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Banking titans such as JPMorgan and Citi want to supercharge Wall Street by borrowing a tool from crypto — tokenizing assets on a blockchain.
“Once you have these assets that are tokenized, there are so many different use cases for them,” said Elliot Han, head of digital assets at Cantor Fitzgerald.
Bernstein said in an analyst note from June that tokenization could unlock faster settlement times and lower costs. The firm projects $5 trillion in assets could be tokenized on blockchains over the next five years.
It takes time to transfer ownership of an asset on Wall Street. Investors must use a broker-dealer to buy or sell an asset on an exchange, and they must wait two business days for that transaction to settle — what is known as “T+2,” or trade plus two days. Banks believe tokenization could cut out those middlemen and allow for near-instant transactions.
“A traditional stock certificate is nothing more than a token that represents ownership of the keys of a company,” said James Angel, an associate professor at Georgetown University.
The technology could face regulatory headwinds. U.S. agencies like the Securities and Exchange Commission are cracking down on crypto companies. In May, the agency sued crypto exchanges Binance and Coinbase over alleged securities violations, and Chair Gary Gensler also requested millions of dollars in increased funding to rein in the “Wild West” of crypto.
Watch the video above to learn why big banks are spending millions on tokenization.
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