Beyond Bitcoin ETFs: The Next Step in Tokenizing the Entire Value Chain

The last six months in the world of cryptocurrency have been marked by two major trends: the approval of Bitcoin ETFs by the SEC in January and the rise of real-world assets (RWAs) being brought onto the blockchain. These two developments may seem unrelated, but they actually represent two sides of the same coin. Bitcoin ETFs take digitally-native assets off-chain, while RWAs bring traditional assets on-chain.

Experts in both traditional finance and decentralized finance have praised these innovations. Larry Fink, the CEO of BlackRock, stated in an interview with CNBC that “ETFs are step one in the technological revolution in the financial markets. Step two is going to be the tokenization of every financial asset.” This raises the question: what comes next?

Bringing the entire value chain, not just the end product, on-chain should be the ultimate goal for all financial assets. This includes equities, fixed income, cash equivalents, alternative investments, and the various structured products built on top of them. While making digital assets available off-chain may have its advantages, bringing traditional assets on-chain opens up a world of possibilities. Blockchain technology offers unparalleled efficiency, transparency, and programmability, which can be applied to every stage of the asset lifecycle, from origination and issuance to settlement and custody.

Although the concept of bringing traditional assets on-chain is still in its early stages, there are already examples of it happening. Users can buy structured products that are natively built on-chain and issue, redeem, swap, and self-custody these products without relying on intermediaries. On-chain automation also enables self-sustaining rebalancing and reweighting of products. The technology stack underlying each product can be independently verified, minimizing the need for trust and maximizing transparency. These capabilities can be extended to all asset classes, not just the ones currently on-chain.

Traditional financial firms like WisdomTree and J.P. Morgan Onyx are already exploring broader blockchain capabilities for settlement, record-keeping, and exchange infrastructure. Blockchain-native organizations like Goldfinch and Maple are bringing credit markets on-chain with lending facilities and secured collateral. Other asset classes such as real estate, private equity, and carbon credits are also being tokenized and brought on-chain.

Of course, there are regulatory considerations and technological developments that need to be addressed. However, the potential to move beyond Bitcoin ETFs and tokenized RWAs is immense. In a future where all assets are built, managed, and distributed on-chain, investors, asset managers, and regulators will benefit from increased transparency, efficiency, and disintermediation. Lower costs, global distribution, and more efficient markets await on the other side.

It is clear that the crypto market is evolving rapidly, and the possibilities for blockchain technology in the financial sector are expanding. As more traditional assets are tokenized and brought on-chain, the potential for innovation and disruption in the industry is vast. The journey towards a fully on-chain financial ecosystem may still be in its early stages, but the benefits it promises are too significant to ignore.