Imagine a world where your investments move as smoothly as sending a text message. Sounds cool, right? Well, that’s where we’re heading, and it’s all thanks to the marriage of ETFs and tokenization.
Recently, Eric Balchunas from Bloomberg stirred the pot by asking if tokenization might replace ETFs. But here’s the kicker: ETFs and tokens aren’t enemies. In fact, they’re more like peanut butter and jelly—they work better together.
So, What’s the Deal with ETFs and Tokens?
ETFs, or Exchange-Traded Funds, are like baskets of stocks you can trade on the stock market. They’re regulated, managed, and have been around for a while. Tokenization, on the other hand, is about turning assets into digital tokens on a blockchain. It’s like giving your investments a digital makeover.
Why They’re Better Together
When you tokenize an ETF, you’re not turning it into a wild, unpredictable crypto asset. You’re just changing how you hold and move it. Think of it as switching from paper money to a digital wallet. The value is the same, but the way you use it is smoother and more flexible.
The Future Looks Tokenized
Big players like BlackRock and Franklin Templeton are already jumping on the tokenization train. Why? Because it makes everything more efficient. Tokens can:
- Increase Transparency: See exactly what’s happening with your investments in real-time.
- Enhance Control: Move your assets when and where you want, possibly even storing them in your own digital wallet.
- Improve Efficiency: Reduce the reliance on big data centers and cut down on costs.
Regulations Will Evolve, Too
The SEC has rules to keep investors safe. In the future, these rules might be coded directly into the tokens themselves using smart contracts. Imagine a world where compliance is automatic, and everything runs smoothly because the rules are built right into the system.
Why This Matters to You
This isn’t just tech talk—it’s about giving you more power over your investments. Tokenized ETFs mean:
- More Control: You decide how and where to store your assets.
- Greater Flexibility: Easily move your investments between platforms or wallets.
- Enhanced Security: Blockchain technology adds an extra layer of protection.
The Bottom Line
ETFs and tokenization are on a path to become best buddies. They’re not here to replace each other but to combine their strengths. This fusion promises a future where investing is more accessible, transparent, and efficient for everyone.
So, next time someone asks if tokens will kill ETFs, you can smile and say, “They’re teaming up to revolutionize finance.”
Video Transcript:
00:00:04 all right I want to address uh a post I think from last week Eric bakunas from uh Bloomberg was talking about the difference between ETFs and tokenization and a panel he was on where they talked about whether uh more assets will be tokenized or funds will be tokenized and then will replace ETFs and I wanted to obviously address this look here’s the thing uh they are not mutually exclusive you will what we will see and what we have already seen is tokenized versions of ETFs that does not make this very
00:00:38 very important that does not make the ETFs volatile crypto assets all it does when you tokenize an asset is you put it in a format that that it is able to be held and and moved around via public blockchains it does not really change anything structurally so what we’re going to have what can have right now honestly uh and what we’re going to have in the future is the the ETF the idea of the Le of the regulations surrounding an ETF may not change right you’re going to have to go through the you know whatever
00:01:15 the SEC process is which unfortunately we all know now ad nauseum the SEC process for creating uh and marketing the ETF right so the E the ETF is a is a fund that is traded and and it’s still going to be managed now what’s going to happen is currently ETFs when you go buy one in your brokerage account you know what your custodian Schwab or Fidelity or whomever is obviously going to own a whole bunch of those ETFs and then allow you and me and whomever to trade them uh and kind of technically make an
00:01:53 accounting entry that I own that ETF and what’s likely to happen we’re seeing it now with the the Texas Stock Exchange which might or might not be uh built on a public blockchain we’ve already seen NASDAQ talking about moving to blockchain technology so if assets are stored and moved around via public blockchains then all ETFs will eventually be tokens all stocks will eventually be tokens and the token is just a denomination it’s just an electronic format that allows us to to move that asset to to to store that
00:02:31 asset to view it and to move it around so again you’re going to create the ETF and then that ETF is going to be denoted as a token so you might have the SNP uh you know an S&P 500 uh ETF token and that token is going to be denoted on some sort of blockchain so let’s say it’s on ethereum it’s going to be such that I will I can own this S&P fund by virtue I I can own it potentially in my wallet uh in my personal wallet I can own it potentially because it is custody with a crypto custodian or eventually all
00:03:12 custodians will just hold assets on public blockchains again they are not mutually exclusive the the tokenization aspect of all assets is likely to bring more efficiency it’s definitely going to bring us more thoughts around self- custody it’s going to bring ideas around uh utilizing those funds as collateral if I want to to utilize those and it’s going to bring more transparency because if an ETF is tokenized I might have better visibility into what’s happening within those ETFs especially kind of
00:03:47 active you know more active e ETFs I’m going to have better visibility into what’s happening there uh and I am likely to be able to move those funds from whatever custodian they’re on to maybe my own private wallet maybe my own hard wallet maybe I can move custodians if I want to I get to decide more control again it doesn’t change the structure of what a an exchange traded fund is um all it does is it change how it changes how I’m going to hold it now what I think will happen in the future is I don’t think we’re going to have the
00:04:21 same rules and regulations around ETFs and say look go through this long arduous process with the SEC and then someone can go ahead and tokenize the fund I think that’s going to be interim steps but I think eventually if we really think about what an ETF we think about all registration with the SEC right it’s basically the SEC saying you need to tell us about yourself whether that is uh you know an IPO for for a company or whether it is a fund like an ETF you need to tell us about it and we need to investigate and what are we
00:04:52 investigating what are we looking into we are looking into um how you are using your funds uh we are looking into what kind of liquidity there is going to be and we are going to make sure that you are reporting adequately to those that are investors because our job as the SEC is to make sure that no one’s getting duped to make sure no one’s getting tricked to protect investors right now they do it in terms of publicly traded Stocks by you know quarterly reports quarterly earnings uh which is really
00:05:22 not that much of a level of transparency So eventually what I think we get is a combination of something like SEC type regist rules again whether they’re for ETFs or for publicly traded companies that uh is probably a a you know not quite as much of a process but I think what we’re going to have is the SEC uh by virtue of whatever rules you know kind of Congress puts in place the SEC is going to create is going to say here are the the rules uh for creating an ETF or or or going public and part of
00:05:57 the rules involve transparency and part of them involve liquidity and they’re going to be other rules like who can own it’s like that and what we’re going to do eventually I I think is all of this is going to get wrapped into smart contracts which is what a token is is a smart contract and there’s going to be certain smart certain SEC approved smart cont cont ract language such that investors are going to get that level of transparency that they need they’re going to get that level of liquidity
00:06:36 they’re going to get who can own they it can be you know traded on certain exchanges right we can write all that into the token So eventually all of this is going to be programmed into a smart contract and part of what the SEC is going to do is it’s going to audit the smart contracts before they can be released on any sort of exchange they’re going to audit it make sure all these parts are hit because they’re going to have essentially a set of code that says you have to hit these levels of of code
00:07:07 maybe you have to to use our uh protocol for smart contracts and if you do that and we audit it and you’re good then we’re going to let you release it the the token and that token can represent a company it could represent an ETF it could represent whatever kind of asset that’s the direction I think we’re going to go but all this comes back to the fact that H there isn’t going to be an either or ETFs or tokens it’s going to be the same thing the ETF is essentially just a protocol right it’s just a
00:07:36 protocol that says here’s what you have to do going through the SEC and getting approved here’s exactly what you have to do so that we will allow you to launch this on the American people in this case so now uh you know all you do is you take that protocol and you say okay we’re going to make it available in your in this new kind of custody that blockchain technology gives us which is I can own it on my own wallet I can own it on a on a you know with a crypto custodian the SEC might even say look
00:08:06 we’re not going to allow you to own these ETFs in your own wallet you can only uh hold them on certain exchanges that we deem our qualified exchanges or qualified custodians you can only hold them that way that might be some of the rules they put in place so the smart contract won’t even allow me to transfer it outside of this other custodian they can write those rules but again the sec’s ETF rules and regulations are simply a protocol and we can put that protocol into code such that it becomes
00:08:35 a smart contract so it isn’t mutually exclusive it’s taking the rules that the SEC has for ETFs and then applying them to another way to denote and prove those assets so there’s no winning that debate will there be ETFs or tokenization they aren’t mutually exclusive they they will work together eventually in the likes of Black Rock and Franklin Templeton and all these other large companies that are tokenized ing assets they are doing it for greater efficiency they are doing it so assets are more interchangeable so
00:09:05 they can move around better so they can track them better so they don’t have to be beholden to these large uh um data centers they don’t have to be beholden to to Amazon web services or Google cloud or something they can utilize the power of public blockchains to store that data to to process the transactions and then the likes of Black Rock and Franklin Templeton can just work on creating and managing those funds so wanted to address that that with Eric uh I hope that makes sense um I hope that
00:09:35 we continue to progress and have these conversations around the traditional the regulated Financial assets and tokenization again they’re not mutually exclusive uh one is just a way to denote and hold assets the other is a set of rules and regulations to keep investors safe