By way of background, one of our biggest motivations in building the Melon protocol is the creation of an infrastructure for managing digital tokens; what we firmly believe to be a fast-emerging asset class.
In the last two years, hundreds of digital tokens have emerged. To avoid confusion we can break up “digital tokens” into two broad sub-groups;
Protocol Tokens (PTs)= Digital tokens that are governed by a coded
protocol. The rules of the protocol are enforced by the underlying
blockchain technology. They are generally not linked to any
“centralised” entity or any “traditional” real-world assets.
Traditional Asset Tokens (TATs)= Digital tokens that represent a “traditional” asset, such as fiat currency (e.g Tramonex’s ERC20 GBP on Ethereum, Decentralised Capital’s ERC20 Euro) or precious metals (Digix’s ERC20 token representing gold for example). These assets are still dependent on traditional financial and legal systems.
It is important to distinguish between these two sub-groups because they
will have different properties over time. Protocol tokens benefit from a
very interesting collection of properties which is why we believe they
will soon be a critical element in the achievement of diverse portfolio
“Harry Markowitz called diversification a “free lunch.” We spend all our time in intro. econ. figuring out there is no such thing as a free lunch but Markowitz tells us that diversification is a free lunch. “ — Open Yale CoursesSeeking Alpha — https://seekingalpha.com/artic...
Harry Markowitz — 1990 Nobel Memorial Prize winner in Economic Sciences. The secret to great portfolio management is good diversification and uncorrelated returns. It is hard to find back-tested data on protocol tokens, so we can use the chart below to illustrate that even against asset classes which are considered “safe” such as gold and U.S Government Treasuries, protocol tokens have a surprisingly low correlation.
Some of the reasons for protocol tokens having low correlation to other asset classes come about from their independence from today’s financial system. They are bound by the rules of their underlying protocol, which is supposed to be “un-corruptible”. As such, they are not so exposed to any hidden erosion in value (eg. Quantitative Easing) or traditional financial risks that have emerged over the years in financial markets.
The way that Traditional Assets are being tokenized — the processes
involved, how they then connect back to the “real world” — is
intriguing, and clearly part of a growing trend.
The underlying asset of a Traditional Asset Token is typically a “real
world asset” which is governed by one (or more) centralised party but exists independently of the token’s existence on a blockchain.
Adding traditional assets onto blockchain technology requires for them to first be held in custody by a centralised party. They can then be tracked via an issuance of tokens which represent the ownership of assets on chain with the security guarantees that blockchains provide. Trading and settlement can happen in a matter of seconds and at minimal cost (compared to t+3 + high fees, for example) due to the underlying technology. In theory, these assets are also divisible into smaller units, and as a consequence become more easily accessible.
We are primarily building “Melon”, as an infrastructure to set up and manage funds built around protocol tokens — an asset class which we fundamentally believe will have a place in every single diversified portfolio ten years from now.
Traditional asset tokens are a newer trend — Assets in the real world are fast becoming tokenizes through a variety of novel and innovative mechanisms. Some examples include art (Ed Fornieles), music (Ujo Music), intellectual property, equities (Overstock & Otonomos), fiat currencies (Santander), real estate (REIDAO) just to name a few examples.
If you believe (like we do), that traditional asset tokens are also an emerging asset class, it will then be possible one day to apply the Melon protocol to that asset class too, enabling traditional asset managers to save costs and pass them on to their investors. In theory, there is no reason why you can’t run a truly diverse portfolio across the full spectrum of all these assets in one Melon portfolio with the efficiencies that come along with it!
This idea is incredibly exciting to us as a means of democratizing
asset management and allowing a deeper talent pool to rise, enabled
through great technology. Hundreds of trillions of dollars worth of
assets around the world now have the potential to be tracked, trusted
and traded on your favourite blockchain, and perhaps even sooner than
you can imagine!
Author:Mona El Isa
Former star-trader at Goldman Sachs, promoted to Vice President by the
age of 26 and made the “top 30 under 30” list in Trader Magazine in 2008
and Forbes Magazine in 2011 after profitably trading the 2008 and 2011
crashes. Moved to Geneva-based macro fund Jabre Capital in 2011, before
deciding in 2014 that the future of finance lay in blockchain
technology. She studied Economics & Statistics at the University
College London. Today, Mona is the CEO and