In a token economy there is always the need to convert values. Tokens don’t leave the digital space, so a conversion means exchanging one token for another. Whether or not the tokens represent a financial value does not change the nature of the whole process. A token resembles an “I owe you” in its simplest form – a placeholder for the real good. It can be asset-backed or just exist as a promise.
Of course, it is also possible to tokenize money, and we already have plenty of different digital coins for USD, CHF and other currencies. Soon many more will be competing for projects and for adoption, eating market shares from others.
- USDT (Tether 3,4,5)
- USDC (USD Coin 6,7)
- TUSD (True USD 8,9)
- BUSD (Binance USD 10)
That’s why participants in a Token Economy quickly face an obvious problem. Even if assets have the same face value (in case the token is a currency backed one), they are actually not the same. There is not simply “THE” USD, instead there are half a dozen USD-backed tokens.
This problem is illustrated in the figure below. When someone wants to buy an asset, tokenized commodities for example, they have to pay in the currency specified by the seller. If there are different tokens with the same face value (currency), they usually have different issuers so they behave like totally different assets despite sharing a face value.
Until now, this problem could only be solved “off-chain” by first converting the red dollar token into the green dollar token, and then using it in a subsequent transaction to purchase the commodity token.
But if tokens can be traded atomically (which means, that I give you the red token and you give me the green token, and possibility of cheating is mitigated because the transfers happen simultaneously), and the same is true of the commodity for green token transfer, then the conversions can be instantaneously linked together into a single transaction. This is an on-chain conversion between three different assets.
This process is called an atomic swap. The general principle seems pretty simple. Two or more consecutive transactions are combined into a single action. But it can also be three or ten or one hundred.
The technical implementation poses certain challenges, such as finding the paths through the conversions or standardizing them to make a seamless conversion possible in the first place. How many connections can you find in the picture below? There are plenty of possibilities, and you only know the best ones after you have found and compared all of them.
CoreLedger has solved all these challenges and built a working implementation of it. We call this technology “Token WARP ®“. This solution is so cutting edge in fact, that we have applied for a patent.
Working in the background, Token WARP® is not immediately visible to the user. If trading and value conversion is enabled in the end-user product of the TEOS suite, then it basically allows values to be routed in the same way that the internet routes data today, regardless of any restrictions, except for the unbendable rules integrated into the digital assets themselves by their issuers.