We are rapidly seeing the merging (blending) of the two financial systems.
On one side is TradFi, a world made up of stock and bonds. The other is crypto which have tokens as representation.
Wall Street is finding great allure in these new instruments. Obviously, the attention that Bitcoin and Ethereum are receiving is well known. Now we have the introduction of real world assets (RWA) to blockchain. This is something that is going to move trillions in value over to the decentralized world.
In this article we will look at a couple of moves that are exemplifying how this blending is taking place.
Tokenization Is In Full Swing
I long espoused the idea of "the tokenization of everything". This is something that only made sense as infrastructure provided the rails to build upon. Wall Street is stepping in to take advantage.
This coincides with the massive building around Bitcoin and Ethereum with regards to financial products. According to reports based upon SEC filings, these are not going to be the last crypto that gets such treatment. Other coins are being targeted for products such as ETFs. My guess is that we will eventually see these approved, opening the gates for more money to flow into the likes of XRP or Solana.
A great deal of the conversation centered around traditional financial assets finding their way to blockchain. What is not commonly discussed is the movement in other directions. What about the idea of crypto appearing on traditional exchanges.
That could be in the cards according the SEC.
The SEC and the CFTC issued a joint statement saying that SEC- or CFTC-registered exchanges can facilitate trading of certain spot crypto asset products, under current law.
Yes, that means spot BTC and ETH trading is coming (and likely several other crypto majors).
That is a big step. The idea of major exchanges offering crypto trading would be a major boost. This would directly open these assets to enormous amounts of money. It is likely at least a small percentage finds it way in.
This is really a list of the who's who:
SEC-registered national securities exchanges (like the NYSE, Nasdaq and CBOE), CFTC-registered designated contract markets (i.e. the CME) and many others (subject to approval).
GLXY On Solana
We still are seeing a trickle into the tokenization of RWA.
Mike Novogratz is a long-time crypto advocate. He is also a well known Wall Street figure. The two are merging with the latest move by the company.
Nasdaq-listed crypto firm Galaxy Digital has launched an initiative to tokenize its "SEC-registered equity directly on a major blockchain," according to an announcement on Wednesday. Effective today, stockholders can now tokenize their GLXY shares through Superstate's Opening Bell platform.
And so it begins.
What is interesting is we are not dealing with a synthetic asset which many of the early tokenization projects were. Instead, it is the tokenizing of existing shares of stock.
Superstate unveiled Opening Bell in May to bring SEC-registered equities onchain, starting with Solana. While several projects are working on bridging public equities with blockchain infrastructure, Opening Bell says it's the first to offer direct issuance and trading of SEC-registered public shares onchain, rather than synthetic or wrapped versions.
"This is the first instance of a Nasdaq-listed company being tokenized on a major public blockchain," said Superstate CEO Robert Leshner. "When tokens change hands, the registered shareholder list of Galaxy updates in real-time. Financial markets are undergoing a massive upgrade with Superstate."
This is not surprising.
Throughout this year, much of the talk was about stablecoins. Often overlooked in the discussion is how, under the GENIUS Act, this is really tokenizing US Treasuries. In other words, a stablecoin is a RWA.
What became law was the model that 80% of the stablecoin float could be in highly liquid assets (with 20% in cash). The most common choice is Treasury bills although Repo contracts are also acceptable. With the latter, many of those swaps are done using T-bills are collateral.
Since this appears to be the overwhelming choice for asset backing, each stablecoin effectively 80% representing a US Treasury. Naturally, this doesn't apply to a specific bill but, rather, a pool. This is not much different than the Treasury pools companies like Blackrock have tokenized.
Now Galaxy is opening up the opportunity for its stock to trade on Solana. This is only the first step and my forecast is it will spread to many of the major EVMs.
Basically, it is the slowly, slowly, quickly model.
That is how tokenization is unfolding. If we fast forward 12 months, we will be shocked at what is done.
Tokenization will only accelerate.