While there is a classic technology hype cycle related to tokenization – the representation of any asset on blockchains like Ethereum – we are only at the beginning.
This is the view of Min Lin, general manager of global expansion at Ondo, who pointed out that the US Treasury market alone is worth $29 trillion. Adding the global stock market brings that value closer to $127 trillion, with $69 trillion in the United States alone, Lin said at CoinDesk’s Consensus conference in Hong Kong.
But while the numbers are dizzying and there is undoubtedly demand from traditional finance to explore real-world token assets (RWA), caution must be exercised when it comes to matching hype with real-world utility, said Graham Ferguson, head of ecosystem at Securitize.
“It’s up to us to figure out how to distribute them and I think historically we haven’t done a great job of assigning utility to these assets,” Ferguson said. “We have all these assets that we could tokenize. We have tons of different choices. We have to, we have to figure out, how to unite this hype, how to bring this together.”
It’s important not to “jump the gun on the regulatory side,” Securitize’s Ferguson emphasized. That said, the U.S. Securities and Exchange Commission (SEC) is waking up to the idea that tokenization can be the plumbing of future markets and does not simply mean “isolated islands of compliance.”
“We’ve been talking for some time about the benefits of the settlement around tokenization and programmatic compliance built into the token standard itself, transferability of these assets between KYC. [know-your-customer] individuals,” Ferguson said. “We’re really excited about the clarity of the regulations. No pun intended.
Ondo’s focus is on efficiency. The company has been busy tokenizing stocks and EFTs and recently announced the introduction of Ondo Perps, through which these tokenized stocks can be used directly as collateral margin – rather than using stablecoins as collateral on exchanges or DEXs, Lin explained.
Essentially, these companies’ different approaches to tokenization involve two design choices: in Ondo’s case, it’s about quickly and easily wrapping assets in a token; with Securitize, it’s about issuing securities natively on-chain and mitigating jurisdictional compliance issues associated with this process.
Securitze’s approach “has always been to work closely with regulators,” Ferguson said. “So in the US and the EU, or regulated as a transfer agent, as a broker, and we’ve always done things by the book,” he said.
Ferguson acknowledged that this poses challenges when working with DeFi protocols, due to the need to know who the true owner of an asset is at all times.
“In crypto and DeFi, we are used to huge pools of assets, so we are committed to finding ways to work with these protocols so that we can implement the same tracking mechanisms that are necessary to trade and transfer securities. So this is not necessarily the most comfortable approach for DeFi,” Ferguson said.
For Ondo’s Lin, tokenization divides into either a permissionless camp or an authorized camp.
For example, OUSG, the Ondo Short-Term US Treasury Fund, is available to a global audience and is permissioned, meaning users can transfer this asset only to whitelisted addresses.
On the other hand, Ondo Global Markets tokenizes publicly traded US stocks and ETFs, which is permissionless after a given compliance period, but is only available to investors outside the US.
“What we have done at Ondo is a global model for our Ondo products for global markets,” Lin said. “This permissionless approach allows us to freely operate and transfer between positions within DeFi. So you can use DeFi protocols to be able to leverage these products in terms of lending and collateral margin.”
When it comes to symbolizing anything and everything, there’s no doubt that this packaging approach will deliver results faster; For example, Ondo was able to tokenize BitGo shares approximately 15 minutes after the company began trading on the public markets.
“This wrapper model essentially allows us to scale much faster. Today we have about 200 tokenized stocks and ETFs. We’re looking to be able to scale that to thousands,” Lin said. “The wrapper model has been widely adopted. Stablecoins are essentially wrapped US dollars and we have adopted a very similar model.”
