A financial law professor from American University has argued that it is inefficient to have real-world assets such as shares and bonds placed on public blockchains because of their inefficiency in handling high transaction volumes.
While addressing the U.S House Financial Services Committee on Wednesday, Hilary Allen, Professor of Financial Regulation from American University argued that tokenizing trillions in real-world assets (RWAs) using permission-less blockchains like Bitcoin and Ethereum will be too risky. She said these chains “can’t process large volumes of transactions,” despite on-chain data which shows numerous one-billion-dollar transfers happening all the time.
However, this skepticism seems to be contradicted by the fact that billions worth of huge transactions are already being processed by blockchains.
“Blockchains suffer from inescapable inefficiencies and operational fragilities that make them unsuitable as supporting infrastructure for real-world assets,” Allen stated,
Allen’s hesitation regarding blockchain use for stocks and bonds also contradict the assertions made by Larry Fink, CEO of BlackRock, who thinks that one day all stocks and bonds will be issued through blockchain. For instance, BlackRock has already tokenized a $462 million fund on Ethereum.
Additionally, more than $1.5 billion worth of US Treasury bonds have already been tokenized. In March 2023, Citi Bank estimated that blockchains could see a huge surge in RWA’s between $4 trillion to $5 trillion by 2030 even as scaling issues are being resolved.
Allen advised being “very thoughtful about where tokenization is deployed” but did not name any alternative public blockchains that could offer scalability for asset tokenization on a global scale.
Her disbelief seems somewhat outmoded considering the enhancements in speed and throughput across major chains. For instance, just Ethereum’s upcoming sharding upgrade alone is expected to boost throughput over 60 times from current levels.
However, with continued improvements in technology at a fast pace across all these sectors, it might be said that traditional finance’s future lies with tokenization whether pessimists like this or not.
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