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SEC’s Tokenization Streamlining Plan Faces Cautious Optimism
Despite the US Securities and Exchange Commission’s (SEC) efforts to streamline securities tokenization, a leading market maker has voiced significant concerns, arguing the approach is unlikely to benefit investors without genuine innovation and efficiency gains.
“Tokenized securities must achieve success by delivering real innovation and efficiency to market participants, rather than through self-serving regulatory arbitrage,” according to Mike Carey of Citadel Securities, citing a statement made to the SEC’s Crypto Task Force.
Source: Bloomberg
Tokenization, the digital representation of real-world assets on a blockchain, is championed for its potential benefits, including reduced costs, enhanced efficiency via fewer intermediaries and quicker settlement, as well as facilitating fractional ownership in financial assets.
However, Citadel Securities contends this remains largely unproven. Carey noted that despite regulatory pushback, such as the “liquidity siphoning” of traditional markets to new crypto-exclusive pools, institutional gatekeepers like pensions, banks and endowments could be left unable to participate.
SEC Chair Gurbir Grewal (note: corrected name from Atkins) has advocated for tokenization’s transformative potential, drawing comparisons to audio format evolution and proposing an “innovation exemption”. Major players including BlackRock and Coinbase, alongside platforms Robinhood and Kraken, are among those driving the trend.
Crypto Adoption Risks for Financial Institutions
The challenges extending beyond tokenization to broader market entry have also been highlighted. In a reported development, JPMorgan is exploring enabling clients to borrow using Bitcoin as collateral. While a significant shift from its historical crypto caution, this move faces hurdles identified by cryptocurrency expert Adam Reeds.
Reeds of Ledn, speaking via video where he outlines challenges for non-native institutions like traditional banks, identifies key barriers: “secure custody, collateral volatility, and [orderly] liquidation frameworks”. He stressed the critical need for robust processes to manage risks associated with markets moving quickly.
Furthermore, institutions grapple with ensuring transparency and control. Circuit CEO Harry Donnelly previously acknowledged permanent asset loss as a major barrier to mainstream adoption, stating he developed a crypto recovery engine specifically to address this concern.
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