If there is a classic technology hype cycle associated with tokenization (the representation of any asset on blockchains like Ethereum), we are just getting started.
That was the view of Min Lin, managing director of global expansion at Ondo, who noted that the US Treasury bond market alone is worth $29 trillion. Adding the global stock market brings that value to more than $127 trillion, of which $69 trillion is in the United States alone, Lin said at CoinDesk’s Consensus conference in Hong Kong.
But while the numbers are dizzying and there is no doubt that traditional finance calls for exploring real-world tokenized assets (RWA), there has to be care and attention when it comes to matching expectations with real-world utility, said Graham Ferguson, head of ecosystem at Securitize.
“It’s up to us to figure out how to allocate them, and I think historically we haven’t done a great job of attributing utility to these assets,” Ferguson said. “We have all these assets that we could tokenize. We have tons of different options. We have to figure out how we bring that excitement together, how we bring it together.”
It’s important not to “rush into the regulatory side,” Securitize’s Ferguson said. That said, the US Securities and Exchange Commission (SEC) is waking up to the idea that tokenization can form the pipeline of future markets, and does not simply mean “isolated islands of compliance.”
“We have been talking for a while about the benefits of settlement when it comes to tokenization and programmatic compliance built into the token standard itself, the transferability of these assets between KYC’s [know-your-customer] individuals,” Ferguson said. “We are very excited about the regulatory clarity. 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, whereby those tokenized stocks can be used as collateral directly, instead of using stablecoins as collateral on exchanges or DEXs, Lin explained.
Essentially, these companies’ different approaches to tokenization involve two design options: in Ondo’s case, it’s about quickly and easily wrapping assets in a token; With Securitize, it all comes down to issuing values natively on-chain and smoothing out the jurisdictional compliance wrinkles associated with that process.
Securitze’s approach “has always been to do this in close collaboration with regulators,” Ferguson said. “So in the US and the EU, we are either regulated as a transfer agent, as a stockbroker, and we have always done things by the rules,” he said.
This brings challenges when working with DeFi protocols, Ferguson acknowledged, due to the need to track who is the beneficial owner of an asset at any given time.
“In crypto and DeFi, we’re used to massive pools of assets, so we’re obsessed with finding ways to work with these protocols so that we can implement the same tracking mechanisms that are required to trade and transfer values. So it’s not necessarily the most comfortable approach for DeFi,” Ferguson said.
For Lin de Ondo, tokenization falls into a permissionless field and a permissioned field.
For example, OUSG, the Ondo Short-Term US Treasuries 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 certain compliance period, but is only available to investors outside the US.
“What we have done at Ondo is an immersive model for our Ondo global markets products,” Lin said. “That permissionless approach allows us to operate and transfer freely peer-to-peer within DeFi. So we can use DeFi protocols to be able to leverage those products into lending and margin collateral.”
When it comes to tokenizing anything, there is no doubt that this wrapping approach will get you results faster; Ondo was able to tokenize BitGo shares about 15 minutes after the company began trading on public markets, for example.
“This container 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 envelopment model has been widely adopted. Stablecoins are essentially wrapped US dollars and we have adopted a very similar model.”
