October 23 Bitcoin will lead the future of capital markets
At Bitfinex Securities
By Jesse Knutson, Head of Operations, Bitfinex Securities
As financial institutions continue to ramp up their tokenization efforts, many, including Blackrock, have been quick to assume that Ethereum will dominate the space. However, I believe that Bitcoin, with its superior security model and new programmability, is indeed poised to become the foundation of the next generation of capital markets.
It is true that Ethereum took an early lead in real asset (RWA) tokenization. According to RWA.xyz, the total value of RWA on Ethereum is $2 billion (excluding stablecoins), with Stellar coming in second at $420 million. But the initial lead doesn’t always last.
In recent years, Bitcoin, the first and perhaps best-known blockchain, has seen incredible growth in its layer 2 ecosystem. It provides the secure and scalable programmability that financial institutions need to leverage the benefits of tokenization. One example is Liquid Network, a Bitcoin sidechain that enables fast and confidential payments and issuance of digital assets. Total value locked (TVL) is now $1.7 billion, up from $400 million in 2022.
With the additional features and top-notch security we are now seeing, Bitcoin is starting to emerge as the ecosystem of choice for financial institutions looking to tokenize their assets.
In Latin America, nearly $1 billion worth of promissory notes were issued through Liquid Network.
Blockstream Mining Note, a security token that raised nearly $50 million across eight tranches last quarter, executed its largest RWA payout ever, returning over 1,200 BTC to investors.
There are more issues in the pipeline. The El Salvador government plans to issue a ‘volcano token’ on Liquid Network. This marks the first time in the world that national debt has been tokenized.
Combining security and programmability
Although today’s on-chain activity tells a different story, Bitcoin’s architecture makes it a natural ecosystem for tokenizing real-world assets.
Bitcoin utilizes the Unspent Transaction Output (UTXO) model, which represents individual units of Bitcoin that can be used for future transactions, ensuring that each portion of a Bitcoin is only used once. UTXOs provide improved protection against double spending, allow parallel transaction processing, and improve privacy by using a new address for each transaction.
The UTXO model also simplifies transaction verification, supports advanced features such as multi-signature policies without complex smart contracts, and reduces pre-execution risk. These characteristics therefore make the UTXO model particularly suitable for financial applications that prioritize security, scalability, and transaction integrity over complex programmability.
It is indisputable that the dominant alternative to UTXO today is an account model, typically controlled by Ethereum smart contracts. However, it is also true that the complexity of smart contracts can increase the likelihood of coding errors and vulnerabilities. Although rare, these errors may lead to security breaches, loss of funds, or unintended actions of tokenized securities.
Bitcoin has a much higher level of regulatory clarity than other tokenization ecosystems, and virtually all ecosystems have had more complex interactions with regulators and continue to face potential classification as unregistered securities. Classifying Bitcoin as a commodity will make it a cleaner and safer choice for issuers and platforms involved in the tokenization of securities and real-world assets.
Taken together, we can see that there are elements that could allow Bitcoin to play a more prominent role in asset tokenization. Through sidechains like Liquid Network, Bitcoin balances the need for network security with the programmability and privacy features required for asset tokenization.
The recent growth of Bitcoin as a tokenization ecosystem means that more people are taking notice. Ultimately, Bitcoin is not just a store of value, but a network that can drive the future of digital capital markets.
Author Bio:
Jesse Knutson is Head of Operations at Bitfinex Securities, where he is responsible for growing the platform’s issuance pipeline, overseeing distribution, and building its user base while ensuring compliance with regulatory standards. Prior to this role, Knutson served as Vice President of Financial Products at Blockstream and worked at prominent investment banks including Macquarie Group and Barclays.