The Essential Guide to Asset Liquification in the Modern Economy

Asset Liquification and its Central Role in the Economy of Things

In the digital age, advancements in technology are blurring the lines between tangible, physical assets and their digital or virtual counterparts. This is evident in the Economy of Things (EoT), which brings economic transactions into the Internet of Things (IoT) framework. Central to EoT is asset liquification. Let's delve into this core concept.

What is Asset Liquification?

Asset liquification refers to the process of converting traditionally illiquid physical assets into a digital form that can be easily traded, sold, or shared in real-time. This digital representation, often in the form of tokens or digital certificates, means that assets are no longer static or solely physical; they can be part of the digital economy, transacted with ease, or even fractionally owned.

The Central Role of Asset Liquification in the EoT

In the Economy of Things, asset liquification plays a key role, reshaping how we interact with and leverage our assets. Here's a closer look at different aspects:

1. Digital Participation: With asset liquification, everyday objects – from vehicles to appliances – don't just exist in the physical world. They become digital entities, capable of participating in the digital marketplace, negotiating prices, or entering into contractual agreements.
2. New Economic Models: Asset liquification allows for novel economic models, such as dynamic pricing based on real-time demand and supply. For instance, an electric vehicle could sell excess energy back to the grid during peak times.
3. Optimized Asset Utilization: Assets that are liquified can be rented, leased, or shared when not in use by their primary owners, promoting the sharing economy. Imagine a world where your lawnmower rents itself to neighbors when you're not using it.
4. Decentralization and Democratization: Asset liquification can lead to decentralized marketplaces where individuals retain more control over their assets. It democratizes access, allowing more people to benefit from assets they might not be able to afford outright.
5. Transparency and Trust: When combined with blockchain technology, liquified assets have an immutable record of transactions, bringing transparency and fostering trust among participants.

The Implications for the EoT

The true potential of the Economy of Things is unlocked through asset liquification. As objects become both physical and digital entities, they play dual roles: serving their primary function and participating in a dynamic economic ecosystem. The refrigerator isn't just a place to store food; it's an economic agent that can order and restock itself based on optimal market prices. A car becomes a revenue-generating asset when the owner isn't using it. Let’s illustrate the impact on the Economy of Things with a few examples:

1. Enhancing Liquidity of Data Assets: Data generated by IoT devices can be treated as assets. By standardizing and commoditizing this data, it can be traded or leveraged more easily, effectively "liquifying" it.
2. Tokenization: Physical or digital assets can be represented by tokens on a blockchain, making them more easily tradable and divisible. This tokenization can liquify assets, facilitating their use in the EoT.
3. Facilitating Machine-to-Machine Transactions: Liquifying assets within the EoT enables smoother machine-to-machine (M2M) transactions, allowing devices to autonomously trade resources, services, or information.
4. Improving Supply Chain Efficiency: The liquification of assets can streamline supply chain processes by making the transfer of ownership of goods more transparent and rapid.

In the Economy of Things, asset liquification transforms non-liquid assets into tradable forms, enhancing economic activities in the ecosystem. Through methods like tokenization and smart contracts, it introduces efficient and transparent economic exchanges between devices and systems.

Benefits of Asset Liquification

In the digital economy, asset liquification bridges tangible assets and their digital versions. This enhances asset utility and presents both opportunities and challenges. Let's explore the pros and cons of asset liquification in the context of the Economy of Things.

1. Enhanced Liquidity: By converting physical assets into a digital form, owners can more easily trade or lease those assets. This can result in quicker transactions and easier access to capital.
2. Increased Accessibility: Through digital platforms, a wider audience can access, buy, or lease assets, potentially opening new markets and opportunities.
3. Utilization and Efficiency: Liquified assets can be used more dynamically, leading to better utilization. For example, a car can be rented out when not in use by the owner.
4. Innovation and New Business Models: The ability to digitize and trade assets can foster new business models, such as peer-to-peer leasing or fractional ownership.
5. Transparency and Trust: In many implementations, asset liquification is managed through blockchain, ensuring transparency and immutability of transactions.

In the Economy of Things, asset liquification transforms non-liquid assets into tradable forms, enhancing economic activities in the ecosystem. Through methods like tokenization and smart contracts, it introduces efficient and transparent economic exchanges between devices and systems.

Disadvantages of Asset Liquification

In the digital economy, asset liquification bridges tangible assets and their digital versions. This enhances asset utility and presents both opportunities and challenges. Let's explore the pros and cons of asset liquification in the context of the Economy of Things.

1. Security Concerns: The digital representation of assets can create new vulnerabilities. If not managed properly, unauthorized access or fraudulent activities could occur.
2. Regulatory and Legal Challenges: The digitization and trading of assets can raise complex legal issues, particularly around ownership, taxation, and jurisdiction.
3. Technology Barriers: The necessary technology for asset liquification may not be accessible to all potential participants, creating inequalities and barriers to entry.
4. Potential Loss of Control: By making assets more liquid and tradable, owners may find that they have less control over their assets, especially in decentralized models.

As the EoT continues to evolve, the understanding and management of asset liquification will be central to unlocking its potential, as well as navigating its risks and complexities. This dynamic interplay between physical and digital worlds represents an exciting frontier, but one that must be approached with careful consideration and strategic planning.

Asset Liquification Examples

In the Economy of Things, asset liquification transforms static assets into tradable entities in the digital realm. Its impact spans various sectors, from real estate to consumer goods, but the energy sector stands out for the wide range of asset liquification applications. Within energy, rather than seeing resources like fossil fuels or renewables as static, innovations and decentralized grids are making them tradeable commodities.

We’ll provide more information about the Transactive energy framework in a separate white paper, for this white paper we want to mention that the transformation in the energy sector aligns perfectly with the rise of Transactive Energy (TE). TE can be defined as “a system of economic and control mechanisms that allows the dynamic balance of supply and demand across the entire electrical infrastructure using value as a key operational parameter.” In essence - and this is part of the Transactive energy framework -, TE creates a marketplace where individual energy resources, from large power plants to household solar panels, can actively buy and sell energy based on real-time needs and prices.

Within the EoT framework, liquified assets actively engage in the TE system, responding to market signals. For instance, solar panels can sell excess power during high-price periods using real-time data. Similarly, electric vehicles might draw power when prices are low. The combination of EoT and TE, underpinned by asset liquification, offers a more efficient energy landscape.

Various transactive energy pilot projects have been conducted around the world to explore the feasibility, challenges, and benefits of implementing transactive energy systems. The overview below provides several real-world asset liquification examples:

1. Monetizing Surplus Energy:
   • Power Ledger has developed an energy and flexibility trading platform that allows households, organizations, and the grid itself to trade with each other.
2. Optimizing Energy Storage:
   • Fluence Mosaic: Intelligent, AI-powered bidding for solar, wind, and energy storage.
   • Suena Energy: Optimizing storage battery energy trading. Revolutionizing the way energy storage and renewables are integrated into power trading.
3. Support for Demand Response:
   • OhmConnect: This California-based platform pays users to reduce their electricity consumption during peak demand periods. Users' energy reductions, in aggregate, act as a virtual power plant. They're rewarded for essentially "supplying" this energy back to the grid, embodying asset liquification by turning negative usage (or conservation) into a tradable asset.
4. Investment via Tokenization:
   • PowerLedger is an Australian blockchain-based platform that allows users to trade peer-to-peer renewable energy. PowerLedger uses its own cryptocurrency, PowerLedger Tokens (POWR), to represent the energy that is being traded on the platform.
5. Flexible Grid Services:
   • GridExchange is a blockchain-based platform that enables energy exchange between a utility and their customers. The platform allows utilities the ability to engage customer-owned distributed energy resources (DERs) to respond to power grid needs and to reduce greenhouse gas emissions.
6. Battery Storage Systems:
   • Autopilot by Suena Energy: Optimizing storage battery energy trading. Revolutionizing the way energy storage and renewables are integrated into power trading.

These applications in the energy sector highlight the tangible benefits of asset liquification for DERs, revealing how innovative technologies can reshape traditional energy systems and markets.

Demand Response initiatives have emerged as a crucial strategy for balancing electrical demand and alleviating pressure on the energy grid, and smart devices and appliances play a vital role in supporting these programs. Let’s elaborate on a few examples:

1. Smart thermostats: Smart thermostats such as Nest and Ecobee can be used to reduce energy consumption and save money on utility bills. However, these devices can also be used to generate cash flow by participating in demand response programs. Demand response programs pay users to reduce their energy consumption during peak demand periods, which helps to stabilize the grid and prevent blackouts.
2. Smart appliances: Smart appliances such as refrigerators, washing machines, and dryers can be used to generate cash flow by participating in demand response programs. These programs pay users to reduce their energy consumption during peak demand periods.

Various US states have passed laws or regulations related to demand response programs to prevent blackouts during times of high demand.

Although demand response programs offer advantages, barriers to their universal implementation remain. A significant hurdle is establishing dependable lines of communication between utility companies and end-users. For these programs to function optimally, there must be a fast and reliable way for power providers to interact with consumers. Additionally, motivating users to cut back on electricity consumption is essential.

Another challenge is the need to inform consumers about the advantages of demand response programs. People may be reluctant to cut back on electricity use during high-demand periods if they are unaware of the possible financial and ecological gains. Additionally, many users want the ability to bypass or "override" any commands to shut off power, adding another layer of complexity to widespread adoption.

Let’s continue with examples of asset liquefaction in other sectors of the Economy of Things:

Car Sharing is revolutionizing the concept of individual car ownership by transforming it into a communal asset, facilitated by Connected Car Sharing Marketplaces such as Turo, Getaround, and Zipcar. These platforms not only make vehicle usage more efficient but also contribute to cost reduction and sustainability. Enhanced by connected technology, these services offer effortless booking, access, and payment processes, thereby increasing liquidity in the Economics of Transportation (EoT).

• Individual car ownership is transformed into a shared resource through Connected Car Sharing Marketplaces like:
  • Turo is the largest peer-to-peer car sharing platform in the world. It is available in over 5,000 cities and towns in the United States, Canada, the United Kingdom, and Germany.
  • Getaround is also a peer-to-peer car sharing platform. It is available in over 300 cities in the United States and Canada.
  • Zipcar is a car sharing service that operates a fleet of cars. It is available in over 500 cities in the United States, Canada, and the United Kingdom.

The advantage is that it enables efficient utilization of vehicles, reduces costs, and promotes sustainability. Connected technology ensures seamless booking, access, and payment, contributing to liquidity.

As we conclude our overview of asset liquification, let's turn our attention to real estate, made more liquid through blockchain. Unlike more liquid assets like cars or data, real estate is often hard to quickly buy or sell. Blockchain offers a secure and transparent way to make these assets more accessible and easier to trade. Let's explore how blockchain is changing the game in real estate and its potential impact on the Economy of Things.

Asset liquification in Real Estate

• Propy is a real estate transaction platform that empowers buyers, sellers, their agents, and escrow agents to close a traditional real estate deal entirely online. While Propy leverages blockchain technology to provide a secure and transparent platform for real estate transactions, it is not a blockchain-based platform in the strict sense of the term.
• AspenCoin has a security token offering (STO) that allows investors to own a share in the St. Regis Aspen Resort in Colorado. The tokens are issued on the Ethereum blockchain and represent ownership in the resort’s holding company.
• RealT allows investors to buy fractional ownership in rental properties in Detroit, Michigan. The properties are tokenized on the Ethereum blockchain, and investors can buy and sell tokens on RealT’s platform.

These are just a few examples of how blockchain technology is being used to liquefy real estate assets. As technology continues to develop, we can expect to see even more innovative ways to use blockchain to make real estate more accessible and liquid.

Conclusion

In summary, asset liquification is key in the emerging Economy of Things. It turns hard-to-trade assets like cars, data, or real estate into digital forms that are easier to deal with, increasing both their liquidity and accessibility. This shift has the potential to reshape how we use and think about assets, especially when combined with technologies like blockchain.

However, this comes with challenges like security risks, regulatory issues, and technological barriers. Despite these obstacles, the benefits such as increased liquidity and efficiency make asset liquification essential in the EoT.

Going forward, understanding asset liquification is crucial for tapping into the full potential of the EoT. It offers a promising but complex avenue for economic innovation, requiring careful planning and strategy.