When the ERC20 tokens first appeared they took the world by storm. Why? Because they were quasi-stocks, a way to bet on the success of an enterprise without all the hurdles investing in traditional stocks involves.

Billions were sold to investors, trillions have been traded on the secondary markets… without there ever being a satisfactory answer to the question: how do we value tokens? Why do they even trade and have a market price?

Sure, price is always subjective and it is what a buyer is willing to pay. But when it comes to stocks it is clear why the price should rise when the business is doing well — being a shareholder gives you enforceable rights, including the right to a share of the profits. (You can then use discounted cash flows or another method to reason about fair value.)

There are no such rights when it comes to tokens. The issuer has no legal obligations to the investors. It is quite conceivable that the project becomes a success but the price of tokens goes to zero. For example, the team behind the project could simply abandon the token. Even if they do not officially abandon it, they might struggle to find a use (“utility”) for it, and simply do nothing with it forever.

Everyone is aware of this… still, tokens do trade and have a market price. Why?

We have proposed in a separate article that it is because tokens are the tokenized honor of the founders, a bet that if the project becomes a success the founders’ consciences will force them to find a way to connect the tokens with the success.

This seems to be working? The mechanism most projects currently seem to be converging on is token buybacks (and burns). Here is a partial list of projects that are (or were) doing it: BitMEX, FTX, Celsius, NEXO, Binance. There are more.

This signifies a clear trend. All attempts to tokenize shares of stock have so far failed due to regulatory issues. Efforts continue in various jurisdictions but it looks like progress will be hard and slow.

On the other hand, there is tangible progress from the other direction as tokens are becoming more and more stockenized. It is happening slowly and via trial and error.

At some point in the near future, rather than digitizing ancient stock-trading systems and procedures one by one, governments will simply recognize tokens as shares of stock, grant holders legal protections, and force more requirements on issuers.

Interestingly, the market is not waiting for it. Market expectations are already shaping the behaviour of participants in that direction without any threat of (state) force.

It’s a familiar thesis: blockchains are ideal property registers because they are fully open, easy to access, impossible to take down or censor. Also, transferring blockchain assets is trivial and independent of traditional third parties like banks and lawyers.

So why hasn’t it caught on? Multiple startups have been on the problem since (at least) 2017.

There are various UX challenges that need to be solved in clever ways but the most difficult of them is:

• Irrevocability of blockchain transactions

(Note: having-to-approve each transfer and being-able-to-revoke are flipsides of the same coin, but we argue here that the nuance is important and that the latter is the more important thing, which, if it works well, allows us to live without the former.)

States will never accept that transfers of property titles can’t be revoked. On Ethereum there are several existing standards for enforcing transactions. They solve the revocability problem from the technical perspective by allowing an authorized third party to force transfers whichever way (see ERC1400, ERC1404 and related). The approach taken there is technically sound.

But the problem of the authorized third party accessing the chain remains. The ultimate arbiter of property rights is the state (via courts, or, at a lower instance, regulators/agencies) and it has to remain the ultimate arbiter in such a way that it can override any state of the chain at any time, including its own decisions (for example a higher court deciding on appeal).

There are good reasons why it is not possible to simply deploy an on-chain register and expect the government to start using it.

• If the courts are expected to use Metamask to call forceTransfer(), it is simply not going to happen. For one, because courts are run by old people, secondly, they have zero incentive to do this.
• Even if they would be forced to do it (via statute change), private key security would be a hard problem. What if the court’s private key is stolen?
• Multisig schemes could help with the above, but still have their own issues with key loss, theft, etc.

No government would commit to having the only property register controlled by a very young technology without being able to ALWAYS override it, no matter what some blockchain or smart contract wallet thinks of it.

Proposed solution

What if we can ignore

• statute/regulatory changes
• court wallets
• multisigs
• old-judges’ onboarding altogether

for now and use Oracles to communicate real world events (court decisions) onto the chain permissionlessly, in a way that cannot be manipulated?

This would allow users to use the blockchain as a defacto register, in an optimistic way, not waiting for a positive court decision for accepting a transfer, but knowing that, if there is a need to revoke a transaction, this can/will still be done using the regular court system and reflected on the chain subsequently. This means that time can be used as a proxy. An asset that has been sitting at an address for a while, and hasn’t been challenged and reverted, is very likely legit and the owner most likely has full property rights to transfer it on to you as prospective buyer. Especially if the period defined in the statute of limitations has expired.

The government remains in charge and does not have to do anything.

How would it work?

A smart contract that controls the assets would respect a decision from an Oracle network that aggregates several reputable news sources to interpret court decisions. We are not interested in all decisions, just those that nullify, revert or force property transfers.

• Maybe just using the official court gazette would be enough, or combine with mainstream media.
• Mainstream media like NYT, WaPo, etc… do not have a standard for reporting court decisions… so this cannot be fully automated, Oracles would need human input.

The main issue is how to solve the game theory so that Oracles never collude with malicious players to censor from the chain a court decision that they do not like. There are also important questions about Oracle onboarding and offboarding, etc.

For that reason the Oracle network would not be built from scratch, but would utilize a known system such as Chainlink Oracles or Eigenlayer. The Oracles would be putting up a stake that would be slashed if they are dishonest and would be earning a fee on every property transfer. The game theory would borrow heavily from the experience of PoS systems like Ethereum.

Optional Attestations

Each property-representing NFT could have optional (equipable) attestations attached, as additional NFTs. These would be normal legal attestations, for example, by a legal office that claims to have verified ownership in the cadastre books. The number of these attestations would not be limited and anyone could request them (both the seller, and the purchaser). But they are optional in this system — the main confidence comes from time-as-proxy.

Why retail would love it?

The story of why tokenizing property is amazing can be found on the web page of any of the multitude of Security Tokens startups. But property-as-NFTs brings another very valuable innovation: Binding Permissionless Offers. This means that anyone from anywhere in the world can send a property owner an offer to buy the property, or offer a loan against it. The same infrastructure that is being built out for this right now for JPEGs can seamlessly be used for all other types of property, once the issue described above is solved.