Crypto heavyweights ramp up the push for tokenisation

As cryptocurrencies become more intertwined with the traditional financial system, industry heavyweights are racing for a long-sought goal of turning real-world assets into digital tokens.

“Tokenisation is going to open the door to a massive trading revolution,” said Vlad Tenev, the CEO of the trading platform Robinhood at a recent James Bond-themed tokenisation launch event in the south of France.

Advocates say tokenisation is the next leap forward in crypto and can help break down walls that have advantaged the wealthy and make trading cheaper, more transparent and more accessible for everyday investors.

But critics say tokenisation threatens to undermine a century’s worth of securities law and investor protections that have made the United States’ financial system the envy of the world. And Robinhood’s push into tokenising shares of private companies quickly faced pushback from one of the world’s most popular start-ups.

The basic idea behind tokenisation: Use blockchain technology that powers cryptocurrencies to create digital tokens as stand-ins for things like bonds, real estate or even fractional ownership of a piece of art and that can be traded like crypto by virtually anyone, anywhere at any time.

The massive growth of stablecoins, which are a type of cryptocurrency typically bought and sold for US$1, has helped fuel the appetite to tokenise other financial assets, crypto venture capitalist Katie Haun said on a recent podcast.

She said tokenisation will upend investing in ways similar to how streamers radically changed how people watch television.

“You used to have to sit there on a Thursday night and watch Seinfeld,” Haun said. “You tune in at a specific time, you don’t get to choose your programme, you couldn’t be watching a programme like Squid Games from Korea. Netflix was market-expanding. In the same way, I think the tokenisation of real-world assets will be market expanding.”

Growing momentum

Robinhood began offering tokenised stock trading of major US public companies for its European customers earlier this month and gave away tokens to some customers meant to represent shares in OpenAI and SpaceX, two highly valued private companies.

Several other firms are diving in. Crypto exchange Kraken also allows customers outside the US to trade tokenised stocks while Coinbase has petitioned regulators to open the market to its US customers. Wall Street giants BlackRock and Franklin Templeton currently offer tokenised money market funds. McKinsey projects that tokenised assets could reach US$2 trillion by 2030.

The push for tokenisation comes at a heady time in crypto, an industry that’s seen enormous growth from the creation and early development of bitcoin more than 15 years ago by libertarian-leaning computer enthusiasts to a growing acceptance in mainstream finance.

The world’s most popular cryptocurrency is now regularly setting all-time highs – more than US$123,000 on Monday – while other forms of crypto like stablecoins are exploding in use and the Trump administration has pledged to usher in what’s been called the “golden age” for digital assets.

Lee Reiners, a lecturing fellow at Duke University, said the biggest winners in the push for tokenisation could be a small handful of exchanges like Robinhood that see their trading volumes and influence spike.

“Which is kind of ironic given the origins of crypto, which was to bypass intermediaries,” Reiners said.

Interest in tokenisation has also gotten a boost thanks to the election of President Donald Trump, who has made enacting more crypto-friendly regulations a top priority of his administration and signed a new law regulating stablecoins on Friday.

“Tokenisation is an innovation and we at the SEC should be focused on how do we advance innovation at the marketplace,” said US Securities and Exchange Commission Chairman Paul Atkins.

Legality issues

Securities law can be complex and even defining what is a security can be a hotly debated question, particularly in crypto. The crypto exchange Binance pulled back offerings of tokenised securities in 2021 after German regulators raised questions about potential violations of that country’s securities law.

Under Trump, the SEC has taken a much less expansive view than the previous administration and dropped or paused litigation against crypto companies that the agency had previously accused of violating securities law.

Hilary Allen, a professor at the American University Washington College of Law, said crypto companies have been emboldened by Trump’s victory to be more aggressive in pushing what they can offer.

“The most pressing risk is (tokenisation) being used as a regulatory arbitrage play as a way of getting around the rules,” she said.

However, the SEC has struck a cautionary tone when it comes to tokens. Shortly after Robinhood’s announcement, SEC Commissioner Hester Peirce, who has been an outspoken crypto supporter, issued a statement saying companies issuing tokenised stock should consider “their disclosure obligations” under federal law.

“As powerful as blockchain technology is, it does not have magical abilities to transform the nature of the underlying asset,” Peirce said.

One of the most closely watched areas of tokenisation involves private companies, which aren’t subject to strict financial reporting requirements like publicly traded ones.

Investor inequality

Many hot start-ups are not going public as often as they used to and instead are increasingly relying on wealthy and institutional investors to raise large sums of money and stay private.

That’s unfair to the little guy, say advocates of tokenisation.

“These are massive wealth generators for a very small group of rich, well-connected insiders who get access to these deals early,” said Robinhood executive Johann Kerbrat. “Crypto has the power to solve this inequality.”

But Robinhood’s giveaway of tokens meant to represent an investment in OpenAI immediately drew pushback from the company itself, which said it was not involved in Robinhood’s plan and did not endorse it.

“Any transfer of OpenAI equity requires our approval – we did not approve any transfer,” OpenAI said on social media. “Please be careful.”

Public companies have strict public reporting requirements about their financial health that private companies don’t have to produce.

Such reporting requirements have helped protect investors and give a legitimacy to the US financial system, said Allen, who said the push for tokenised sales of shares in private companies is “eerily familiar” to how things played out before the creation of the SEC nearly a century ago.

“Where we’re headed is where we were in the 1920s,” she said. “Door-to-door salesmen offering stocks and bonds, half of it had nothing behind it, people losing their life savings betting on stuff they didn’t understand.”

AP