A financial law professor told Congress in a speech Wednesday that public blockchains are too “fragile” to tokenize trillions of dollars in real-world assets because they are highly inefficient and unable to handle large transaction volumes.
“Cryptocurrencies run on public, permissionless blockchains, and tokenization doesn’t have to,” Hilary Allen, a professor at American University Washington College of Law, said in a speech to the U.S. House of Representatives Financial Services Committee (HFSC) on June 5. claimed.
Allen was one of several industry leaders invited to speak about the impact tokenized RWAs could have on financial markets. Here she argued that public blockchains are not a sufficiently suitable infrastructure.
“Blockchain is unsuitable as an infrastructure to support real-world assets due to its inevitable inefficiencies and operational vulnerabilities.”
Allen said that when he discovered blockchain 10 years ago, he thought it would be a “revolutionary” technology. Eventually, we started learning from independent technology experts how “limited and problematic” our infrastructure was.
“Permissionless public blockchains are not suitable for most of the problems people have tried to solve,” said the self-described “pessimistic financial futurist.”
Allen argued that public blockchains “cannot handle large volumes of transactions.”
However, there have been numerous transfers of over $1 billion in Bitcoin and Ethereum.
For example, Bitcoin whales transferred $6 billion to new addresses in a single transfer in March.
Allen argued that other ledgers and databases may be better suited for tokenization, but did not make a case for any specific technology.
“We need to think very carefully about where tokenization is deployed,” Allen concluded.
Related: Tokenized Asset Market Could Reach $16 Trillion on Public Blockchains — RippleX VP
Allen’s comments contradict those of BlackRock CEO Larry Fink, who believes all stocks and bonds will eventually be tokenized on the blockchain.
BlackRock tokenized the BlackRock USD Institutional Digital Liquidity Fund on Ethereum in March. The fund has already amassed $462 million in assets, according to analysts at 21Shares.
Currently, more than $1.53 billion in U.S. Treasury bonds have been tokenized via blockchain.
In March 2023, investment bank Citi estimated that $4 trillion to $5 trillion worth of RWA would be tokenized on blockchains by 2030.
However, Citi acknowledged that there are still challenges in building the infrastructure and ensuring widely adhered interoperability standards.
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