Beware of the grandiose promises of TradFi that embrace tokenization

This article was written by Omid Malekan who is an author, educator and known as the “explainer-in-chief.” He is an adjunct professor at Columbia Business School (Columbia University), where he has taught courses on blockchain and cryptocurrencies since 2019. After discovering Bitcoin in 2013, he has dedicated more than a decade to studying and explaining these technologies in a clear and accessible way.
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Institutions have already arrived and are slowly adopting the advantages of moving on-chain. This is very gratifying for those of us who have long wanted TradFi to get more involved. My personal position has always been that, sooner or later, all assets will be tokenized assets…and at that point we will simply call them “active” again.

Hardly a day goes by without some entity like DTCC, Visa, SWIFT, Stripe or PayPal releasing an exciting announcement. If we go by their press releases alone, it would seem that all These companies are finally embracing real-time payments, 24/7 settlement, programmability and atomic swaps. But I don’t buy it at all.

Or rather: I don’t completely buy it. Because none of them are talking about the existential risks What moving on-chain means for your dominant traditional businesses.

Let’s be clear: there are very smart people within all of these companies who truly believe in permissionless blockchains. I have spoken directly with several of them and I respect them. The simple fact that they are allowed to be so vocal also means that there are senior executives in those companies who have given the go-ahead to a significant level of involvement.

They wouldn’t do it if they didn’t see real opportunities for growth. However, it is very significant that none of these leaders are mentioning the risks that new infrastructure—one that no one owns or controls—poses to their legacy businesses.

Public and permissionless networks are a completely new primitive. They exist precisely to break the monopoly or oligopoly that traditional TradFi players exercise over old infrastructure.

It cannot be that Ethereum and similar networks take away market share from centralized clearing and settlement networks… and at the same time No affect in some way those involved who own and operate those networks. Some concrete examples:

• DTCC It is going to tokenize the values ​​that today live within its subsidiaries. It’s an important step because, by law, the vast majority of American public stocks reside on its ledger. But the final state of tokenization is direct issuance on-chain, and at that time the world will no longer need many of the clearing and settlement services that a company like this provides. Technically DTCC is the CSD (Central Securities Depository) of the United States. A service whose name includes the word “centralized” will not be necessary in a more decentralized future. And yet, I don’t hear the DTCC leadership naming that risk.

• SWIFT operates a secure messaging system essential for many payments, especially complex cross-border ones that pass through an opaque web of correspondent banks. Stablecoins represent a completely different way of settling international payments: cheaper, faster and more secure. They are a existential threat for the correspondent banking model that SWIFT supports. In crypto, the payment is the message. If all payments move on-chain, we won’t need a 50-year-old messenger. And yet I don’t sense panic in SWIFT about the possibility of becoming irrelevant.

• Visa It has several businesses, but is mainly famous for its card scheme: a trusted messaging layer that promises the merchant that the money is “on the way” to deliver the product or service immediately.
  Stablecoins replace that promise with a real and immediate payment. Other Visa services could benefit from going on-chain, but the cards are their true revenue driver. I have yet to see more than very superficial mentions of the competitive risk of stablecoins in their SEC filings.

• Stripe offers APIs that allow any business to accept payments of all types with relative ease. Their pricing model is built almost entirely on cards, which are notoriously expensive and complicated. Stablecoins simplify everything and open the door to a huge number of new payment competitors. Stripe’s leadership talks a lot about what they can gain by going on-chain, but never Mention what they stand to lose.

• PayPal manage several closed payment networks and make money with float + commissions to businesses. Stablecoins may very well eliminate virtually all closed systems, as they offer all the benefits (instant payments, free P2P transfers…) without any of the drawbacks (you have Zelle and your friend Venmo). Furthermore, stablecoins are going to pay performance, which puts brutal pressure on any float-based business model. They hardly talk about those risks either.

Intermediate summary: yes, all these companies can do useful and profitable things by going on-chain. There are also clear opportunities for growth (DTCC charging to issue/serve tokens, Stripe earning more with stablecoins at 1.5%, Visa Direct growing, etc.). But discerning exactly where they win and where they lose is extremely complex. And most importantly: if the world really goes on-chain, Your incumbent businesses are going to be cannibalizedat least in part.

The censorship resistance of networks like Ethereum creates eternal competition, competition that most of these companies have never faced in their history. Do we really believe that these giants are going to handle the classic Innovator’s Dilemma?

That they are going to go from being monopolies/oligopolies with hundreds of billions in revenue to being just another player in a hypercompetitive market? What will they be able to beat the crypto natives who don’t have any traditional business to protect?

I don’t believe it. But Omid, why do you care so much? Part of my skepticism comes from having worked within and advised these types of organizations. They are deeply risk averse (with good reason). Their main lines of business are in the hands of veterans with enormous domain knowledge… and that knowledge makes them deeply distrustful of any alternative. I understand it perfectly.

If I had spent 30 years building a career on the old system, I would also view the new with suspicion. However, those same executives (who have far more internal power than junior pro-crypto employees) are the ones who they are going to oppose to real progress… and possibly even sabotage it. That’s your incentive. And believing in crypto is, to a large extent, believing that incentives matter much more than good intentions. Several friends in the industry tell me:

«That the largest banks and processors in the world are coming on-chain is a historic triumph. Something that five years ago we only dreamed of. What difference does it make if they do it poorly or halfway? Why not just enjoy the moment? If they screw up, screw them, not us. Unfortunately It’s going to affect us too..

To be clear: I’m not being a purist or resentful. My concern is specific: I fear the demands that these companies are going to put on the cryptocurrency ecosystem. I fear they will use the carrot of “mass adoption” and the stick of regulatory capture to force us to give up precisely the features that make public and permissionless networks valuable and unique. and this it’s already happening:

• JPM experimenting with tokenized deposits and tokenized funds only for qualified investors (millionaires).

• DTCC powering permissioned corporate chains that have almost nothing to do with crypto (they’re basically TradFi databases with some crypto on top).

• Many L1/L2 teams reconsidering their decentralization plans so as not to scare off Wall Street.

• Crypto leaders who once despised enterprise blockchain are now suspiciously quiet.

• Citadel Securities lobbying to kill DeFi while boosting permissioned networks controlled by large corporations.

All this is aggravated by the phenomenon of “simps” dressed in suits: too many people in crypto have an inferiority complex towards TradFi, are too tired, or simply have their “bags” in red and are willing to sell the principles for anything that looks like adoption.

Conclusion

You have to relate to these companies, help them come on-chain, do it with respect and empathy. The Innovator’s Dilemma is real and it is very hard. But when the moment of truth comes (and it will), you have to stay firm. TradFi has to evolve to adapt to crypto.

Crypto No must back off to please TradFi. Summary: Don’t be simple.

Disclaimer: The views and opinions expressed in this article belong to its author and do not necessarily reflect those of CriptoNoticias. The author’s opinion is for informational purposes and under no circumstances constitutes an investment recommendation or financial advice.