Tokenization Recovery: How to Avoid Tradfi’s Acquisition

March 26th Tokenization Recovery: How to Avoid Tradfi’s Acquisition

By Jesse Knutson, Head of Operations at Bitfinex Securities

Tokenization is at a turning point. The recognition is that outside the crypto world, tokenizing assets can be a ticket to fund them in a truly different way.

The traditional banking giant is working on a project to understand how this possibility can be exploited. The governments of major financial centres from the UK to Singapore have launched sandboxes to see how regulations can support capital market infrastructures supported by blockchain technology.

The Blockchain and Finance press is littered with successful pilot headlines, including Siemens’ $330 million digital debt issued last year as part of a European Central Bank trial to settle blockchain central bank money.

These news articles were undoubtedly positive in shedding light on symbolization. But there’s a problem. Many of the reported “success stories” have so far been excluded from what tokenization could enable, as they are essentially disguised transactions.

Take a look at Siemens’ example. Digital bonds were undoubtedly a success as long as they were proven to be resolved much faster than is possible today through traditional means. However, the bonds were issued on a private blockchain, and it appeared that Deutsche Bank was needed to promote settlements and did not provide a mechanism for independence.

In my view, this is not what tokenized bonds should look like. The heart of tokenization is intermediation, empowering users by streamlining the technologically outdated portion of the capital market ecosystem. Tokenization will replace the work of reporting transfer agents, central depository agencies, clearing systems, custodians, and compliance, with cheaper, faster, and more transparent on-chain solutions. At the same time, it offers more flexibility for investors, such as offering much lower entry points compared to traditional markets.

I’m worried that tokenization could further descend the path of being led by Tradfi Behemoth, who is looking for ways to create new, innovative products based on clients. Larry Fink’s recent call to the US SEC to “quickly approve bond and equity tokenization” could mean we are approaching the point of no return.

Despite President Donald Trump’s clear embrace of the crypto community, the specific announcements we see on US stance on crypto, particularly in the strategic Bitcoin Reserve, are seen by some as overwhelming. This could prove to be crucial for the current banking sector.

While key crypto players are still working on where the industry is heading, this gives them the opportunity to leverage the US administration encrypted in the bank lobby. It misses the opportunity for traditional financial players to leverage blockchain technology for their own purposes and improve the final line while still developing new, narrow client-based products while maintaining the current state of the capital market.

Few investors are likely to benefit from tokenized products from large banks compared to the general population. Millions of people around the world enjoy the opportunity to invest in inventory and corporate bonds, but only dream of reaching a certified investor or comparable threshold.

Tokenization also provides investors with the opportunity to regain control of their assets. Technologies such as BlockStream’s Liquid Network leverage whitelists to enable peer-to-peer trading, the ability to move assets across the trading platform, and even self-supporting assets. In the future, we look forward to more detailed voting and paying dividends. Integration with USDT and BTC is also important to reduce the flow of capital friction between the traditional RWA and Crypto markets.

Our current capital markets are created only for the minority. Tokenization allows you to solve this. Now, banks and everything have the technology to enable SMEs to raise the capital they need to grow without being involved within the regulatory and compliance guardrails. For future investors, anyone with a dollar in their investment can start growing wealth through the US Treasury Department. I’ve already seen this on Nexbridge’s USTBL product on El Salvador.

To avoid the acquisition of Tradfi of tokenization, regulators are needed to understand the promise of a larger picture of tokenization. It is important that tokenized versions of sophisticated investment products are properly regulated, but no matter how much you invest, all major jurisdictions are also needed to clarify how tokenized products can be opened to retail investors.

Tokenization represents a generation of opportunities to democratize access to capital. We owe it to millions of people and businesses around the world to ensure we don’t lose sight of this.