During a speech to Congress, a financial law professor expressed skepticism about the ability of public blockchains to efficiently tokenize trillions of dollars in real-world assets due to their fragility and limited capacity for handling large transaction volumes. Hilary Allen, a professor at the American University Washington College of Law, emphasized that while cryptocurrencies operate on permissionless public blockchains, tokenization does not necessarily require the same infrastructure. Speaking before the United States House Financial Services Committee (HFSC) on June 5, Allen cautioned that public blockchains may not be the most suitable platform for tokenizing RWAs, citing their inefficiency and limitations.
Having initially viewed blockchain as a revolutionary technology, Allen admitted that her perspective shifted after recognizing the challenges and constraints of the infrastructure. Describing herself as a pessimistic financial futurist, she criticized permissionless public blockchains as ill-suited for addressing the majority of issues they aim to solve. Despite their inability to handle large transaction volumes, Allen acknowledged that significant transfers exceeding $1 billion have occurred on Bitcoin and Ethereum networks, such as a $6 billion transfer by a Bitcoin whale in March.
While Allen did not advocate for a specific alternative technology for tokenization, she suggested that other ledgers and databases may offer more appropriate solutions. Stressing the importance of careful consideration in deploying tokenization, Allen urged caution in the adoption of these technologies. Her remarks contrasted with the views of BlackRock CEO Larry Fink, who envisions a future where all stocks and bonds are tokenized on blockchains. Notably, BlackRock tokenized its BlackRock USD Institutional Digital Liquidity Fund on Ethereum, accumulating $462 million in assets.
The tokenization of assets on public blockchains has gained momentum, with over $1.53 billion in U.S. treasurys already tokenized on the blockchain. Forecasts suggest that between $4 trillion to $5 trillion of RWAs will be tokenized on blockchains by 2030, although challenges remain in developing the necessary infrastructure and establishing interoperability standards. As the industry continues to evolve, regulatory bodies like the SEC face a formidable challenge in navigating the legal landscape of cryptocurrencies.