DeFi
Why Wall Street is still wary of DeFi
Key points to remember
- DeFi’s ‘gray area’ challenges Wall Street’s traditional regulatory frameworks.
- BlackRock and Franklin Templeton are leaders in blockchain-based government securities.
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Wall Street’s best and brightest are diving headfirst into tokenizing real-world assets, but they’re at a crossroads: Should they play it safe or venture into the Wild West of crypto?
The world of finance is undergoing a transformation around blockchain, and Wall Street is leading the charge in transforming traditional assets into digital assets. But as banks and asset managers venture further into this new frontier, they face a stark choice: stick with the safer, more controlled environments they know, or risk it all in the wilds of decentralized finance (DeFi).
For the uninitiated, DeFi is like the crypto version of financial services on autopilot. It’s a collection of projects running on blockchains that offer loans, exchanges, and other “monetary legos” without any central authority giving the orders. Sounds cool, right? Well, it’s also a regulatory minefield that’s giving traditional finance players serious headaches.
Steven Hu, Standard Chartered’s digital asset guru, puts it bluntly: we need to move towards total decentralization to tokenization This simply will not be “realistic or desirable” for banks. They need someone at the helm to make sure everything runs smoothly.
“There is a critical need for a centralized authority to ensure the authenticity, uniqueness and proper use of the underlying asset,” Hu said.
Tokenization could reach $30 trillion in a decade
But here’s where things get interesting: The tokenization market could reach $30 trillion by 2034, according to Standard Chartered’s crystal ball. Right now, we’re looking at about $13.2 billion of real assets tokenized, with private credit leading the way at $8.4 billion, followed by good old US Treasury bonds.
Speaking of Treasuries, some big names are already making waves. BlackRock and Franklin Templeton have launched government securities funds that live on blockchains. They have attracted nearly $1 billion in assets through their BUILD And BENJI tokens.
While some Wall Street players are playing it safe with private blockchains, cryptocurrency diehards are betting big on public networks. Matter Labs’ Nana Murugesan is convinced that’s where the real intrigue will unfold.
Franklin Templeton has big ambitions for its BENJI tokens. They hope these digital assets will eventually become traded across the crypto ecosystem. Roger Bayston, their head of digital assets, is even talking to regulators about how to make a stablecoin work in the world of DeFi — provided everyone plays by the rules, of course.
BlackRock isn’t sitting on the sidelines either. Its digital currency fund has raised $527 million since March. Carlos Domingo of Securitize Markets attributes its success to the fact that it’s available on Ethereum and allows people to withdraw their funds in a snap.
DeFi is the Wild West, and there are too few cowboys (for now)
So why does all this matter? Well, OpenEden’s Jeremy Ng puts it this way: “DeFi is the horse that pulls the tokenized RWA cart.” In other words, without all this on-chain craziness, no one would care about tokenizing boring old traditional assets.
Even regulators are starting to get interested. Singapore’s financial watchdog has 24 major banks looking at tokenization in their sandbox. Meanwhile, Goldman Sachs is doing its own thing with a private blockchain for bonds.
The million-dollar (or should we say trillion-dollar?) question is whether Wall Street will fully embrace DeFi or keep it at arm’s length. Franklin Templeton’s Bayston thinks it’s only a matter of time before everyone realizes how great public blockchains can be for making markets more efficient.
The line between the traditional banking system and the new world of cryptocurrencies is becoming more and more blurred by the day, almost like a tear in the matrix. Whether this is exciting or terrifying probably depends on which side of Wall Street you are on.
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