July 25, 2023
BlackRock CEO Larry Fink said about the securities they tokenized at Onyx, a bank started by JP Morgan, invested in by Rockefeller Group and announced in November 2022, that:
"The next generation for markets, the next generation for securities, will be tokenization of securities."BlackRock CEO Larry Fink said some important thing in a conference held in early December 2022:
"The next generation for markets, the next generation for securities, will be tokenization of securities." (Reference 1)
In this article I would like to explain what is tokenization of securities and how will it affect the markets.
I would like to explain to you what is tokenization of securities and how will it have a huge impact on the markets.
I re-watched the above mentioned video to note that Fink uttered that very important and profound sentence so well hidden and in such a way that some of the Turkish audience mistook it for any negative comment against crypto assets. (Please find the link of the conference video below, the important sentence starts at 10:55). To remember BlackRock, please note it is a financial institution in charge of US$ 10 trillion in the worldwide, and the flagship of the Rockefeller Group’s investments.
I took it as a haphazard comment and could not understand it was in fact based on serious research. In researching for this article, I came across a very important document related to this matter.
A new publication, said document brought me to my senses. Described in Reference 2 below, this report was co-written by DBS of Singapore, one of the largest digital banks in Asia, SBI Digital Asset Holding, one of the large financing groups of Japan, Onyx, a blockchain-based bank formed in 2002 by J.P. Morgan Chase (a subsidiary of Rockefeller and J.P. Morgan), and Oliver Wyman Forum. I highly recommend you to read especially the website of Onyx (Reference 3). This bank is introduced in its website as “…helping to re-architect the way that money, information and assets are moving around the world.” Money, information and assets.
This report was issued only a short time ago, in early November 2022, shortly before Fink’s speech. In other words, the speech given in New York on 5 November 2022, news about it and the above mentioned report are all parts of a package. Now we begin to understand the importance of this announcement. The report announces the start of a new generation blockchain tokenization process and Fink delivers the speech a few weeks later.
Definition of tokenization:
In the blockchain world, the term tokenization refers to a software program in which the digital equivalent of an asset is created in a blockchain and which contains records of the history of transactions and owners thereof. These records provide an additional way to trade such assets as share certificates, bonds and real estates and even such alternative assets as wine and art, so that all transfers can be recognized in a common accounting book.
Now compare the volumes of various securities in the worldwide:
Crypto currencies:
The present market value of crypto currencies is approximately US$ 1.2 trillion, consisting of 48% Bitcoin and 19% Ether.
Gold and cash:
Total value of all the gold available in the world, including jewelry, is US$ 11.5 trillion. All the cash banknotes and coins available in pockets and safes in the worldwide is US$ 8 trillion.
Real Estate:
However, the total value of all real estates available in the world is US$ 326 trillion. Non-corporate buildings i.e. dwellings represent US$ 260 trillion.
USA market:
Value of the American stock exchange index S&P 500 is US$ 36 trillion.
Can you anticipate the meaning of tokenization of stocks and real estates now?
Institutional DeFi
The above mentioned report introduces a new notion called Institutional DeFi. Quote the first paragraph of the report:
“DeFi protocols have already enabled nascent markets in the crypto-asset industry on public blockchains, such as borrowing and lending as well as decentralized exchanges. Imagine the potential if the technology were to be applied to streamline transactions in foreign exchange, equities, bonds, and other real-world assets. This will require the creation of digital representations, or tokens, of real-world assets to bring them onto the blockchain. The cost savings and new business opportunities of creating a “tokenized” version of real-world assets for transacting through DeFi protocols could be significant for issuers and investors, as well as for financial institutions that can adapt their technology and business models.”
Mentioning that such platforms as UniSwap we use today lack identity solutions to enable institutions to meet anti-money laundering (AML) and know your customer (KYC), the report heralds that if new generation De-Fi platforms containing the above mentioned solutions are built, all securities enslaved by traditional financing will be tokenized and free! It calls this new generation De-Fi ‘Institutional De-Fi’.
It seems the BlackRock fund and the Rockefeller Group behind it work to tokenize securities through the blockchain banks they formed against FED and all other central banks related with BIS (Bank of International Settlements located in Basel, called the central bank of all central banks). BIS recently issued the draft crypto bank law to be effective on 1 January 2025. Can you see these two giants setting their sights on all securities and real estate owned by the people, with the goal of gradually disconnecting said assets from the traditional fiat monetary system and transferring them to a tokenized system?
Conclusion:
This article looks at the future plans of BlackRock, controlling assets worth US$ 10 trillion and one of the largest funds in the world, for DeFi and tokenization. Imagine the real estate market worth 100 to 150 times the total value of all crypto currencies, stocks worth 100 to 150 times the same, and gold and cash worth 6 to 7 times the same are turned into ERC-20 and ERC-721 tokens and are traded in De-Fi exchanges. What if they also plan to add private and public sector bonds and transfer all assets owned by mankind to the blockchain? I won’t be surprised if this company changes its name to BlockchainRock.
Note: The first version of this article was published on 20 December 2022 in BTCHaber.com.
Cemil Şinasi Türün
Chairman of Advisory Board
Cropto
References:
1) https://decrypt-co.cdn.ampproject.org/c/s/decrypt.co/116145/blackrock-ceo-says-next-generationmarkets-is-tokenization?amp=1&fbclid=IwAR24dM2f4j8VRUJSopbdvdqK898AMjgsr0gcD3UtTQcRNj7iIe4NC0gGGTw
2) https://www.jpmorgan.com/onyx/documents/Institutional-DeFi-The-Next-Generation-of-Finance.pdf
3) https://www.jpmorgan.com/onyx/index.htm 4) https://youtu.be/PSVpth7uqb4
I use the word tokenization here in the sense of transferring real assets in the world to a blockchain. You probably see the term tokenization thrown around a lot.
Now let me explain this new notion of tokenization coming with a bang.
Digitalization of assets
Real assets in the world need to be digitalized before transferring them to a blockchain. For example, until 2003 Turkish companies going public were ensuring a printing house to print their share certificates , so that share certificates were traded in physical format. In that year Merkezi Kayıt Kuruluşu (MMK) (Central Securities Depository) was formed and all share certificates of companies going public were digitalized. Eventually hardcopy share certificates disappeared. Shares of companies going public are now stored in digital format in the central database of MMK and traded within Istanbul Stock Exchange.
If all shares of companies going public in Turkey will be transferred to a blockchain one day, transfers must be performed at MMK or transferors must start working at the database of MMK, because that is where all update records are stored.
Another example is that if deposits kept in TL or US$ in banks will be tokenized, the process must be started by each bank in its database.
Another important bank which is a partner of the BlackRock fund is Citi, and it started fast. The report it issued in early March 2023 (Reference 1) estimates that assets worth US$ 5 or 6 trillion will be tokenized and stored in blockchains or DLTs in 2030.
The report estimates that:a) 2030 non-financial corporate and quasi sovereign debt US$ 187 trillion, 2030 estimate US$ 1.9 trillion tokenized.
b) 2030 real estate funds US$ 20 trillion, 2030 estimate US$ 1.5 trillion tokenized.
c) 2030 private equity / venture capital US$ 7 trillion, 2030 estimate US$ 0.7 trillion tokenized.
d) 2030 securities financing and collateral US$ 42 trillion, 2030 estimate US$ 0.5-1.0 trillion tokenized.
e) 2030 trade finance US$ 12 trillion, 2030 estimate US$ 1.0 trillion tokenized.
In other words, the report estimates that assets worth US$ 5 to 6 trillion will be transferred to a blockchain. However, there are many other types of asset not mentioned in the report.
Similar to MKK in Turkey, many securities are stored in digital format in computer databases in other countries. The said securities are traded in digital stock exchanges too. Citigroup considers that assets managed by funds are the fastest to digitize, because it believes that persons authorized to decide to tokenize such assets will make such decision fast by viewing the profit-loss equation.
I think different!
I think different from Citi! After all, I have lesser things to lose than Citigroup.
Recently I held a meeting with a friend of mine, who is the owner of one of the largest crypto asset owners in this country. He told me that in his opinion transition to Web3 would be slower than expected, because institutions holding the assets in the present would not let them go easily. I agree with him. However, I believe that the idea that tokenization will be started in hitherto unattended areas because it will be easier to act there is insufficient. There are many investors seeking opportunity to enter many closed areas.
The BlackRock fund is one of them: the Citi report estimates that assets worth US$ 5 to 6 trillion will be transferred to a blockchain in attended areas within 6 to 7 years. JP Morgan’s Onyx Bank, a partner of BlackRock, is more radical, they think deposit accounts kept in banks will be transferred fast to blockchains.
In my opinion there is a wholly different area mentioned in neither the Citi report nor the earlier JP Morgan report: tokenization of commodities as gas, oil, fertilizer, metals, wheat, etc. The above mentioned two reports do not mention the efforts made to tokenize commodities worth trillions of US$. These two banks prefer to get their own way. The grand total of the figures given in these two reports indicate that at least US$ 10 to 12 trillion rather than US$ 5 t6 6 trillion will be tokenized by 2030. And this figure does not take into account tokenization of commodities!
Tokenization of commodities:
In my opinion tokenization of commodities will grow fast in the next 3 to 5 years and cause a huge transformation. The reasons are as follows:
1) Transition from a unipolar to multipolar word makes de-dollarization one of the most important and fast developments of the word (see Reference 1 and 2). Nobody knows what will replace the US$ after it loses its reserve money status. There is no clear candidate. I guess one or two candidates will emerge soon. One is tokenized gold and the other a tokenized commodity basket or BRICS countries’ fiat money basket. Depending on the courage and speed of the BRICS countries to innovate, they may present a candidate too. And this new asset may affect tokenization in near future.
2) Today Russia is the largest commodity exporter in the world, leading with 11% market share, but it is in the middle of the list of countries because its GDP is less than triple of Turkey. The West ripped off Russia for good to date! In the new conjuncture Russia is a candidate for maximum innovation for tokenization of its commodities. It will aim to increase its income in proportion with its market share, but there is no way but the blockchain technology for it to go for this purpose. Russia is banned from banking transactions, SWIFT transfers and traditional markets using US$ and Euro after it has declared war to Ukraine.
Conclusion:
In my opinion, 2030 is an overestimation for tokenization of assets worth US$ 5 to 10 trillion. Observations I made indicate that the said level will be reached in 2025 or 2026. I think by 2030 the US$ will not be used and the total value of the assets (Bitcoin, Ether and many alt coins) existing on the blockchains will reach US$ 30 to 40 trillion or more. This is not a soothsaying. The ‘conservative’ figures given in the Citi and JP Morgan reports equal to 1/3 of my prediction anyway. In summary by 2030 we will not say ‘US$’ trillion, we will use a different term and express amounts by using a new terminology for different assets.
Note: The first version of this article was published on 4 May 2023 in BTCHaber.com.
Cemil Şinasi Türün
Chairman of Advisory Board
Cropto - Trademark of AgriFintech Finansal Teknolojiler A.Ş.
References:
1- https://icg.citi.com/icghome/what-we-think/citigps/insights/money-tokens-and-games
2- https://tr.cointelegraph.com/news/the-escape-from-the-dollar-is-increasing
3- https://unherd.com/2023/04/will-america-win-from-de-dollarisation/