During a congressional address on Wednesday, a financial law professor expressed skepticism about the ability of public blockchains to efficiently tokenize trillions of dollars worth of real-world assets, citing their fragility and inefficiency in handling large transaction volumes.
Hilary Allen, a professor at the American University Washington College of Law, emphasized that while cryptocurrency operates on permissionless public blockchains, tokenization does not necessarily require this feature. Speaking before the United States House Financial Services Committee (HFSC) on June 5, Allen cautioned against relying on public blockchains as a robust infrastructure for tokenizing assets.
Reflecting on her initial optimism about blockchain technology a decade ago, Allen admitted that she had since learned from experts about the limitations and challenges posed by permissionless public blockchains. Describing herself as a “pessimistic financial futurist,” she asserted that these blockchains are ill-suited for addressing the majority of problems they aim to solve.
Despite Allen’s concerns about public blockchains’ ability to process high transaction volumes, notable transfers exceeding $1 billion have occurred on platforms like Bitcoin and Ethereum. For instance, in March, a Bitcoin whale moved $6 billion to a new address in a single transaction.
While Allen suggested that alternative ledgers and databases might be more suitable for tokenization, she refrained from endorsing any specific technology. Instead, she urged careful consideration in selecting the appropriate platform for tokenization efforts.
In contrast to Allen’s views, BlackRock CEO Larry Fink has expressed optimism about the widespread tokenization of stocks and bonds on blockchain technology. Notably, BlackRock tokenized its BlackRock USD Institutional Digital Liquidity Fund on Ethereum in March, attracting $462 million in assets, according to 21Shares analysts.
The tokenization trend extends beyond BlackRock, with over $1.53 billion in U.S. treasuries already tokenized on the blockchain. Looking ahead, investment bank Citi projects that between $4 trillion and $5 trillion worth of real-world assets will be tokenized on blockchains by 2030, though challenges remain in developing the necessary infrastructure and establishing interoperability standards.
As the debate continues over the viability of public blockchains for tokenization, Allen’s cautionary perspective offers a counterpoint to the bullish outlook shared by industry leaders and analysts. The future of tokenization on blockchains remains uncertain, with regulatory bodies like the SEC facing a formidable challenge in navigating the legal complexities posed by the crypto landscape.