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Sunday, April 21, 2024

 Ken Shuler Explains How Tokenizing Financial Assets on the Blockchain is Happening Now

Discover how you could benefit from this massive trend that’s just beginning.

Ken Shuler is a writer, speaker, and entrepreneur. With passion and focus on the financial industry, Ken is a versatile business leader who has collaborated with global teams. He is a great teacher, excelling in simplifying complex subjects and turning them into concepts that are easier to understand. Apart from the finance industry, Ken has worked with Time Warner and World’s Best Chocolate in the fundraising division, helping thousands of non-profit groups.

How many times in your life have you wished you got in on the beginning of a huge trend, and were able to ride it through? We have all dreamed of that. What if you had gotten in early with cell phones, computers, the Internet, Crypto, etc.?

Most of us don’t get many chances to do that simply because we are not aware of what is going on and have no idea how big a new technology could be. It could have been life-changing if we had only known. We all wish someone back then would have grabbed us by our lapels, got right in our face, and told us how big of a trend it was going to be. Then we would have participated in it, right?

Well, there’s another huge, once-in-a-lifetime opportunity happening right now. Right in front of us. Plus, not very many people even know this is happening right now. The good news is we are still early in this new trend. So now, after reading this article, you can’t say you didn’t know about it.

The new trend I am talking about is the tokenization of assets (physical and intangible), on the blockchain. There is practically no asset that cannot be digitally tokenized. This means assets like real estate, stocks, bonds, collectibles, art, vehicles, titles to ownership of anything, music rights, and just about anything else you can imagine, will have ownership rights of the asset secured and exist on a blockchain. The new name for classifying these new tokenized assets is Real World Assets or RWA for short.

You may be thinking to yourself, why would anyone want to do that? By tokenizing assets anyone will be able to trade the rights to those assets, or any fractional part of these assets, with anyone else, from anywhere in the world, at any time 24/7, quickly, easily, and inexpensively, with the simple click of a mouse.

Imagine being able to purchase a portion of things like; a breathtakingly beautiful villa overlooking the ocean on the Amalfi Coast of Italy, that rare Bugatti you’ve had your eye on, that Picasso you’ve always loved, or even shares in companies around the world. There is practically no limit to the assets that can be tokenized.

The huge difference is that these transactions will no longer have to go through the traditional methods of passing through a bank, a lender, a broker, lawyers, etc., with all the usual waiting times and high fees along the way. Instead, these transactions will be able to quickly flow through a tamperproof blockchain in the blink of an eye. Some experts believe this could be a $100 Trillion Dollar opportunity over time. It just doesn’t get much bigger than this.

The key is this will happen one time. Of course, it will take years to build out but once these assets are built out and tokenized, that massive opportunity will be behind us. So, we are currently standing in front of this title wave of opportunity.

Is this for real?

Recently the Bank of New York Mellon conducted a survey and found that a whopping 97% of institutional investors agreed that tokenization stands to revolutionize the entire asset management industry. Goldman Sachs has already tokenized U.S. Treasury bonds. Larry Fink, the CEO of BlackRock was quoted as saying, “The next generation for markets, the next generation for securities, will be tokenization of securities.” These are not just words from the largest asset manager in the world, BlackRock has begun to tokenize shares of their money market funds.

If this is starting to sound real, it’s because it is.

Wall Street is going in big on this. Citigroup is now tokenizing some deposits. Other institutions are creating tokens for physical gold bars, entire buildings, and more. There is a large firm located in New Jersey called EDX Markets. They are a digital asset exchange and began operations only in mid-2023. Their service allows financial firms and some crypto-related firms to trade digital assets on their platform. EDX is led by the massive venture capital firm known as Sequoia Capital. Sequoia is the venture capital firm that was behind massive startups like Airbnb, Instagram, Cisco, YouTube, Apple, and even Google. So, you know they play to win.

In addition to Sequoia, EDX is also backed by the likes of Fidelity, Virtu Financial, Schwab, and other giant firms. The executives running EDX are former executives from Goldman Sachs, Citadel Securities, CME Group, Fidelity, and other top-level, blue-chip firms.

Currently, with the way the traditional financial system is structured, it is difficult for most financial institutions, banks, and brokerage companies to get in and out of cryptocurrencies and digital assets. It’s like having a one-lane road for all these institutions to navigate their way through to conduct crypto transactions. It is slow, painful, and not very effective.

Soon, EDX is planning to create a Clearinghouse that will make it much easier for these institutions to settle trades in the marketplace. This Clearinghouse is being built for the big guys so that all of Wall Street will be able to conduct transactions through their system. This will be a massive change. It will take that current one-lane road and turn it into a massive superhighway that will easily allow those huge financial institutions to settle trillions of dollars worth of transactions quickly, securely, and much less expensively. This will dramatically change the current financial system.

You have probably heard of stablecoins, right? Crypto coins like USDT, USDC, etc. Unlike Bitcoin and other cryptocurrencies that can fluctuate dramatically in price, stablecoins are often pegged to a currency, like the US Dollar, and thus have very little price fluctuation. They play a key role in transacting cryptos. In just the past 4 years, almost 200 billion of these stablecoins were made available on the blockchain.  That may sound like a lot, but it’s practically nothing according to the estimated 100 trillion dollars of financial-related assets in the US alone. If we add in the rest of the world, the numbers get even more crazy.

EDX could be the breakthrough Wall Street has been waiting for to finally connect these new tokenized assets to the financial markets in a trusted way due to the fact they are operated by some of the most revered and trusted names in the US financial industry. So EDX could be the key to making this happen in a big way. The US GDP is around 27 trillion dollars. This new tokenization of real assets could potentially be almost 4 times larger than the current GDP of the United States, which is the largest GDP in the world.

It would be great for you and me if we could simply invest in EDX Markets, however, they are private and not open to individual investors. Given that, how can regular people participate in this massive sea change that is in the early stages of development? We can’t participate directly with EDX, however, we can participate by purchasing various cryptocurrencies that will provide the picks and shovels to make this new infrastructure work.

There are many crypto coins and narratives that will be able to benefit from this trend. In this article, I’m only going to discuss one crypto token that I believe has the potential to greatly benefit from this new way that assets will be traded in the future. The crypto token I am talking about here is Chainlink (LINK). What Chainlink does is connect and act as what’s known as middleware between various blockchain networks and external data sources.

This can get pretty deep tech-wise, but middleware is a type of software that functions between operating systems and the applications that run on it. In essence, it allows various blockchains to access data outside of the network, in a very secure and trusted way. This is an essential building block to enable these massive amounts of capital and assets to be transacted in this new medium.

The decentralized networks within these systems can do just about anything on the blockchain such as relay the current price of platinum on a Japanese OTC market desk to a new futures market on the blockchain. It can do the same with any commodity, security, and trading asset. It can even incorporate things like sports betting by feeding real-time scores in any type of sporting event in the world, to sports betting blockchain applications. It’s practically limitless as to what it can do.

LINK is a bit over 4 years old. Chainlink has risen to become the industry standard for connecting real-world asset prices to the blockchain. So far LINK has connected in excess of ten billion points of data to over a thousand different networks. These transactions have been worth almost 9 trillion dollars that were generated by the almost 1700 projects that are built using LINK within their ecosystems. It’s easy to see how LINK, being the industry standard, plays a key role in this massive tokenization trend that we are in the early stages of.

About six months ago Chainlink developed what they call CCIP or Cross-Chain Interoperability Protocol. CCIP is a groundbreaking new technology that no one else has at this time. When they first started, Chainlink provided multiple decentralized Oracle networks for validating data. This was known as level 4. It allowed computations to be conducted cross-chain, among multiple separate decentralized services, and scale them.

CCIP is Level 5 technology. It now allows them to make multiple decentralized networks and automatically manage risks at the same time utilizing a different layer for risk management. The system detects risky events and enables the system to adapt to those risks and immediately act on them. It validates the transactions while managing the risks at the same time.

The CCIP risk management network is an independent network of nodes that enhances CCIP security by acting as a secondary validation service and detecting and halting anomalous activity.

This security, safety, and risk management functionality that is built into CCIP is what is now attracting the largest financial institutions in the world to now have the confidence to move forward with the tokenization of assets.

CCIP will allow financial institutions to integrate their current infrastructures into various blockchain networks without having to modify their existing systems. This is a huge part of the equation. Chainlink can even allow public and private networks to securely communicate and process transactions between each other.

This is not all future-related concepts. JPMorgan Chase bank recently announced that they are exploring transitioning deposits into digital tokens. Customers would be able to send and exchange the tokens globally on the bank’s private blockchain. Citigroup Bank has already started this process. They announced a pilot program where customers will be able to do the same thing on Citigroup’s private blockchain platform.

Even better, SWIFT (Society for Worldwide Interbank Financial Telecommunications), which is the global financial messaging system announced it has already conducted a test using Chainlink to transfer assets across multiple private and public networks. SWIFT processes over 150 trillion in transactions annually and is currently the largest and most streamlined method for international payments and settlements in the world. So, it’s very meaningful that SWIFT is testing this functionality with Chainlink.

Is all this a sure bet? Of course not. Nothing in this world is guaranteed and certainly not this nor any other investment. All investments have risk, and no one should ever invest any funds they cannot afford to lose. No one can predict exactly how and when this will all play out. However, this would be classified as a very asymmetrical bet on the future of finance.

Currently, LINK seems to be one of the main benefactors if all of this plays out the ways noted above. As this is written, the current price of LINK is less than $20 per token. LINK can be purchased on Coinbase and many other exchanges around the world. LINK certainly offers an inexpensive way to dip your toes in the water if this interests you and seems to be worth the risk.

Please note that none of the above is offered as financial advice. You should always consult with your professional financial advisor before making any financial decisions. The above information is offered solely to inform you of a relatively little-known change that I believe is surely coming to the financial industry.

You may have heard of CBDCs, Central Bank Digital Currency. This is not a pipe dream or a science fiction story. It is real and it is happening right now in many countries all over the world. At some point in time, most of the world will transition to digital currency. Our old fiat money system will become a thing of the past. Given that converting to digital currency is in the early stages of happening right now, I don’t think it’s too farfetched to imagine that the world will also tokenize financial assets as well.

I hope you have found this information interesting and helpful.

Jack henry
Jack henry
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