The Importance of Blockchain in Tokenization: A Critical Oversight in Financial Regulation

validators. This is a critical point that regulators like Hsu and the Basel Committee on Banking Supervision seem to be overlooking in their push for permissioned networks over permissionless blockchains.

The tokenization of real-world assets and liabilities is a trend that is gaining momentum in the financial industry, with big banks leading the way in digitizing trillions of dollars worth of assets. However, the focus on permissioned networks as the preferred platform for tokenization raises concerns about cybersecurity vulnerabilities.

While permissioned networks may offer more control and oversight for banks, they also present a single point of failure that can be exploited by hackers. In contrast, truly decentralized blockchains, like the Bitcoin blockchain, have proven to be highly resilient to cyber attacks due to their distributed nature.

The reluctance of regulators to embrace permissionless blockchains for tokenization could have far-reaching implications for the financial stability of the global system. As Hsu pointed out, the future landscape of tokenized assets and liabilities without blockchains is uncertain, and the potential risks could be significant.

In a time when cybersecurity threats are on the rise, it is crucial for regulators to fully understand the security benefits of decentralized blockchains and consider them as a viable option for tokenization. By prioritizing operational resilience and security, regulators can ensure the stability and integrity of the financial system as it transitions to a more digitalized future.