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Financial markets are on the cusp of their next major evolution, according to BlackRock (NYSE:BLK) CEO Larry Fink and operating chief Rob Goldstein.
“Finance is entering the next major evolution in market infrastructure—one that could move assets faster and more securely than systems that have served investors for decades,” Fink and Goldstein wrote for The Economist in a Dec. 1 column, referring to tokenization.
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Tokenization is the process of converting rights to an asset, such as real estate, art or financial equity, into digital tokens on a blockchain to enable secure, verifiable and sometimes fractional ownership.
Fink and Goldstein said tokenization promises two substantial benefits. For one, they said it offers the promise of instantaneous settlement, a considerable improvement over the stock market’s current one-day settlement cycle. They also said it could modernize private markets and enable fractionalization, allowing for broader participation.
Fink and Goldstein said traditional assets and cryptocurrencies would not be held in separate wallets in the future, predicting that tokenization could accelerate as quickly as the internet.
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To realize this future, however, Fink and Goldstein said proper regulatory guardrails were necessary.
“Tokenization can modernise the infrastructure that still makes parts of the financial system slow and costly, bringing more people into the world’s most powerful engine of wealth creation: the markets,” they wrote. “But, as 1929 taught us, every expansion of access must be matched by updated safeguards. Tokenization must do both: move faster and move safely, building trust as it goes.”
Fink and Goldstein said that American companies were best positioned to lead the tokenization wave. However, they warned that the early advantage was no guarantee that they would remain the dominant players, citing the concentration of trading activity in the developing world.
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BlackRock has already dived into the tokenization pool. Last year, the asset manager launched its USD Institutional Digital Liquidity Fund, a tokenized money market fund, offering treasury yields to large institutional investors. The fund’s market cap has since ballooned to over $2 billion.