The subject of decentralization should be the most discussed topic in the security token space. In his new article, analyst Jesus Rodriguez makes the case that decentralization should always take precedence and will determine whether security tokens will evolve into their own asset class.
Over the course of this year, many thought leaders and projects have implied that decentralization should take a backseat priority compared to regulation enforcement and building products in the security token space. This seems to hark back to debates over whether security tokens are trying to integrate into the existing financial system or will be creating their own, new infrastructure altogether.
Jesus Rodriguez in his latest piece argues that decentralization is what should still be on everyone’s mind when it comes to security tokens. This is because:
“… decentralization is the single element that will determine whether security tokens evolve into a new asset class and financial ecosystem or stay as unsophisticated digital wrappers for existing forms of securities.”
Therefore, for Rodriguez, the central question we should ask ourselves should be: are we building products or are we building networks?
Networks v. Products
The discussion on “products versus networks” is hardly a trivial one. If security tokens put decentralization as a minor priority, then they will be a minor blip in the financial world and will have no real, lasting impact. Although maybe creating short-term value, products will fizzle out quickly if there’s no infrastructure and network to support them. Fundamentally, what sets security tokens apart from traditional assets is decentralization.
For example, without a decentralized network, can we really claim security tokens to be all that groundbreaking? Security tokens would thus be reliant on centralized compliance mechanisms, a non-existent governance model, and no real incentive structure other than speculation. Disclosures would be centralized and there would be open-source commitments. Is this really the future we want for security tokens? — short-selling the potential of an idea that could be worth so much more and have exponentially more impact?
To make matters worse, ignoring decentralization can make the security token industry a house of cards. The risks of fragmentation, too much leader influence, concentrations of power, and the inability to quickly account for financial changes are all heightened when we forgo decentralization for centralized products.
Of course, as Rodriguez writes, we need market-ready products. But just because decentralization is a different problem to incorporate in the current regulatory environment does not mean we should forgo it. Compliance, disclosures, governance, and incentives are all issues the security token industry must resolve within the bounds of decentralization. Otherwise, the security token industry will be a minor blip in the financial world, as an idea that never developed its true potential. Luckily, there is time to correct our current trajectory.
Do you agree with Rodriguez’s concerns? Are current security token products doing enough to innovate decentralization beyond its current constraints? Let us know in the comments below.