Can the Steem Blockchain side-chain Steem-Engine Compete with Ethereum in the smart contract token market?

Non-fungible Tokens

I believe the Steem blockchain can provide an alternative platform to the Ethereum blockchain in time. A new development on Steem-Engine, the side chain on the Steem blockchain is non-fungible Tokens, which are also called NFT’s. NFT’s are a completely different type of token from Bitcoin, Steem, or any other Altcoin. Bitcoin, Steem, or any other Altcoins are technically known as fungible tokens. That word Fungible means that each Bitcoin is worth the same as any other and they are interchangeable, just like you and I can exchange dollars we have in our wallets, because they are interchangeable or the same. Non-fungible Tokens or NFT’s are different, in that each is created to be unique, to represent something unique. They can describe an entire object or a specific piece. For example an NFT could represent your entire body or a piece of it, like your right arm or left leg. The NFT for your arm would differ from the one for your leg and they would not be interchangeable, just like your arm and your leg are not interchangeable.

As you may know, non-fungible Tokens, which by definition are non-interchangeable and unique, are used in the very popular decentralized gaming application called Splinterlands. This is a playing card game similar to the Pokémon Cards, but different in that Splinterlands are digital representations, which are unique. If you own a certain card, which represents a certain character in the game you change your card by addicting things like skills, armor, weapons, and these characteristics have skill levels which can be increased. This process creates a unique card and it is represented by a non-fungible Token. You made your card and the character on it unique. The non-fungible Token contains all the information about your card and the Token represents your card. This means your card or it’s Token is an item of value, which can be traded for something else of value at an exchange instantaneously for Bitcoin or an Altcoin like Ether, Litecoin or Steem. These cards always existed in the digital realm, as computer code, but it’s only recently that they became non-fungible. This has created the possibility to sell, exchange or lease these Tokens, thus new decentralized applications or businesses were born, which facilitate buying, selling or renting these playing cards. I think it’s valuable to understand how a tool which has monetized this game can monetize other things.

If you read my article on arbitrage, you remember how I explained that by creating a general or abstract example to explain something, it makes it easier to utilize the concept to monetize other things. The data properties for Splinterlands cards are the card type, rarity, level, edition (Alpha, Beta, Promo, Reward, or Untamed), and the data properties distinguish the cards from each other. Non-fungible Tokens are encoded with the data properties these cards possess and these properties make both the cards and coins unique. But the tokens become representative of the cards and exchanging the tokens becomes the same as exchanging the tokens. If you break this process down to its components we have; first someone obtains control of a card A, at cost X and they can convey or give control of that card A to someone else for cost Y, and the difference in cost between X and Y is their profit. Now that’s the underlying concept, profit made on the difference. The details involved are obtaining, preparing the cards for exchange and safely exchanging them. The purpose of this post is to point out that there are other things of value, which people obtain control over for cost X and then convey control to someone else for cost Y and profit from the difference. These things include physical assets like rare coins, antiques, real estate properties and other unique physical items.

So now imagine, that instead of selling your car, house or piece of art using a broker, you sell them on an exchange developed specifically for those items. The objects of value are represented by non fungible tokens and they are exchanged as quickly and as easily as you buy Bitcoin. In a trustless fashion through computers and smart contracts. If you can visualize this, and understand it, you have seen the future of digital commerce. The details by which these are represented by non-fungible tokens and are exchanged by smart contracts has been worked out by a few platforms in the cryptocurrency world and Steem is one of them.

A closer look at some terms you need to understand in this space of DeFi;

The Ethereum Blockchain has multiple types of nonfungible tokens called ERC tokens with a number after the ERC. The number better defines the type of Token. From Token comes the term “Tokenization”. Tokenization is a new word, which describes a new way to raise money using cryptocurrency, during which the Project creator creates tokens which represent a share in a property or real estate asset, and investors trade fiat or cryptocurrency for these Tokens to secure partial ownership. This type of ownership is also called fractional ownership, which isn’t new, but the process which creates the fractional ownership is new. In a nutshell, tokenization is one way to securitize real assets using cryptocurrency nonfungible tokens. This process “Tokenization” is also called “digitization” to mean the digitization of physical assets, so they are represented in the virtual world or blockchain by digital representations. These representations are also called nonfungible tokens. Lastly Tokenization is also called “securitization”. To securitize an asset means to divide it into pieces that you can sell to investors. In the same way, to “tokenize” an asset is to divide it into pieces, or “tokens”, that represent a piece of the underlying asset or security. They are therefore often called “security tokens”. These tokens are secured through one of the core characteristics of blockchains; “immutability” the unalterability of the ledger of a blockchain. Plus these tokens are tradeable via cryptocurrency exchanges.

Why I think we can compete
The Ethereum blockchain is used for Tokenization because of its ability to run smart contracts. These contracts are essential code which guarantees the assets traded via the Ethereum blockchain only exchange hands when the conditions are met. This insures trustless commerce, without middleman, other then the blockchain, without fees, other then Ether and Gas. And instantaneously. Now a unique feature of Steem-Engine is the @aggroed and his team figured out to use a very limited amount of Smart Contracts to create a side-chain where people could use the smart contracts as the backbone and hang other types of computer code like python on it to allow 200 different Frontend sand their tokens to run on the Steem-engine sidechain. This was possible by making them all have a common goal, which good be a common smart contract, then personalized using another front-end code like python or JavaScript.
I consider the token explosion on Steem-Engine to be the proof of concept that Ethereum Smart contracts could be potentially run on the Steem-blockchain chain in a similar limited fashion one by one until most possible transactions are covered by separate Frontend with individualizations or personification via another code.

Maker DAO move over here comes NFTs, Steem and SBD stable coin

In the same way the Steem blockchain could support a front-end allowing Tokenization of securities like treasury bills using NFTs, which could then be used as collateral for loans from the Steem DAO Bank, providing 65-80% of equity in SBD which is pegged to the dollar, so people could unlock equity in their securities and other assets. This would be a potentially explosive high volume use case for Steem, SBD, Steem-Engine and increase demand for Dteem driving up the price, plus increasing the need for Steem-fiat pairs on multiple exchanges. The Steem blockchain could really be seen as an alternative site for decentralized finance.

The Big Question is can we really do it? Tokenize, Digitize, Securitize Assets and Securities?

The answer is yes! It’s being done and on large scale. This new development started with 7 companies doing Tokenization in 2018 and now there are almost 100 companies providing platforms for not only real estate Tokenization, but also the Tokenization of Art. While real estate represents the worlds largest asset class, Art represents another type of asset with previously untapped Le equity. But now the famous art by Andy Warhol and Monet have been tokenized for fractional ownership, along with major real estate deals the world is taking notice.

Examples:

Centrifuge is an asset tokenization platform which specializes in assisting it’s customers convert real world assets into non fungible tokens so the assets can enter the blockchain universe through Tokenization. Then these assets can be used as collateral for lending and other “DeFi” or decentralized finance uses.
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Centrifuge is used by its customers for the tokenization, underwriting, and securitization of all kinds of documents (invoices, mortgages, other “contracts”, etc) to exchange their data in a provable, unalterable way, and finally provide financing.
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Centrifuge is a two-layer solution:
The first layer is the Centrifuge peer-to-peer network for private, secure data exchange. The second layer is where the smart contracts deployed on Ethereum that represent business identities, document hashes and most importantly the “Business NFTs” to represent documents live, and in a form which makes them financeable via MakerDAO, Compound, or others.
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Tokeny Solutions

According to the Tokeny website the company is capable of Tokenizing ssets owned by individuals, companies and governments, Equity in businesses, Investment Funds and Services and goods of businesses. This tokenization platform performs a technical solution. Due to all the important factors that go into launching a security token offering there are many companies referred to as tokenization platforms that are working towards easing the process of launching and managing a security token. Tokenization platforms can help bring together all of the aspects of an offering into one place. During the actual issuance of the token there are compliance platforms that can ease the process of onboarding investors, streamlining the KYC and AML processes and providing traceability and reporting information to stay in compliance with all necessary regulations while best serving the investors. Some others will act as transactional platforms to ease the process of obtaining investors payments and also managing the actual token allocation. After the security token has been issued and allocated to the investors, companies will have to handle the lifecycle management of the token. During this phase compliance platforms can provide for investor portals, allowing investors access to the information regarding their token and the company’s performance. Compliance platforms also provide for ongoing KYC/AML compliance as well as easing traceability and reporting processes and validating whether or not tokens can be traded and to whom. Transactional platforms provide key services such as managing the actual token transfers and managing revenue distributions such as dividend payments to investors. These platforms will use blockchain technologies differently. Some will have all of the compliance logics off-chain and create a lot of dependencies to their service. Others will use blockchain standards to ensure interoperability and to provide security and flexibility to the issuer. Source

Other Examples Exist

Examples of existing Decentralized Finance Dapps

Stablecoin and Decentralized Reserve Bank: MakerDAO
Maker is a stablecoin project where each stablecoin (called DAI) is pegged to the US Dollar and is backed by collateral in the form of crypto. Stablecoins offer the programmability of crypto without the downside of volatility that you see with “traditional” cryptocurrencies like Bitcoin or Ethereum.

You can try creating your own DAI stablecoin on the Maker Oasis dapp. Maker is more than just a stablecoin project, though–it aspires to be a decentralized reserve bank. People who hold a separate but related token, MKR, can vote on important decisions like the Stability Fee (similar to how the Federal Reserve’s Federal Open Market Committee votes on the Fed Funds rate).
Another stablecoin with a different architecture is USD Coin (USDC), where every USDC token is backed by one US dollar held in an audited bank account.
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Borrow and Lend: Compound
Compound is a blockchain-based borrowing and lending dapp — you can lend your crypto out and earn interest on it. Or maybe you need some money to pay the rent or buy groceries, but your funds are tied up in your crypto investments? You can deposit your crypto to the Compound smart contract as collateral, and borrow against it. The Compound contract automatically matches borrowers and lenders, and adjusts interest rates dynamically based on supply and demand.
Other popular borrow/lend dapps are Dharma and dYdX. Aggregators like LoanScan track borrow/lend interest rates across the various dapps, so you can shop around for the best rates.
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Automated Token Exchange: Uniswap
Uniswap is a cryptocurrency exchange run entirely on smart contracts, letting you trade popular tokens directly from your wallet. This is different from an exchange like Coinbase, which stores your crypto for you and holds your private keys for safekeeping. Uniswap uses an innovative mechanism known as Automated Market Making to automatically settle trades near the market price. In addition to trading, any user can become a liquidity provider, by supplying crypto to the Uniswap contract and earning a share of the exchange fees. This is called “pooling”.
Other popular Decentralized Exchange platforms (DEXes) include 0x, AirSwap, Bancor, Kyber, IDEX, Paradex and Radar Relay. All have slightly different architectures.

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This type of thinking is no longer magical or something for the future. It is an idea whose time has come and only requires a man or woman of vision to make it happen.

✍🏼 written by @shortsegments

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