK tutorial here
- Come along to one of our bootcamps or tokens focused meetups
- Have a read of Richard Brown’s case for why Corda is the world’s most compelling platform for tokenization