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Blockchain too slow for tokenization: finance professor
A financial law professor at American University has argued that it is inefficient to have real-world assets such as stocks and bonds placed on public blockchains due to their inefficiency in handling high volumes of transactions.
Addressing the U.S. House Financial Services Committee on Wednesday, Hilary Allen, a professor of financial regulation at American University, said that tokenizing trillions of real-world assets (RWA) using permissionless blockchains like Bitcoin and Ethereum would be too risky. You said these chains “cannot process large volumes of transactions,” despite data on the chain showing numerous billion-dollar transfers occurring continuously.
However, this skepticism seems to be contradicted by the fact that blockchains are already processing massive transactions worth billions.
“Blockchains suffer from unavoidable operational inefficiencies and fragilities that make them unsuitable as supporting infrastructure for real-world assets,” said Allen,
Allen’s hesitations regarding the use of blockchain for stocks and bonds also contradict statements by Larry Fink, CEO of BlackRock, who believes that one day all stocks and bonds will be issued via blockchain. For example, BlackRock has already tokenized a $462 million fund on Ethereum.
Furthermore, more than $1.5 billion in US Treasury securities the bonds have already been tokenized. In March 2023, Citi Bank valued that blockchains could see a huge increase in RWAs of between $4 and $5 trillion by 2030, even if scaling issues are resolved.
Allen advised being “very thoughtful about where tokenization is implemented,” but did not name any alternative public blockchain that could offer scalability for asset tokenization on a global scale.
His disbelief seems somewhat antiquated considering the improvements in speed and productivity at major chains. For example, Ethereum’s next sharding update alone is expected to increase throughput by more than 60x compared to current levels.
However, with technological improvements continuing at a rapid pace across all of these sectors, one could say that the future of traditional finance lies in tokenization, whether pessimists like it or not.
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