Being able to make a coin, record it on a blockchain, and update changes to that blockchain for a fee, does not a business make. This is the second in a series of articles where we will explore ONLI as a technology choice.
A Coin is not a Business
USE CASE: STORED ASSET EXCHANGE
BY DHRYL ANTON
The Use Case
A Logistics client recently acquired a warehousing company and inherited a considerable amount of assets stored in multiple locations. It would take a very long time to liquidate these assets. They were looking to use ONLI technology to create a global market for the stored asset.
A financial services business is, at it’s core, a set of business processes, each of which represent a structured collection of interdependent tasks, resulting in the delivery of a product or service to a customer. Therefore the first task in making a technology choice is to break down the relevant business processes. The next task is to evaluate how implementing this with a particular technology can add value.
“ At it’s most basic level, ONLI is a tool to turn social capital into economic value. The economic model is broken into two layers: In the first layer you generate coins. You put them in inventory. You then sell the inventory to users. Users need a value proposition (the idea part); the reason why user would want to buy/sell/transfer your coins. You need to communicate that effectively, of course. The second layer is that you also supply the infrastructure for the marketplace for these coins. ”
Quote: Ralph Waldo Emerson
“Reasoning from first principles,” is part of our corporate culture. The idea is to break down complicated problems into basic elements and then reassemble them from the ground up. ONLI is not right for everything. When we approach a use case for applying ONLI as a technology, we think of it in terms of a pyramid of steps. Of course, this is not the only way to think of tokenization. It is simply a method that works for us. Onli at its core is an algorithm invented to realize uniqueness quantification in the digital space. Therefore it can represent anything, digitally, that needs to be absolutely unique.
At ONLI, we use blockchains in a completely different way. If you want to create a kind of public record, control who reads from and writes to it or need to store an immutable record with an infrastructure sharing scheme, then ONLI is not good for that. ONLI is for fin-tech. ONLI was built, from the ground up, as a technology for digitizing asset-backed securities.
The Onli Tokenization Pyramid
DHRYL ANTON MBS PYRAMID
Origination : “origin of ownership”, establishing and securing / documenting the claim of ownership.
Binding : “to tie up”, method for the distribution of benefits and reporting thereof, in accordance with the rights of ownership.
Segmentation – “breaking up”, fractionalizing a larger claim of ownership into smaller segments.
Tokenization – A token is unique representation of ownership. In digital form it is easily transferred at a near zero cost.
Exchange – a market where a token holder can buy/sell/xfer “unique representations” of ownership.
Use Case Analysis
Port Klang Free Zone: Kuala Lumpur,
First, let’s break down our use case. We have assets in a warehouse. The title (“origin”) to these assets are documented. The next layer is binding, the “business part” of the equation. In this case, a business, a trusted custodian, will secure the asset and keep safe until the owner can claim it. The segmentation step is to divide up the ownership claim into smaller individual claims and to make each claim independent of the other. It is important that the segments be fungible: all are interchangeable, in that, all have the same rights. ONLI is designed for commodities, not currencies and therefore they must not be divisible (divided up into smaller units). These first three layers are almost always legal and business processes. There are often many regulatory and legal implications that technology will not solve. Having covered all the business requirements, the end result of which is a document or series of documents and a custodian with covenants for the distribution of the assets. We can then digitize the segments or store a reference to the physical documents stored in a safe location. The next step is to tokenize or “represent digitally” a particular segment
ONLI® is a dataset or capsule generated using a uniqueness quantification algorithm. This dataset is stored in a cryptographic container called a Vescel™. A Vescel container’s writable layer is tightly coupled to the host machine where the container is running. Any event (copy, read, write, update) generates an entry that is stored in the container. Each entry is stored using a hash algorithm (a function that converts a data string into a numeric string output of fixed length) and includes the previous entry. The dataset is stored using a unique patented data model. Changes in the dataset, within a distribution network application, use an algorithmic approach that is consistent and efficient. We can use ONLI to create a token that is irrevocably unique and changes are immutable. This token can, therefore, be used to represent a segment digitally.
Now that we have a token, we will then need to attach a Vescel™ container into which we will place the “proof of ownership”, and bind this to each individual token. Vescel is a cryptographic container you can put anything into. Think of it like a digital safety deposit box. You then create a UsePolcy which determines how the contents of the container can be used. The UsePolicy has terms and conditions, which control who, when, where and for how long the contents can be accessed. Think of it like a smarter smart-contract. You share the container, not the content. A user can verify the contents but not remove them. By combining these technologies we can realize the value proposition. The value proposition for tokenization is centered around immutable changes and ease of transferability. Both of which the technology makes possible in a very elegant manner.
Now that we have tokenized the segments we will need to create a marketplace where these tokens can be bought/sold/transferred. We will also need infrastructure upon which this will run. ONLIone is a digital asset exchange in a box. It provides a turn-key infrastructure, software, and hardware. ONLI is a ledger free system. It uses a central infrastructure for processing changes in ownership and managing users. It uses a distributed architecture for storing ownership claims. There is an option for a distributed ledger that can be used for proof of ownership. All this means ONLI is fast and light. ONLI does not need a “shared” infrastructure (DLT) or reward scheme like mining. ONLIone is everything we need to build a working exchange for ONLI tokens.
Now the licensee needs to brand it and market the solution. Users, who want to own, or simply trade on, the assets, can then easily move in and out of positions by becoming a member of the exchange. When an exchange member wants to take delivery of the asset they “redeem” the token, which gives them the access code to open the Vescel™ and retrieve proof of ownership, which they can present to the custodian of the asset.
Creating a coin/token, with the necessary feature set for your application, is only a small part of the solution. Having an infrastructure to support the trading of that coin is also the critical element. A shared infrastructure or one that is open in that anyone can join is inherently not secure. In most financial services cases public (pay for use) infrastructures cannot be used because you are ultimately responsible for customer data and storing copies of such a ledger in places outside a certain jurisdiction is not possible. Regulation often expressly forbids the sale to the general public. There are also a number of logistics and business considerations that a “public” coin would never solve. The costs of transactions, in many cases, are the difference between a profit and loss. Having no control over the cost of transactions is not a risk anyone can bank on. The origination and binding processes, and the day-to-day running of the business are business processes. They are not a “feature” of a coin. You need a lot more than just the ability to make a coin in order to solve the problem.
In this use case, the client took the assets in the warehouse and tokenized them. By creating an exchange where members can buy, sell and transfer these tokens they gain liquidity. Warehousing was a cost center that tied up capital over several years. With this solution, the inventory has liquidity and the warehouse is a revenue stream. The solution using ONLI® and ONLIone™, was easy to implement, test and deploy. Innovation has never been simpler.
A port warehouse with assets that need to be liquidated. No single buyer can take all the assets. Brokers would find Buyers but they want flexible positions.
If there was a market for the assets, where buyers can purchase flexible quantitites, trade on positions and take delivery whenever they like. This would give liquidity to the asset.
Use ONLI® to tokenize the asset. Build and Deploy a private b2b marketplace. This provides liquidity for the asset, buyers and sellers.