Larry Fink, CEO of BlackRock, the world’s largest fund manager, said he hopes the U.S. Securities and Exchange Commission (SEC) will quickly approve tokenization of bonds and stocks. In a January 23 CNBC interview, Fink was a strong supporter of digital assets, emphasizing their potential to democratize investing.
Open questions are whether this shift to tokenizing traditional assets could benefit cryptocurrencies, which sectors could thrive, and which projects could face stiff competition.
There is no doubt that the 24-hour global trading and transparency of blockchain technology brings benefits to assets such as bonds and stocks. However, this move is subject to regulatory updates and approvals from relevant government agencies. More importantly, regulated assets may not play well with decentralized finance (DeFi).
Impact of Tokenization on Stablecoins, Memecoins, DeFi, and Decentralized Oracles
Tokenizing bonds that offer stable yields could challenge stablecoins by providing a digital asset tied to real interest rates. These developments will introduce new tools to financial markets as investors compete for liquidity and user trust as they seek tangible returns.
Likewise, tokenized stocks like GameStop or AMC can function as on-chain assets with highly volatile prices, with community support in a manner reminiscent of memecoins. This evolution could have implications for retail trading platforms as investors gravitate towards regulated but still speculative stock tokens rather than purely speculative memecoins.
GameStop (GME) and AMC Networks (AMC) in 2021. Source: TradingView/Cointelegraph
The integration of tokenized bonds and stocks also expands the services offered by existing DeFi platforms, potentially ensuring higher total value. This will have implications for decentralized exchanges and lending protocols as they can create new revenue streams by unifying traditional asset classes.
By tokenizing real-world assets, direct ownership and pricing data can be embedded into the underlying structure of the token, reducing the need for external oracles. This change will also impact blockchain data providers, as on-chain assets inherently contain their own data.
Basic distributed oracle workflow. Source: Fontem Network
Tokenization of bonds and stocks will significantly expand the pool of assets available for on-chain derivatives, impacting decentralized exchanges and lending platforms seeking to serve diverse markets. Synthetic tokens reflecting these securities could also bypass certain regulatory barriers, opening up new opportunities for margin trading and revenue generation.
Stock and bond tokenization may take longer than expected.
Despite these benefits, tokenized securities must navigate regulatory hurdles such as know-your-customer (KYC) obligations, accredited investor restrictions, and securities law compliance. Regional rules and list restrictions reduce accessibility, while partial on-chain data enforcement still requires oracles.
Additionally, legal uncertainty and potential vulnerabilities in smart contracts can erode investor confidence. As a result, many DeFi protocols have been forced into stricter oversight, limiting the free-flow nature typically associated with cryptocurrencies and delaying widespread adoption.
relevant: Impact of Private Credit on DeFi Returns — Clearpool CEO
Legislation on stock and bond tokenization could accelerate with the appointment of U.S. Senator Cynthia Lummis as chair of the Senate Digital Assets Subcommittee on January 23. Lummis, known for his cryptocurrency advocacy stance, is expected to foster collaboration between the SEC, Treasury, CFTC, FINRA and state securities regulators.
Nonetheless, BlackRock CEO Larry Fink’s comments should be considered carefully as the company has a strong interest in tokenizing real-world assets. The change could expand the buyer base for U.S.-listed stocks and bonds, in which BlackRock is one of its largest investors. The company may also act as an intermediary, handling storage or management functions.
This article is written for general information purposes and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.