Mortgage derivatives abuse is blamed for at least some of the 2007-2008 global financial crisis. Derivates, or mortgage-backed securities, are instruments banks create to turn lenders’ liabilities into speculative investment assets. Before it became a concern, banks traded such financial instruments to provide potential investors extra profit.
The concept of derivatives is that they offer a particular type of future transaction in which results depend on a specific eventual event associated with a particular asset, group of assets, or benchmark. In the case of mortgage derivatives, the asset was a pool of mortgage loans, which were, at the opposite end, some anonymized individual lenders’ liabilities.
Before 2007 such a side bet on lenders’ solvency was presented as a great deal to greedy investors. Mortgage derivatives were, in fact, speculations that depended on the result of market games. Consequently, while some lenders returned their mortgages, investors could profit from what worked well when the economy was prosperous. But the game’s rules were misused, giving rise to a spark that ignited a financial catastrophe. But before it happened, the game was incredibly appealing, even though it was based on the financial credibility of so many lenders. In such a bet, the bet horses competing in the race were actually genuine individuals – ordinary lenders.
This parallel serves as an introduction to the tokenization of digital assets, which emerged with the global fad for blockchain. Tokenization means assigning a unique and secure digital token to nearly any asset we can imagine. A person with such a token can keep it as an asset ownership certificate and have the right to sell it. Indeed, asset tokenization gets going because it enables trading any asset that was previously untradeable. But what are the similarities between mortgage derivatives and asset tokenization? The first is that both make it possible to create a financial instrument out of something that wasn’t originally intended to be one. Second, in both cases, humans become a commodity, and gambling is involved, which tends to do severe damage.
Startups are also involved in blockchain, tokenization, and the gaming industry. Innovative technology is a natural fit for young, ambitious entrepreneurs. And this is the area where the Czech startup GAMEE presents its own way of using this opportunity. GAMEE’s tech product is a high-engagement gaming platform where players get through game missions, concur in tournaments, and win rewards. But wait, isn’t that exactly what video games are about? The main difference is that GAMEE players may own the assets they win when playing. The game score can subsequently be converted into cryptocurrency. It means that game objects are tied to a value encoded in blockchain technology, which may be transferable from one player to another. Also, some objects or collectible characters called G-bots may be acquired as NFTs with in-app purchases. You may win but also buy the equivalent of chips here in the game when compared to casinos. And here, the winners also can cash out their winnings.
Although the concept appears to be difficult, it is not. The more you play, the higher your skill level and the more game scores you have, and the more of them you can exchange for the tokens. It boosts entertainment while also making it addictive when you play for real prizes that could ultimately be cashed.
NFT-based rewards were introduced to mobile games to improve players’ retention and time spent playing. Even though both video games and mobile phones are proven to be highly addictive, adding gambling or lottery elements to mobile games stimulates even more hormonal highs. Playing and earning experience might be rewarding but can also have negative consequences. Even if, according to the industry, with tokenization, players get ownership of the game’s asset, there is a non-monetary price to pay: the time consumed playing.
The Web3 development makes micropayments in tokens for using particular applications increase in popularity. As the Brave browser does when displaying extra ads to users and rewarding them in crypto money for it. The technique of giving people the sense that they would not be abused and that they are in charge is still highly disputable. In fact, software companies share a tiny chunk of their earnings with consumers to keep them engaged and buy their time. And blockchain and decentralized payments make it possible as it never was before.
But the question is whether it is all happening to democratize digital technologies and give people more control or just the opposite: to speculate on people. If that’s the case, people are treated as commodities; they are underlying assets for derivatives in the form of crypto, a financial instrument reflecting how the “living assets” are performing. And, as mortgage derivatives history shows, speculating on people’s lives may go wrong at some point and lead to real-life consequences.