Tokenizing Your Claims

The blockchain sector continues to entertain, amuse, impress, and inspire me. 

Last week one of the biggest cryptocurrency exchanges, Bitfinex, was hacked and was reported to have lost around $65mm of bitcoin it was storing for its customers.

So what did they do in response? They told every customer that they had lost a portion of their assets (36% to be exact) and that they were issuing crypto-tokens to them in proportion to the amounts they had lost. 

I have not done business with Bitfinex so I was not directly involved in this affair. However our portfolio company Coinbase competes with Bitfinex so I am most certainly an interested observer and maybe even an interested party.

What is interesting is that it is not entirely clear what these crypto-tokens will be exchangeable for. Will Bitfinex treat them as liabilities that they will eventually pay off (debt)? Or will they ultimately be paid back with equity in Bitfinex? Will there be a traditional bankruptcy or will this be settled out of court? And who is going to represent the creditors?

But maybe the most interesting thing of all is that a market is being made in these crypto-tokens. If you hold them and want to sell them for dollars or bitcoin, you can do that. 

They have tokenized the claims their customers have against them. Talk about the dogs eating the dog food. It is impressive in many ways to watch the blockchain sector encounter traditional business problems and address them in a native blockchain way. And it will be interesting to see if the legacy system intrudes or not.