Cardano Gets Programmable Tokens: Why CIP-113 Matters

All right guys, this one is fairly important and has a big impact for Codano and let me break it down for you guys so you actually understand what’s going on. So Codano has merged Codano Improvement Proposal 113 into the Codano Improvement Proposal repository. So it’s a move forward to getting this proposal integrated into the Codano ecosystem. There’s been code and proof of concepts done over the years but it’s been quite a lengthy process to get to where it is now and this is so important for Codano’s future in real world assets, tokenized assets and stable coins and this is all around programmable tokens.

Being able to put rules around how a token is issued, how it’s spent, who can spend it and where it can be spent and sent to. So this is highly important. It’s available on the EVM space for a long time because of the quirks that EVM had and made it possible but now within the Codano ecosystem we have this too. So let’s go into the details here.

So the SIP 113 is merged into Codano’s Improvement Proposal repository. Now this doesn’t mean it’s on chain and working right now. You can fire up a Codano wallet and smart contracts or whatever and start using it. That isn’t quite the case yet.

There still needs to be work done to implement it through. Although there are some wallets and projects that have been proactive and have already implemented this into their wallets and ecosystem such as Jero Wallet. They’re always ahead of the game there and some brilliant developers behind that ecosystem so great stuff to hear. But let’s have a look at what this proposal actually does for the Codano tokens in general.

So normally a Codano token it doesn’t have any controls around it. When you create a Codano native asset, a token itself, you can move it freely. There’s no controls behind it. You can’t say this wallet can’t send to an exchange.

You can’t say the wallet can’t be used in a mint or anything like that. So there’s no restrictions. There’s no control. You are free to do whatever you want with a token within the Codano ecosystem.

But then this creates issues when you are looking into regulated assets. So if you want to mint a stable coin or shares in a company or a property or tokenize some stocks, anything around that, all of those types of assets are regulated and they can’t be sent to an unauthorized person. They can’t be sent to a sanctioned country. You can’t allow certain people that aren’t sophisticated investors to be able to touch those assets.

So there’s a whole bunch of rules here for the regulated space. And we’ve seen other ecosystems absolutely skyrocket in the RWA space, the real world asset space, because they have these mechanisms in place. So Codano doesn’t have it, but now it does. And that is the big difference here and why programmable assets are so important.

So a really easy way to think about this is that the SIP113 gives a set of rules in regards to how a token can be used and what it can actually do. So let’s say I, Peter, want to send Bob a hundred of token XYZ. The blockchain will run some rules. It will check, can Peter send this particular token?

Is Bob allowed to actually receive this type of token? Are any of the wallets involved here on a particular deny list? Is anyone actually even allowed to transfer this token at all? And if it passes all those rules, then yeah, sure, the token, the transfer goes through.

But if it doesn’t, then the transfer doesn’t happen at all. And those particular assets can’t move. The transaction actually fails. Now let’s take a stablecoin example.

Let’s say someone wants to create a stablecoin on the Codano ecosystem. The company that is issuing the stablecoin would have to ensure that they comply with sanctioned wallets. They can’t allow these sanctioned wallets or wallets from certain countries to be able to receive or send that USD stablecoin. With the SIP113 in place, you can put in these particular rules to comply with this type of regulation.

Now, if I want to send a thousand US dollars of this particular stablecoin to Bob, it will go through and check if my wallet and Bob’s wallet are under the sanctioned list. And because we’re not, then that transfer go through. But if for some reason Bob’s wallet was under a sanctioned list, when I try and do that transfer, it doesn’t go through. It gets blocked.

Now this doesn’t block other assets in my wallet. It only blocks that programmable token. So if my wallet, for example, had ADA, a whole bunch of NFTs and some other Codano native tokens that aren’t under the programmable type, I can still move those freely. I can move them anywhere I want.

I can still send them to Bob, even though they’re under a sanctioned list. And that’s totally fine. It’s just that particular USD stablecoin that was issued under SIP113 that can’t be moved because it’s complying with the rules that were applied to it. Now imagine the real world asset or tokenized asset type of scenario here.

So let’s say a company issued 20 million of a particular real world asset. Let’s say it’s a property. And now they are looking into tokenizing all that and allowing people to buy tokenized stocks of that particular property. So there’s companies in Australia that do this.

There’s one in particular called Brick, and they allow their customers to buy a brick essentially of that particular property. I think it’s a pretty cool idea. Now, the people that are buying those bricks have to be registered within their platform. They have to go through the full KYC process and be a registered, sophisticated investor and allowed to actually trade through their platform.

So now there are a whole bunch of rules behind that that need to be checked. So I can’t, as a holder of those particular assets, the $20 million property, I can’t send it to a random person that isn’t on the verified owner’s list. And I can’t buy them if I’m not on that list either. So these are the type of rules that we can put in place to comply with all the regulations around it.

And it makes it a lot easier when you actually have this programmability within the token itself. And this also goes into the whole KYC process, know your customer. So for example, some tokens or assets, you may not be able to buy them in a particular country because they don’t have the regulations or they don’t comply with the regulations there. So if you’re going through a platform and trying to buy a particular token, it won’t let you because of that KYC process and it hasn’t been validated and you can’t get on the list.

So it allows for all those types of situations too. Now the downside to this, or not really the downside, you may think of it as a downside if you’re a full decentralized crypto type of person, but it’s the freeze and seize aspects of this. So we’ve seen from many scenarios in the EVM space that regulators can come in and freeze or seize assets on chain. So something malicious has happened, or they found out that this particular wallet is involved in money laundering, they can freeze the assets in that particular wallet and stop it from moving.

Or maybe there is a hack and they’ve identified the hacker’s wallet and they’re trying to move their particular asset out, they can move in and freeze that particular wallet too. So in those situations, it’s really good. So you know that there are ways to freeze those assets, seize them and hopefully get them back to their rightful owner. So freeze and seize, kind of a good thing, but it also gives potential government overreach to say, I don’t want anyone here to be able to move this particular asset, because I want you to spend your money that is being paid into your account, I’m going to take some of it out of your account and move it to my own over time, unless you spend it.

So there’s pros and cons about this. I really don’t see that scenario of government overreach issuing like an Australian stable coin and coming in and saying, we need to spend money, stimulate the economy and get the economy running. So we need you to spend the money instead of saving it. Those types of situations I can’t see happening, especially not in the economy now.

We want to save, we want to slow spending. But anyway, the whole friction point here, the whole idea here is that we can now have programmable assets within the Cardano ecosystem. Now the big question is, why do you want this? I think I’ve painted it pretty clearly over explaining all these different scenarios.

To be able to issue real world assets on Cardano, we need to be able to play in that regulated space. So if you’re issuing a stock, you’re issuing real world assets, whatever it is, they’re all regulated assets and you have to comply with the rules and compliance that the government jurisdictions have around having those assets. And we’re seeing, like I said earlier, these other chains onboarding billions of dollars of RWAs onto their chain. And it’s only possible because of these programmable aspects of those particular tokens, keeping those tokens safe and compliant with all the regulations within their jurisdictions.

Now, if Cardano has this, we can play in that same space. We can actually issue these RWAs just like the other chains. Now, the really important thing here is that it is now a standard within the Cardano ecosystem. So we’ve recently had the announcement that Fireblocks is coming into the Cardano ecosystem and launching there, which is great, fantastic.

We have institutional, custodial, really secure way of holding assets and having all the policies around virtual assets as well. But if we were to not have a certain standard for programmability of these assets, we would have had 50 different ways of doing this. Like we’ve seen this in the Cardano space in general. We’ve had different ways of minting NFTs.

We had different ways of doing swaps and whatnot. We didn’t have a clear standard one way to do it. The best way to do it now we do with programmable assets, and that can be implemented into Fireblocks so that any asset that comes into that ecosystem, which it will have to when you’re looking at billions of dollars worth of assets, we have a clear integrated way to make that happen. So hopefully I’ve made that really clear about what this is all about and why it’s so important for the Cardano ecosystem.

And it’s something really big to celebrate. It’s come a long way. I did demos of this years back when Mateo from Fluid Tokens and Michele from Harmonic Labs were playing around with the initial concepts here and they did a proof of concept on-chain and showed how it could possibly work. I know Phil from Anastasia Labs had done a massive amount of work in the original SIP proposal, as well as all these other developers and contributors, EasyOne, EasyStaking, and all these other developers.

They’ve contributed so much over the years to get it to this point. So first off, thank you so much for all the developers for making this all happen. Without you guys, we wouldn’t be where we are right now. And now other developers and dApp builders and wallet providers, they’re now taking this on board and implementing the next stage of this.

And from there, we’ll start seeing companies issue real-world assets. We’ll see Pokemon trading cards. We’ll see tokens, stocks, whatever, all that stuff come onto the Cardano ecosystem because of this. Right guys, if this isn’t bullish news, I don’t know what is.

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