The Breakdown - Agriculture and the State of Tokenization

Episode Date: July 7, 2024

A reading and discussion inspired by https://blockworks.co/news/agriculture-needs-blockchain. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Sunday, July 7th, and that means it's time for Long Read Sunday. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it. Give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Hello friends, well, it is the weekend after Fourth of July. I'm sure many of you are enjoying barbecues and summer cookouts and all of the fresh things that that conveys. And so at the risk

of trying to stretch the connection a little more than might be reasonable, today I'm reading a piece that connects the dots between the agriculture system and blockchain. The piece is by Henry Duckworth and is called Agriculture Needs Blockchain. Some may argue that the current system familiar and predictable, but the benefits of tokenization far outweigh the challenges. Henry writes, Global food supply chains face significant challenges. They're often inefficient, costly, and lack transparency. This creates an environment where farmers may not always receive fair compensation for their hard work, while consumers can face higher prices. It's a systemic problem that needs a systemic solution, and that solution stares us right in the face. Agricultural Trade tokenization.

Despite this technology's immense potential, adoption in the agricultural industry has been slow. Many organizations hesitate to embrace change, citing concerns about complexity and regulatory uncertainty. The true value of trade tokenization lies in its ability to solve real tangible problems that have plagued the agriculture industry for decades. Eliminating intermediaries can increase transparency, reduce settlement times, and lower costs. But while some in the industry argue that the current system, though imperfect, is familiar and predictable, the benefits of tokenization far outweigh the short-term challenges of adoption. Section. pitfalls of current supply chains. Right now, our food supply chains are a black box. They're opaque,

convoluted, and rife with inefficiencies. On average, agriculture trade suffers from settlement times of three to seven days and fees ranging from 6 to 10 percent. That's unacceptable. It's not just about numbers. The system's lack of transparency breeds mistrust and enables bad actors to manipulate prices and engage in fraudulent activities. Ultimately, it is the farmers and consumers who bear the brunt of this inequitable system. Tokenizing the trade can change all that. By bringing agriculture trade transactions on chain, we can create a transparent, efficient, and trusted ecosystem that benefits everyone. Imagine a world where you can trace your food from farm to fork, knowing exactly where

it came from and how it was produced. Imagine a world where farmers can get fair prices for their produce without intermediaries taking a 40% cut. Imagine a world where consumers can trust the food they buy, knowing that it was produced sustainably and ethically. The benefits of tokenization don't stop there. Smart contracts on high-throughput blockchains like Solana can automate transactions, reduce settlement times and minimize fees.

This increased efficiency can lead to cost savings that can be passed on to farmers and consumers. Such systems also lower the barriers to entry and create easier access to markets for smaller producers and farmers. Moreover, tokenization lays the groundwork for future innovations like fractional ownership and investment in agricultural assets. In times, small-scale farmers could tokenize their land or crops, allowing them to access capital and participate in the global food system more equitably. In the current world, small-scale farmers often face a dilemma.

They either have to sell a significant part of their business to a single company to raise capital, or they struggle to secure funding. However, with the possibility of tokenizing their assets, small-scale farmers can sell small portions of their business to interested parties, while remaining the majority holders and retaining control over their business. Section addressing the skeptics. Of course, realizing the full potential of trade tokenization in agriculture won't be easy. Many farmers and agricultural organizations feel they lack the technical expertise to navigate this new system. They worry about the resources required to adopt and use these new technologies. There are also questions about regulation and legal frameworks.

The legal status of tokenized assets is still evolving, and some organizations seem wary of investing in a system that lacks clear regulatory guidelines. However, these concerns should not deter us from pursuing the transformative potential of trade tokenization on chain. The industry doesn't have to navigate this transition alone. By collaborating with blockchain experts, policymakers, and educational institutions, we can create a supportive ecosystem that helps agricultural organizations embrace this technology with confidence. We need to invest in and educational initiatives to make the benefits of tokenization accessible to all participants, regardless of their technical background. We also need a supportive regulatory environment that

recognizes the potential of tokenization and provides clarity around its legal and tax implications. Policymakers must strike a balance between fostering innovation and protecting the interest of all stakeholders. The potential rewards of tokenization are too significant to ignore, and authorities are now getting on board. By tokenizing agricultural trade, we can take a significant step towards a food system that is more transparent, efficient, and equitable, a system that benefits farmers, consumers, and the planet. Hello, friends. Before we get back to the rest of the show, I want you to join me at Permissionless. Permissionless is a conference for Cryptonatives by CryptoNatives. And the reason it's so important

this year is that despite regulators' best attempts to push industry founders, devs, and executives out of the U.S., the U.S. remains the beating heart of crypto. Today, the tide is turning. Policymakers have pivoted from fighting crypto to embracing it, which will lead to the creation of new financial products, new applications, and ultimately new adoption. Permissionless is a conference for those using and building on-chain products. It's home to the power users, the devs, and the builders. And what's more, I'm going to be there. The location is Salt Lake City. The dates are October 9th to the 11th, and right now, tickets are just $199. Towards the end of the month, they're going up to $499, and if you want 10% off, use code breakdown 10 when you check out. If you go to the block,

Work's website, blockworks.co, there will be lots of information about how to register, and again, use code breakdown 10 to get 10% off. So a couple of things that I think are interesting about this. First of all, I generally think that there is more latent interest in agriculture and food systems and basically anything having to do with land in the real world than one might initially think. There is a common pattern that happens where people who live in entrepreneurial spaces in the digital world at some point feel a call to be more connected to the physical world. What's more, the food system is something that impacts all of us. And so no matter who you are, no matter where you are, you do have an inherent stake in how it works.

I think it's also a system that many people and many entrepreneurs perceive as having unfair dynamics, dictated in large part by big business. That tends to be the type of dynamic that attracts entrepreneurial attention. But what I think is really interesting about this, holding aside all those specifics, is what it suggests about the state of the conversation around tokenization. If you've been around this industry for a while, you will know that these are not new themes. Tokenize Everything was a clarion call throughout 2017 in the whole ICO bull market. And while, yes, lots and lots of those projects were designed just to relieve people of their hard-won digital assets,

many of the people who were creating tokenization projects back then were really sincere in how they thought about the potential for tokenization to impact inequitable systems around the world. What makes new conversations about tokenization, which has obviously been a big theme this cycle with real world assets or RWA, is that the infrastructure for it is in a very different place. You heard Henry talking about high-performance, low-cost blockchains like Solana, but it's not just that. We now are in a post-ETF world. Bitcoin and Ethereum both have spot ETFs. That means the traditional financial world is increasingly exposed, both literally and intellectually, to the crypto space, to the blockchain world, if you will.

and what I think that that might result in, is there being more of an appetite to combine knowledge and experience in different areas like agricultural finance with this whole new world of blockchains. Part of the reason that the tokenize everything movement didn't work in 2017 and early 2018 is that a lot of the people who were trying to tokenize everything were complete neophytes to what they were trying to tokenize. They were kids who knew blockchain in crypto and who had just started thinking about manufacturing or supply chains about five minutes earlier. Unsurprising then, even if the ICO bubble hadn't popped, that those projects weren't exactly equipped to actually achieve their lofty goals. So what I'm looking out for with this new round

of tokenization conversations is the extent to which they emanate from the blockchain industry itself, or if we see them start to come from people outside of blockchain, from people inside the industries that they want to tokenize. Where I think we'll really start to see traction for some of these efforts is when the innovators who are already working in a space like agriculture start to come to the blockchain world looking for solutions rather than the other way around. Still, it's a really interesting time. Certainly agriculture is an industry that I would love to see some disruption in. And so big thanks to Henry for writing this piece, and big thanks, of course, to you guys for listening. I hope you are having a wonderful holiday

weekend. Even if you're not in the U.S., you get to celebrate our independence as well. Appreciate you listening as always, and until next time, be safe and take care of each other. Peace.