If Bitcoin didn’t exist, would my life would be any different? Many of my intelligent, cynical friends can pose that question with confidence. So far, they have missed a significant investment return but have yet to witness a rewiring of the financial system. However, they pause when you go deeper into “What is Money?” and what would happen if you woke up and your central bank imposed capital controls? Veteran emerging market participants can recall a shopping list of countries that restricted the free flow of capital after the 1997 Asian Financial Crisis. In this regard, those of independent minds can embrace the financial freedom a transferable asset like Bitcoin can bring, let alone a potential hedge against fiat debasement. If you need to renew your faith, tune into Michael Saylor’s presentations or read The Ascent of Money by Niall Ferguson.
Tokenisation – Financial Titans Make Their Move
Over the last 24 months, I have been impressed by the significant financial brand names that appear on stage at conferences to discuss tokenisation. These institutions have scaled in my lifetime to be trusted custodians and manage trillions of dollars. But do end users care if the asset is an exchange-listed ETF, REIT, bond, stock, or a tokenised version? Perhaps if I can move the asset around freely and quickly, trade 24-7, use it as collateral, etc., everything should be tokenised.
But do I trust the code enough to chance my arm in DeFi land?
Oracles and trust provision are cornerstones in DeFi and Tradfi, with different definitions and mechanisms. Does tokenisationn by large financial institutions with legal and regulatory safeguards bring a wave of innovation (and cost savings to providers) or hobble the path to true financial nirvana?
I expect that TradFi tokenisation efforts will co-opt the language and benefits of DeFi without embracing its fundamental principles. The term “tokenisation” will be widely used, but the deeper revolutionary goals of DeFi, such as democratising finance and eliminating middlemen, will be crowded out by the financial titans.
Blackrock recently reported $11 trillion of AUM, and its BTC ETF tops the charts at US$23bn of net assets. More importantly, its tokenised money market fund (BUIDL) will likely be widely accepted as collateral and has grown quickly to a US$550m market cap.
At a more retail consumer level, Wisdom Tree ( $103bn in assets) recently launched a visa card linked to customer digital asset accounts.
“The WisdomTree Prime Debit Card is the first real step in being able to take your digital asset holdings and leverage them in day-to-day personal finance,” said Will Peck, Head of Digital Assets at WisdomTree. “We built this app because we see inherent value in connectivity – having all of your assets in one place, where your crypto isn’t locked away and can sit alongside your other investments, like bond or equity exposures. Now, those assets can fund consumers’ daily purchases, giving them more choice in where their assets go, how assets are used, and how they can potentially grow over time.”
There is plenty of room for both, and significant operational hurdles remain. However, the proliferation of competing protocols from the big banks and asset managers hardly fixes the cost, speed, and inefficiency problems the industry is trying to solve.
Over forty financial firms have joined the Bank for International Settlements to explore how tokenisation can enhance wholesale cross-border settlements. Project Agora.
My best guess is that hybrid systems aided by interoperability will emerge with the best permissioned and permissionless environments. The Titans do have a significant advantage with all the assets and customers but prefer to fly solo, which is where the innovation from the emerging players can catalyse real change.
Either way, the digital asset/crypto community has to continue to build trust to bring credible innovation to financial markets.
Down the rabbit hole:
McKinsey has an excellent tokenisation summary here: https://www.mckinsey.com/industries/financial-services/our-insights/from-ripples-to-waves-the-transformational-power-of-tokenizing-assets
Wisdomtree highlights the advantages of tokenisaiton:
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