Stopping Socialism

Welcome to the Emerging Issues Show - the show where we talking about topics that are popping up on the peripheries of society and public policy.

Today, we are diving into a concept that is reshaping the financial landscape—“tokenization.” It’s being talked about as a way to give more people access to markets, but could it come with some hidden risks?

Our guest today is Daylea Duvall Camp, a fellow in the American Journey Experience Freedom Rising Fellowship program and author of the article “The Tokenization Trap: How you could lose everything on the blockchain.”

Creators & Guests

Host
Donald Kendal
Donald Kendal hosts episodes of Stopping Socialism along with weekly releases of the In The Tank podcast.

What is Stopping Socialism?

Discussions on how to save the United States from the scourge of socialism, presented by The Heartland Institute.

Donald Kendal:

Alright. Welcome to the Emerging Issue Show. I am your host, Donald Kendall. This is the show where we are talking about topics that are popping up on the peripheries of society and public policy. Today, we're gonna be diving into a concept that is reshaping the financial landscape.

Donald Kendal:

This is a concept called tokenization. So, it's being talked about as a way to give people more access to markets, but could it come with hidden risks? So today, our guest is Dailey Duvalkamp, a fellow in the American Journey Experience Freedom Rising Fellowship Program and author of the article, the tokenization trap, how you could lose everything on the block Chain. Daily, thank you for coming on with me today.

Daylea Duvall Camp:

I thank you, Donald. Thank you for having me. I've been following the Heartland Institute and appreciating your work for several years now, so I'm glad to partner with you on this topic today.

Donald Kendal:

Oh, very gracious words from you. So let's start off with the basics. I think, like, even my introduction could probably go over the heads of, of, of many people that are watching this episode. So let's start off with the basics. I know that in this day and age, everything seems to be trending towards the digitization, whether it's the replacement of physical media with the downloading or streaming content or the digitization of records.

Donald Kendal:

Everything seems to be going in that direction. And it appears that that's also the case when it comes to assets or investments, stocks, even claims for precious metals. So what exactly is tokenization, and how does it differ from the traditional ownership of physical assets?

Daylea Duvall Camp:

Well, tokenization is the process of taking physical assets and recording them on the blockchain. So the blockchain is a Internet base. It's gonna be an exchange center. It's specifically for these physical assets that are turning into tokens. So you can't just it's not like poof, the asset disappears.

Daylea Duvall Camp:

It's still going to have a physical form, but where the transaction is going to be happening instead of cash exchanging from hand to hand, which would be the basic version of what how we would do, you know, a financial exchange for a purchase. But this is all going to be happening digitally. And instead of me handing you a physical item when we pay, say, even with your credit card. We physically exchange the item, and I pay via credit card, maybe not cash or Venmo. The difference is we're going to have the physical version is going to have a digital version where it's going to exchange via the blockchain even if we don't physically exchange the good.

Daylea Duvall Camp:

So how that happens is when there's a physical asset, say, a painting, like a famous painting that's worth a lot of money, it's going to have a physical form. But there'll also be a twin version. Maybe some some could call it, like, a avatar or really the token, but just how to picture it in your mind. So it'll have its digital twin token, and then that will be what is exchanged on the blockchain. Mhmm.

Donald Kendal:

So, I mean, this, even in some of the examples that I brought up, you know, the replacement of, physical media, maybe, instead of watching a movie on, like, a DVD, a physical piece of media, you know, you're streaming it off of Netflix or something or the digitization of records or some of the other examples that I brought up. All of that is done in the idea of, increased efficiency. Right? Instead of having to go to a store and buying a physical disc, now I, I wanted to go and buy this movie to watch, you know, but it's midnight and the store is closed. But, oh, because it's everything's digital now, I could just download it.

Donald Kendal:

So everything is done under this, this idea that it's all efficient. Right? And I am I'm looking at this, and even the way that you described it, it just makes it seem like, oh, this is just a more efficient way of, trading goods. Yes. There's a you know, you just you described a painting, but let's, you know, talk about, like, the idea of having, you know, gold or something like that.

Donald Kendal:

Right? Gold might not actually be in your house, but you have a claim to it. Right? I own the ownership rights to that gold. And if I wanna trade it, I don't have to physically take that gold and give it to somebody else.

Donald Kendal:

I just trade that digital asset. So it makes it all more fluid. It's all more efficient. So what is the problem here? I mean, this this seems like, just a maybe a better a better way of of dealing with physical assets.

Donald Kendal:

What's the problem?

Daylea Duvall Camp:

Well, there's there's 2 pieces of the problem. Well, the first problem is, like you're saying with the gold, That is a there's a problem that exist. I'm I'm more, understanding and aware of within the stocks Mhmm. Market. You don't necessarily have your sheet you don't have your sheet of paper saying you own your stock.

Donald Kendal:

Sure.

Daylea Duvall Camp:

The clear DTC has that, and I'm sure the similar with the gold. However, the you have to look at the contract of with whoever is holding your gold and how they have it in custody. But current and what they are allowed to do with it. Are they allowed to go then and exchange with your gold? Because that can happen with your stocks.

Daylea Duvall Camp:

Your stocks, you don't actually own them. You are a security entitlement holder

Donald Kendal:

Mhmm.

Daylea Duvall Camp:

According to the universe Uniform Commercial Code Article 8, which is the bankruptcy proceedings of what happens if banks and clearing houses go bankrupt. It it provides the order of who has claimed to the assets. And currently, individual stockholders who own who are actually security entitlement holders, they are unsecured creditors.

Donald Kendal:

Mhmm.

Daylea Duvall Camp:

So you don't actually own what you think you own.

Donald Kendal:

Right.

Daylea Duvall Camp:

Right. Own an entitlement to it.

Donald Kendal:

Right. Right. So Yes. Sorry. The the the DTC, you mentioned that.

Donald Kendal:

So that is I forget what it actually stands for, and and, you know, I won't hold it against you if you don't have that on the, on the top of mind or whatever. But so that is like, essentially works as like a clearing house, right, where everything kind of runs through this kind of centralized, you know, organization or corporation or whatever it is. So they actually have the rights to those physical properties or the stocks or whatever we're talking about here. And then what you have, this digital token version, is like a receipt saying, hey. That thing that's underneath your roof, I I actually have ownership to that.

Donald Kendal:

I'm entitled to that. That's that's what you're describing as, like, the entitlement owner for it.

Daylea Duvall Camp:

For the security.

Donald Kendal:

Okay.

Daylea Duvall Camp:

The what my article is about is the physical assets that can become collateral for the stock. In the digital ecosystem, you're going to have digital asset securities, which will be stocks. This the digital asset securities, also d a s, is the tokenized version of stock. Now your physical assets like your house or car, anything else that's physical, that is called a real world asset.

Donald Kendal:

Mhmm.

Daylea Duvall Camp:

And that will be called RWA, real world asset. The real world assets will be collateral for and you can use them as you can also, like, use it as cash. Right? So it's similar to how now you would get a mortgage. You get the cash to buy the house, and you pay the mortgage.

Daylea Duvall Camp:

The house is the collateral. So it's taking building blocks of and from the foundation of our financial ecosystem we already have and just lifting it into the digital world

Donald Kendal:

Mhmm.

Daylea Duvall Camp:

For, right, liquidity. So now all these things, physical goods are now on the blockchain in their twin form that you can exchange and use as cash instead of needing cash. That's a potential problem is that we have all of this. Everything can be collateralized.

Donald Kendal:

Mhmm.

Daylea Duvall Camp:

And then 2 is the speed because they're not just on their by themselves. Each token has a smart contract that has a program of its value and when you wanna sell it, what act you can preplan selling and buying. So instantly and irreversibly, things can be bought and sold. So then we connect the DAS to the RWA, which is when it can become a problem under the bankruptcy code, and you can literally own nothing. Because if you have digital asset securities that you you're just an entitlement holder.

Daylea Duvall Camp:

Your real world assets become the collateral to that security. Because you didn't have cash, you used your real world asset to buy the DAS. If DTC or the banks, the big too big to fail institutions, if they go bankrupt and there's a transaction that is instantly and irreversibly done to create a financial collapse. You are the last in line to now your physical assets and your securities.

Donald Kendal:

Right. Right. So then that little that little entitlement coupon saying, like, I own, you know, that those assets that are underneath your roof becomes pretty meaningless. You know, the the assets would be used to, solidify, you know, those those, those too big to fail banks and and holders of those assets, that you described. So so that that that seems like a big issue.

Donald Kendal:

And and you said that that's all facilitated, through or outlined by the UCC system?

Daylea Duvall Camp:

Yes. It goes through and breaks down under certain, bankruptcy proceedings. It says that the it would be the clearing houses would become them and their secured creditors would be the the first in line to have claim to the assets before individual holders. And the reason this happens is how you how do you become an entitlement holder instead of an owner? It all depends upon how you buy your stock.

Daylea Duvall Camp:

If you get a paper certificate issued to yourself with your name on it, that that you would actually be an owner of that stock. But most since 1994 when this, bankruptcy proceedings was changed, it was amended so that, we would become entitlement holders. It transitioned It was the first step in this digital move so that these transactions could become more seamless between, you know, the clearing houses and all the banks. They're exchanging constantly all day long. And to make it quicker and seamless, they did it digital.

Daylea Duvall Camp:

They stopped issuing paper, securities. So if you don't request that specifically, it's going to be digitally, And instead of it having your name, it has DTC's name on it. So they are the owner.

Donald Kendal:

It just seems like such a crazy example of, this thing. It's almost become like a meme in kind of right leaning skeptical of the World Economic Forum circles of the in the future, you won't own anything. It's like, could you get any more direct than this? Mhmm. What before we get into, like, solutions, how did this issue get on your radar?

Donald Kendal:

Because this just seems like something that's so nuanced and kind of in the weeds that, I I if I were to go outside and ask a 100 people about this issue, I don't think 99 of them would would even be anywhere close to aware of this issue or not even to mention the implications of it. So how did this get on your radar as an issue?

Daylea Duvall Camp:

Yes. It's fairly recently a buildup of many years. So I the 9 the past 9 years, I had been working in banking as an accountant, a CPA, and then I started working at Heartland this summer in this fellowship program. And you guys told us to start looking at some emergent emerging issues. And something that was on my radar that I had not really had the time to really understand was the tokenization.

Daylea Duvall Camp:

I heard this key term in a lot of the continued education, podcasts and web webinars. I would see tokenization as a topic, and it it wasn't specifically relevant to what I was working in. So this was an opportunity for me to dive into it and looking into how these tokens, the real world assets are becoming digital. I started connecting the dots of key terms. Because in my banking experience, I had heard of insecurity entitlements because I worked in, a part of a broker dealer just doing the accounting aspect.

Daylea Duvall Camp:

I was not a trader or anything like that. Just worked on the regulatory reporting. So I was aware of the transactions, the derivatives market from that perspective, but I did not know the bankruptcy proceedings.

Donald Kendal:

Mhmm.

Daylea Duvall Camp:

I didn't I didn't know that. And and I it wasn't something we talked about, so, you know, on my level. You know? So I I don't want to accuse anybody personally that I may have worked at as trying to steal people's money

Donald Kendal:

To steal

Daylea Duvall Camp:

their assets. Assets. I don't I really just want to stay away from pointing fingers like that. But the the law is written in such a way that we don't own what we think we own.

Donald Kendal:

Mhmm.

Daylea Duvall Camp:

And hopefully, we can change that. So that is the takeaway of what needs to be done. But working through these looking through the tote what is tokenization, connecting some dots on key terms, and also learning of, David Rogers Webb's work, The Great Taking, because he also was in the securities market. And he was able to con he learned the bankruptcy code, the UCC article 8, and that is what he is trying to, expose and bring to light so that it can be changed. But also the real world assets becoming digital, it built upon what David Rogers Webb is, warning us of.

Donald Kendal:

Yeah. Yeah. Some of the, some of the implications of this are are pretty unsettling. You already kind of outlined the idea that in in the, the idea of some, like, financial collapse or anything like that or even some, you know, banks or financial institutions kinda go in, heels up that, you know, we, thinking that we own certain assets or stocks or, you know, precious metals or something might actually be just holding some useless pieces of paper. And that is a scary thought, and it definitely kinda pushes pushes that idea of, you know, in the future, you'll own nothing.

Donald Kendal:

And in this case, it might be literally the case, but I don't wanna leave people, feeling so, you know, hopeless. I know that, you you're doing work on this. If I'm able to, I can probably even share a document here that, that you had worked on. This is a policy tip sheet called the 2022 amendments to the Uniform Commercial Code, aggregate property rights to tangible assets. So this is a document that kind of outlines more detail, and I'll have the links to the article that I had referenced at the beginning of the show as well as this in the, in the the podcast description of the show description of this where you can go and find more information.

Donald Kendal:

But why don't we leave off with a question of just, like, what what do we do? What so you've you've kind of outlined this problem and the potential implications, negative implications of the situation that we find ourselves in. But what do we do to combat against this?

Daylea Duvall Camp:

The UCC, the Uniform Commercial Code, is state law, and so it can be amended from time to time. And so we need to go to our state legislatures and ask them to greatly consider and to actually amend the UCC article 8. And my policy brief goes into other articles that also need to be addressed to protect our property rights for physical assets and also securities. So we really it's it's in our state legislators, and we need to have it amended in all 50 states because the states will all worked. They want to have the same law for cross state transactions.

Donald Kendal:

Mhmm.

Daylea Duvall Camp:

So it's very important that all 50 states amend the UCC articles 8 and also according to my brief 9 12.

Donald Kendal:

Great. Great. Yeah. It's a it's a very interesting it's a what I mean, admittedly, it is seemingly a bit in the weeds. You have to kind of understand some fairly abstract concepts.

Donald Kendal:

But once you get it down, the implications of this are pretty dire, and it's a very important thing that people need to understand. State legislators, like you mentioned, need to understand. But, I mean, I think we know how the system works. I think we know how the system works. I think we know how the political gears kind of get moving.

Donald Kendal:

Most of it comes from constituent mandates. So a lot of the issues that we might talk about on shows like this or other podcasts that talk about some of these issues, is mostly in the effort of just kind of getting the public to understand these issues and to take it seriously, and hopefully that translates downstream towards some legislative action. But, daily, we're already getting towards 20 minutes here. Is there any kind of last things that you need to that you need to say or information you wanna impart on our audience before we wrap up this episode?

Daylea Duvall Camp:

Well, thank you very much for having me today, and I hope that we can affect some change in the future on this topic.

Donald Kendal:

Yes. Absolutely. Well, thank you for coming on. Again, that is Daily Duvall Camp. She is the author of that Blaze article that I mentioned, tokenization trap, how you could lose everything on the blockchain.

Donald Kendal:

Daily, thank you again for being on with me.

Daylea Duvall Camp:

Thank you.