The past six months in the crypto markets have been dominated by two major stories: the prospect of Bitcoin ETFs (which were finally approved by the SEC in January) and so-called real world assets (RWAs). Interestingly, these themes represent two sides of the same coin: Bitcoin ETFs take digitally proprietary assets off-chain, while RWAs bring traditional assets on-chain.
Both traditional and decentralized finance experts have applauded these related innovations. For example, BlackRock CEO Larry Fink told CNBC: “ETFs are the first step in the technological revolution in financial markets. Step two will be the tokenization of every financial asset.”
So, what about step three?
I would argue that bringing the entire value chain into the chain, not just the end product, should be the ultimate goal for all financial assets. That includes equities, fixed income, cash equivalents, alternative investments and the many structured products that build on them.
Making digital assets available outside the chain can have advantages. It may also be possible to bring traditional assets into the chain. But this is just the beginning of what blockchain can do for the capital markets. Unparalleled efficiency, transparency and programmability can be enabled from origination and issuance to settlement and custody. Bringing traditional assets into the chain is one thing; building them completely on-chain is something else.
This is already happening in small ways today. When users purchase structured products that are naturally built into the chain, they can issue, redeem, exchange, and own products without having to rely on intermediaries. Automation in the chain also enables rebalancing and reweighting, so that products are self-sufficient. Anyone can independently verify the technology stack underlying each product, minimizing trust and maximizing transparency. These capabilities can extend to all asset classes, not just current asset classes.
Traditional financial companies like WisdomTree are already moving beyond simple token wrappers and embracing broader blockchain capabilities for capabilities like settlement, archiving, and exchange infrastructure. JP Morgan Onyx is also exploring on-chain settlement and rebalancing of alternative assets and broader portfolio management.
Blockchain-native organizations such as Goldfinch and Maple also bring credit markets into the chain with lending facilities and secured collateral. Other asset classes such as real estate (RealT), private equity (Tokeny) and carbon credits (Toucan) are also chained.
Granted, there are regulations to consider and technology to develop, but the collective opportunity to move beyond Bitcoin ETFs and tokenized RWAs is enormous. In a future where all assets are built, managed and distributed on-chain, investors, asset managers and even regulators will benefit from the resulting transparency, efficiency and disintermediation. Lower costs, global distribution and more efficient markets await on the other side.