During a recent New York Times DealBook event, Larry Fink, CEO of BlackRock, spoke a lot about the current state of crypto, as well as the future of tokenization.
During the conversation with Andrew Ross Sorkin, Fink—who invested $24 million in FTX—shared his thoughts on where the space is heading:
I believe that most of these [crypto] companies won’t be around, I do believe that. Think about FTX, its failure was creating its own token. It wasn’t a DeFi or a ledger open to the world … it was not distributed. I actually believe this technology is going to be very important. The next generation for markets and the next generation for securities will be tokenization of securities. If we can have that distributed ledger, that we know every beneficial owner and beneficial seller. We all have our code of who’s buying and who’s selling—[it’s] instantaneous settlement. It changes the whole ecosystem.
We’ve previously covered how tokenization will be the future of payment security, and more financial institutions are betting on this payment method. Combining tokenization with a distributed ledger, which effectively puts financial transactions in the public domain, has the potential to really change the way the financial system works. Indeed, as Fink notes, a distributed ledger would have made FTX and Alameda Research’s shady transactions obvious.
James Wester, Head of Cryptocurrency at Javelin Strategy & Research, elaborates on the FTX implosion and the future of crypto in a recent report. He notes that FTX represented assets with native tokens specifically for use on FTX, which the company exploited to cover up its finances.
“By effectively creating a printing press that could churn out unlimited FTT tokens, then using those tokens as collateral for loans—and doing so in a completely opaque manner—FTX and Alameda were able to paper over growing balance sheet holes with a worthless asset,” said Wester.
Tokenization still has the potential to improve transparency and fluidity in payments. But companies using tokens which are unique to their own trading platforms have been cast into doubt. Those companies control the power to “print” those tokens when they are in a financial pinch, acting like a central government bank which can print more money to increase liquidity. More regulation of tokenization will allow for maximizing its benefits, while minimizing risk of misuse.
To read more about the future of crypto, read the report here.