Reading the Snacks newsletter today I came across this brief:
Wall Street’s crypto makeover…
Corporates like Goldman (SachsGS) $575.06 (0.43%), Robinhood (HOOD) $39.40 (5.85%), and BlackRock (BLK) $1,017.40 (-0.83%) have talked about bringing securities like stocks to the blockchain (FYI: Sherwood Media is an independent subsidiary of Robinhood).
Tokenized securities are like crypto-fied stocks that could usher in 24/7 trading, faster settlement, and lower transaction costs. The wheels are in motion. Just last month, digital asset co Prometheum said it raised $20M to roll out a tokenized securities trading “ecosystem,” and banks are developing shared blockchains. Analysts predict a $2T to $4T tokenized assets market by 2030.Why Tokenization is a big deal!
I know when maxis read blockchain and tokenization they have PTSD and think of ICOs, white papers pitching software vaporware, and all the shitcoin scamming that goes on today and that no innovation is to be had in this area of finance but I disagree.
A Bitcoin backed securities market that allows people to buy shares of real companies has tremendous value!
In the linked article to this post, Ms. Kim (who did a terrible job linking ordinals and lightning as Bitcoin developments) wrote a nice article explaining the value proposition of tokenization.
Here are some excerpts that caught my attention
There are several waystokenization can figure into financial services, but it found a natural fit as an upgraded investment wrapper. Just as ETFs are thought of as the 2.0 version of mutual funds,with their transparency and ability to trade intraday, tokens, which are compatible with souped-up decentralized finance (DeFi) platforms, are emerging as a new 3.0 product.
Here is where the innovation is.
Tokenization is step function better than Exchange Traded Funds (ETFs)
Just like ETFs are a step function better than mutual funds. You can buy an ETF for $1 and the liquidity is high. Versus a mutual fund that takes at least one day to open and close positions and you need at least a minimum investment of $3,000. With tokenization liquidity can drop to 1 Sat!
Like Ms. Kim points out Tokenization is step function better than ETFs.
Tokenization allows anyone the ability to access your money exactly when you want it and get finality on that transaction
Also the article adds some nuance:
“Taking a pile of dog shit, putting a wrapper around it, and putting it on-chain does not make it a better asset,”Meltem Demirors, founder of investment firm Crucible, said in a panel at a tokenization conference in New York last month.
I couldn’t agree more! This is what shitcoins do right before they rug you.
Tokenizing real estate didn’t make it more liquid, nor more desirable. There were dozens of projects and deals that came to market five years ago but failed because they ran into technical issues, or legal ones.Chalk it up to the nascency of the market, the mismatch between the technical and the bureaucratic, or bad deals trying to gin up interest with buzzy tech. Whatever it was, few, if any, were buying.
Another great point!
Real World Assets on any blockchain makes no sense. But shares in a company are already imaginary. They are created and destroyed as the company and market determines.Having a source of truth for shares outstanding already exist in some database software. If shares are tokenized it is possible to develop secondary markets where buying and selling can happen on the “black market”. I know it’s hard to believe the government would allow such a think in this hyper surveillance state we live in now but this can change. Laws are written by men.
Demirors also took issue with the money flow in tokenization: “Today, there are about $200 billion in stablecoins. What are we doing? We are taking money out of the crypto ecosystem.”
She added: “Taking$50 billion of bitcoin out of circulation and giving it to a financial institution that charges between 20 and 250 basis points for the privilege of holding it for you is not crypto innovation. That is financial innovation. That is asset-management innovation.”
Great point here too.
Final Thoughts
But this article can be added to why I am bullish on Robinhood stock.
BlackRock and Goldman are years behind implementing on this their own platforms and don’t have the application or engineering team to pull this off like Robinhood can.
Like it or not bitcoiners tokenized securities are coming and they will offer a more powerful investment vehicle than ETFs and mutual funds. For better and for worse