Financial Law Professor Challenges Blockchain's Ability to Tokenize Real-World Assets
Summary:
Hilary Allen, a financial law professor, expressed skepticism before the U.S. Congress about the capability of public blockchains to tokenize trillions of dollars in real-world assets due to inefficiencies and fragility. However, contrasting viewpoints are held by industry leaders like BlackRock CEO Larry Fink, who perceives a future where all stocks and bonds will be tokenized using blockchain. With already substantial amounts tokenized on blockchain and predictions of more in the future, this debate continues within the financial realm.
In a recent statement before the United States Congress, Hilary Allen, a professor of financial legislation, expressed reservations about the ability of public blockchains to carry out the tokenization of trillions of dollars’ worth of actual assets, labeling them as "fragile" and saddled with considerable inefficiencies. During her discussion with the U.S. House Financial Services Committee conducted on June 5, Allen, who associates herself with the American University Washington College of Law, stated that the reliance on permissionless public blockchains was unnecessary for tokenization, citing their limited capacity for handling substantial transaction numbers.
The professor was just one amongst the many industry stalwarts invited to deliberate on the influence of tokenized Real World Assets (RWAs) on the financial marketplace but was particularly vocal about her doubts about the blockchain's competence: “Blockchains are undermined by inherent inefficiencies and unavoidable operational frailties, making them unsuitable to support real-world assets”.
Allen had, upon initial acquaintance with the technology a decade ago, envisaged blockchain to dramatically transform the financial landscape. However, subsequent insights from independent tech experts highlighted the technological limitations and issues associated with blockchain, leading her to conclude that permissionless public blockchains were ill-suited to tackle bulk of the challenges that arose in their application; and were largely ineffectual in processing significant transactions.
Notwithstanding Allen’s skepticism, past transactions involving Bitcoin and Ethereum have involved sizable sums exceeding $1 billion. A recent case in point being a gigantic transfer involving Bitcoins worth $6 billion. Professor Allen didn't propose an alternative to the tokenization process during her address but emphasized caution in deploying it.
These views stand in stark contrast to BlackRock CEO, Larry Fink, who is of the strong conviction that each stock and bond will ultimately be tokenized using blockchain, a prediction looking to be a reality with the firm's own BlackRock USD Institutional Digital Liquidity Fund already on Ethereum having accumulated $462 million in assets.
With over $1.53 billion worth of U.S. treasuries already tokenized on the blockchain and investment bank Citi forecasting between $4 trillion to $5 trillion of RWAs could be tokenized on blockchain by 2030, Allen’s position certainly raises eyebrows. Nevertheless, Citi recognized that hurdles persist in the areas of infrastructure development and the establishment of universally accepted interoperability standards.
Published At
6/6/2024 2:57:58 AM
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