News
Blockchain is too slow for tokenization: finance professor
According to a university professor of financial law, it is inefficient to place real assets such as stocks and bonds on public blockchains due to their inefficiency in handling high transaction volumes. However, this skepticism seems to be contradicted by the fact that huge billions of transactions are already processed by blockchains.
Speaking to the U.S. House of Representatives Financial Services Committee on Wednesday, American University’s Hilary Allen argued that tokenizing trillions of real-world assets (RWA) Using permissionless blockchains like Bitcoin and Ethereum would be too risky. She said these chains “cannot process large volumes of transactions,” despite on-chain data showing many billion-dollar transfers happening all the time.
“Blockchains suffer from unavoidable inefficiencies and operational fragilities that make them unsuitable as supporting infrastructure for real-world assets,” Allen said:
All this hesitation also runs counter to the view of 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.
In addition, more than $1.5 billion from the US Treasury the bonds have already been tokenized. In March 2023, Citi Bank estimated that blockchains could see a huge increase in RWA between $4 trillion and $5 trillion by 2030, even if scaling issues are resolved.
Allen advised being “very thoughtful about where tokenization is deployed,” but did not cite any alternative public blockchains that could offer scalability for asset tokenization on a global scale.
His disbelief seems somewhat outdated given the improvements in speed and throughput at the major chains. For example, Ethereum’s upcoming sharding upgrade alone is expected to increase throughput more than 60 times from current levels.
However, with continued and rapid technological advancements across all of these sectors, one could argue that the future of traditional finance lies in tokenization, whether the pessimists like it or not.
Read also: Zone Launches Africa’s First Blockchain-Based Point-of-Sale System