Tokenized Assets U.S. Hearing🔥BlackRock vs Hillary🔥
Summary
TLDRIn this Tech Path episode, Paul delves into the tokenized assets hearing, highlighting the potential of blockchain to revolutionize financial markets. The discussion features experts like Carlos Domingo and Hillary Allen, who advocate for clarity in digital asset definitions and the benefits of public blockchains. Concerns are raised about compliance costs, the crypto industry's role, and the impact of tokenized securities. The conversation also touches on CBDCs and the challenges of blockchain in facilitating efficient transactions, emphasizing the need for regulatory alignment and technological understanding.
Takeaways
- 😀 Paul, the host, introduces the topic of tokenized assets and their role in efficient markets, highlighting the importance of the ongoing hearing and potential bills like the Tokenization of Securities and Derivatives and the Tokenization Report Act of 2024.
- 🚀 The sponsor, Coinbase, is promoted as an easy entry point for newcomers to crypto, with an offer of up to $200 in crypto for new sign-ups, emphasizing the platform's user-friendliness for buying various types of cryptocurrencies.
- 💡 Carlos Domingo, the co-founder and CEO of Securitize, and Hillary Allen, a law professor, stress the need for clarity in defining digital assets and tokenized securities to distinguish them from other digital assets and advocate for the use of public permissionless blockchains for tokenized securities.
- 🛠️ The discussion touches on the potential for tokenization to reduce costs and increase efficiency in financial transactions, such as dividend payouts and redemptions, by automating processes and potentially cutting cross-border transfer costs by 80%.
- 🤔 Concerns are raised about the possible misuse of tokenization by financial institutions to avoid compliance costs and the challenges of using public blockchains for large transaction volumes and high fees during peak times.
- 🏦 The conversation addresses the impact of tokenization on the banking sector, with the mention of SAB 121 potentially hindering the development of tokenized securities and assets, and the call for Gary Gensler to withdraw the proposal for better bipartisan collaboration.
- 📈 The potential for tokenized assets to revolutionize various industries beyond finance, such as real estate and ticketing, is discussed, with examples like propy and the recording of titles, leases, and mortgages on blockchain for transparency.
- 🎓 The importance of education for lawmakers on the nuances of blockchain technology and its applications is highlighted, as misunderstandings and misconceptions about the technology's capabilities and limitations are evident in the hearing.
- 💼 The debate over the use of public permissionless blockchains for tokenized securities, especially regarding compliance with anti-money laundering (AML) and know your customer (KYC) regulations, is a significant point of contention in the hearing.
- 🌐 The role of stablecoins and the potential for a central bank digital currency (CBDC) as a settlement asset in the tokenized ecosystem is discussed, with differing opinions on their suitability and the need for further study.
- 📉 The hearing reveals a gap in understanding and a need for clearer regulatory frameworks, as some representatives show skepticism about the transformative potential of tokenization and its practical applications in finance and beyond.
Q & A
What is the main topic of the hearing discussed in the script?
-The main topic of the hearing is the tokenization of real-world assets and how it will facilitate efficient markets, including the development of tokenized securities and derivatives, and the Tokenization Report Act of 2024.
Who are the key speakers in the hearing mentioned in the script?
-The key speakers in the hearing are Carlos Domingo, founder of Securitize, and Hillary Allen, a professor of law at the American University in Washington College of Law.
What is the role of Coinbase as mentioned in the script?
-Coinbase is the sponsor of the show and is presented as an exchange platform for people who are new to crypto and looking to start their crypto journey.
What are the three critical aspects for a tokenized securities framework as suggested by the speakers?
-The three critical aspects are: clarity in the definition of digital assets, permission for SPBDs to hold payment stablecoins to facilitate onchain transactions, and allowing tokenized securities to flourish on public permissionless blockchains.
What is the concern expressed by the speaker regarding the uptake of multicurrency CBDCs?
-The concern is that the only uptake of multicurrency CBDCs has been by the crypto industry, which is primarily used by gamblers and criminals, and this could potentially cut costs by 80%.
What does Carlos Domingo suggest about the efficiency of managing underlying securities of a fund through tokenization?
-Carlos Domingo suggests that tokenization provides a more efficient way of managing the underlying securities of a fund by automating processes like redemptions and dividend payouts, which can lower the cost of maintaining a fund.
What is the potential impact of tokenization on the velocity of margin calculation and movement?
-Tokenization, along with smart contracts, could potentially increase the velocity of margin calculation and movement, making these processes faster and more efficient.
What is the current issue with the regulatory stance on tokenized securities as discussed in the hearing?
-The current issue is that the regulatory regime may not have the necessary flexibility to fully realize the capabilities of blockchain technologies, and there is a call for the withdrawal of Sab 121 to allow for more innovation in this space.
What is the narrative around stablecoins and their current use cases?
-The narrative is that stablecoins are not currently used for making everyday payments like for a cup of coffee, but are instead used for activities like gambling and staking, and are also associated with illegal activities.
How does the script address the issue of anti-money laundering (AML) and know your customer (KYC) on public distributed blockchains?
-The script suggests that there are technical solutions and other blockchains that can prevent assets from being sent to a wallet unless the asset has been preapproved, thus allowing for AML and KYC controls on public distributed blockchains.
What is the potential impact of the Tokenization Report Act of 2024 on the financial industry?
-The Tokenization Report Act of 2024 could potentially lead to a bonanza for the financial services industry by providing regulatory alignment and enabling the development and use of tokenized securities and assets.
Outlines
🚀 Introduction to Tokenized Assets Hearing
The video script begins with an introduction to a hearing on tokenized assets, featuring Paul, the host of Tech Path. He expresses excitement about the upcoming discussion and mentions the sponsorship by Coinbase, which is promoted as an easy platform for new crypto users. The hearing's focus is on the tokenization of real-world assets and its potential to make markets more efficient. Key figures like Carlos Domingo, founder of Securiti, and Hillary Allen, a law professor, are highlighted as participants. The discussion will revolve around potential bills such as the development of tokenized securities and derivatives, and the Tokenization Report Act of 2024. Concerns about financial institutions tokenizing basic securities to avoid compliance costs are raised, along with the benefits of a multicurrency CBDC in reducing cross-border transaction costs.
💼 Efficiency and Regulation of Tokenized Securities
This paragraph delves into the efficiency gains that tokenization can bring to managing securities, such as streamlining dividend payouts and redemptions. Carlos Domingo emphasizes the need for clarity in defining digital assets and tokenized securities, advocating for the allowance of Special Purpose Banking Depositories (SPBDs) to hold payment stablecoins. He also stresses the importance of tokenized securities flourishing on public permissionless blockchains to realize blockchain technology's full potential. Hillary Allen raises concerns about the limitations of public blockchains in processing large volumes of transactions and the potential risks associated with tokenized deposits. She questions the reliability of blockchain organizations and the security of assets hosted on blockchains that may not be maintained properly.
🏦 Impact of Tokenization on Financial Institutions and Beyond
The discussion continues with insights into how tokenization can affect financial institutions and the broader market. The potential for tokenization to reduce the role of middlemen and improve the flow of money from companies to investors is highlighted. The GameStop incident is mentioned as an example where tokenization could have simplified margin call calculations. There's also a debate on the implications of the Financial Innovation Transaction 21 (FIT 21) provision, which could attract issuers seeking to avoid SEC oversight. The conversation touches on the potential of tokenized assets beyond just money, including applications in real estate and ticketing, and the need for regulatory alignment to fully realize the benefits of blockchain technology.
🤔 Congressional Perspectives on Tokenization and CBDCs
In this section, the script presents various congressional perspectives on tokenization and Central Bank Digital Currencies (CBDCs). Some representatives express skepticism about the innovative claims of tokenization, comparing it to past financial innovations and suggesting that it may not be exempt from securities laws. There's a call for the withdrawal of Sab 121, which is seen as hindering tokenization technology. The potential for CBDCs to serve as a settlement asset is debated, with some arguing that stablecoins are not yet ready for widespread payment use and that a central bank money should be the settlement asset. The script ends with a call for continued education and understanding of blockchain technology among lawmakers.
Mindmap
Keywords
💡Tokenized Assets
💡Cryptocurrency Exchange
💡Tokenization of Securities
💡CBDC (Central Bank Digital Currency)
💡Blockchain Technology
💡Stablecoins
💡Regulatory Alignment
💡Smart Contracts
💡AML (Anti-Money Laundering)
💡KYC (Know Your Customer)
💡GameStop
Highlights
Tokenization of real-world assets is being discussed in a hearing to facilitate efficient markets.
Coinbase is highlighted as a sponsor and as an exchange for starting crypto journeys.
Potential bills related to tokenized securities and derivatives, and the Tokenization Report Act of 2024 are mentioned.
Concerns are raised about financial institutions tokenizing basic securities to avoid compliance costs.
A multicurrency CBDC could potentially cut cross-border transfer costs by 80%.
The crypto industry is currently the primary user of blockchain technology, according to the hearing.
Experts like Carlos Domingo and Hillary Allen discuss the need for clarity in digital asset definitions.
Recommendations for a tokenized securities framework are presented, including public permissionless blockchains.
Critiques of public permissionless blockchains include their inability to handle large transaction volumes and high fees during peak times.
Tokenization can improve fund management by automating processes like redemptions and dividend payouts.
The GameStop incident is discussed in the context of tokenization and its potential to streamline margin calls.
Mr. Sherman provides a historical perspective on the evolution of financial technology.
FIT 21 is criticized for potentially allowing issuers to avoid SEC oversight through blockchain exemptions.
SAB 121 is discussed as a regulatory hurdle that could hinder the full potential of blockchain technologies.
The potential for tokenized assets beyond just money, such as real estate and property titles, is explored.
A heated debate occurs between Mr. Caston and Mr. Domingo on the capabilities and limitations of blockchain as a ledger.
The need for education on blockchain technology for lawmakers is emphasized to foster better understanding and regulation.
Transcripts
let's get into the tokenized assets
hearing today we'll break down a whole
bunch of clips for you you definitely
want to stay tuned because we've got
some zingers for you so it's going to be
a good one my name is Paul be welcome
back in Tech path before we get started
I want to thank our sponsor and that is
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out over on coinbase all right let's get
into a few points here this of course is
a hearing that happened today and it was
really breaking down how tokenized
tokenization of real world assets will
facilitate efficient markets now Carlos
Domingo founder of securiti who's been
on our show was here along with Hillary
Allen which we've shown before we're
going to break down all of this and get
into it because there's a couple of of
uh potential bills that are at uh stake
here one of of course is the development
of tokenized Securities and derivatives
and then also the tokenization report
Act of 2024 all of these are being being
represented and they're basically going
through this in the hearing let's go to
this first clip kind of get you guys
caught up listen in I'm concerned that
financial institutions will be
incentivized to Simply
tokenize Basic Securities that are
commonly exchanged indeed some
shareholders might insist that company
management use that approach to avoid
compliance costs it cost $120 billion to
move $23 trillion across Ross borders
and that a multicurrency
cbdc could cut cost by 80% down to about
$20 billion it seems the only uptake has
been by the crypto industry for its
organization whose products are
primarily used by gamblers and
criminals all right so you know the
typical Lynch intro right there uh or I
should say the typical intro that we've
seen from them before and and it kind of
goes on and on they go a little bit
further into this this also sets up the
introduction of Carlos and also Hillary
Allen take a look at this one Carlos
Domingo Carlos is the co-founder and CEO
of securitize and Hillary Allen Miss
Allen is a professor of law the American
University in Washington College of Law
we need Clarity in the definition of
digital assets Securities or tokenized
Securities to distinguish them from
other forms of digital assets second we
also believe that spbd should be
permitted to hold payment stable coins
to facilitate it at efficient onchain
transactions between Securities and cars
today this is not possible third
tokenized Securities must be allowed to
flourish on public permission list
blockchains in addition to private
permission chains to realize the
benefits of blockchain technology these
suggestions are critical aspects for of
what tokenized securities framework
should include this is currently the
model chosen by the European commission
for Europe and US entities should be
able to realize similar efficiencies and
capabilities now I know that there's a
strong narrative about this being
transformative technology I fell into
this trap when I first started started
writing about Bitcoin nearly a decade
ago so these kinds of blockchains can't
process large volumes of transactions
and the delays and fees can be
significant to peak times so why use the
public permissionless blockchain in the
first place furthermore tokenized
deposits May speed up payments
processing for the already banked but
tokenized deposits will not Bank the
unbanked they require constant
monitoring and maintenance to address
bugs and cyber security issues but it is
often unclear who they are what powers
they have who is funding them or how
they are chosen could they be bad actors
can they always be counted on to get the
blockchain up and running again in a
timely matter after an outage what if
they just give up on the blockchain
could the assets hosted on that
blockchain be
lost all right so a lot of things
happening there I think you know the one
major thing is the issue that she's kind
of referencing a decade ago in terms of
our research versus some of the things
that have been happening here within the
blockchain technology really in the last
18 to 24 months which has pretty much re
revolutionized I think the direction of
it and like most technology it advances
much quicker as things start to develop
that's the case that we're starting to
see hence tokenized assets are becoming
such a talking point but also very
important uh situation right now of
course from a regulatory standpoint but
also from a financial standpoint so
she's kind of talking about things that
really she doesn't know about just yet
but hopefully that will change during
all of this all right so let me go to
this next clip which is uh Carlos
talking a little bit more about the
middlemen and where the yields are going
how all this is basically being done and
it can be circumvented take a look so
tokenization obviously provide a a much
more efficient way of managing the
underlying Securities of a fund it
provides automation for things like
redemptions dividend payouts Etc that
can lower the cost of actually
maintaining a fund typically Dividends
are delayed into reaching the hands of
the investors after the company has
basically transferred those to to the
the transfer agent and transfer agent
tend to hold the dividends for as long
as they can to try to uh you know
monetize on the on the asset not being
transferred to investors and I think
this technology can you know improve how
money flows from companies to investors
so investors can redeploy their assets
and and get better
returns so he's right yeah I mean this
is the situation where we will start
seeing returns coming in and once that
we see a stable coin Bill start to roll
out in a Congress and really lining up
with what MAA has done within the EU
which remember is happening at the end
of this month we'll have these kind of
products starting to go into the market
all of these kind of things will become
very apparent I think to many of the
lawmakers and of course many Financial
instrument companies as well now Allan
goes a little bit further into this and
part of what she goes into is now the
GameStop topic so listen to what she had
to say here when is something efficient
enough such that making it more
efficient will introduce too many fragil
ities and be counterproductive in the
long run mrak car um dtcc is the most
important behind the scenes company and
you were very involved not you
personally but dtcc very involved in the
uh GameStop media where Robin Hood a
woke up in the middle of the night
trying to make margin could tokenization
have made that analysis of determining
what the Margin Call was for them more
straightforward more easy seemed like
there's a lot of mystery in that and a
lot of back and forth would would having
it on a ledger have made that easier yes
um one of the attributes that we so that
would like in reduce fragility in that
instance potentially one of one of the
attributes we believe that tokenization
along with smart contracts would allow
the Automation and increase efficiency
of margin calculation and margin
movement so you will see an increase in
velocity uh there so we do believe
that's one of the efficiencies to be
able to deliver faster uh and more
efficiently
this is one of the things that I think
uh Larry thinkink of course has woken up
to blockchain and understands now and so
much so that he's wanting to accelerate
the whole process of tokenized
Securities and tokenized Assets in uh
the real world in a big way and I think
this aligns with it much to the what she
was trying to do Hillary was trying to
do around the whole issue with uh
GameStop now it doesn't stop here and we
got a couple of E clips there's one at
the end that you got to stick around for
though it is unbelievable that this is
being said on and in uh Congress this
next clip goes into of course Mr Sherman
we always have to bring him in so we can
get a little bit of comic relief listen
in with that I call on the gentleman
from California Mr chairman for five
minutes I've been on the committee for a
long time this hearing hearkens back to
my first hearing when we focused on the
move from Abacus to 10 key adding
machine a lot of what we're being told
is innovative is doing things that we've
already done very efficiently for a long
time uh Professor Allen in your written
testimony you mentioned that this
provision in fit 21 would be very
attractive to issuers who seek to avoid
SEC oversight what would that mean for
retail investors if the fit 21 were to
become law that new title 2 would
basically allow you to slap a blockchain
on any kind of um investment contract
and therefore it becomes magically
Exempted from from the Securities laws
and so tokenized securities are recorded
on blockchain they are no different than
traditional Securities tokenized stock
or tokenized bond is still a bond or
stock when it's um whether it's in
traditional Ledger or a blockchain
ledger I think it's important to
remember tokenization does not change
the nature of the
asset all right well you can kind of see
the the situation there when they're
really not even understanding the whole
process of how tokenized Securities work
uh this next clip goes into a little bit
about Sab 121 and how it basically kills
one of the biggest categories uh for
banks which is going to be tokenized
Securities and tokenize assets uh take a
look what they had to say there do you
agree that under the current regulatory
regime created by chair guinsler we do
not have the necessary flexibility to
fully realize the capability of
blockchain Technologies uh yes so as Sab
121 is current written the definition of
crypto assets is very Broad so it
encompasses potentially tokenized
Securities even if it's a traditional
security recorded on a blockchain ledger
it's unfortunate that Gary Gensler is
holding back tokenization technology
with sabb 121 I'd like to use this
moment briefly to call on Gary Gensler
to withdraw Sab 121 believe he's putting
President Biden in a very difficult
position on this issue we have a
tremendous executive order and um
continuous statements from the
administration uh wanting to to work
with Congress on this issue in a bip
partners and Manner and if Gary gansler
were to withdraw Sab 121 we could work
in a bipartisan way on the custodial
banking piece and these definitions that
I think is so important so that is my
hope here all right so you can kind of
see not a good position for banks uh
could be possibly for other people out
there we'll just say people that aren't
Banks you know that we already seen kind
of these kind of scenarios that play out
and one of the things that you have to
remember whether that's it's the bill
that goes through or a stable coin bill
goes through all of this lines up into a
potential Bonanza I think for the
financial services industry which is
really where this Bulls down to is when
we will get regulatory alignment all
right so I've got one more clip here
this is Lynch talking about
cbdcs take a look you you need crypto to
trade crypto sort of like a self-licking
ice cream talk about some of the dangers
here thank you very much for for that
question I mean I think there's there's
civil gradations of risk in unexpected
circumstances things can blow up no
computer programmer can think of all
future states of the world so let's just
sort of think about this you've got a
bunch of different tokenization systems
wouldn't you need a a central bank sort
of a one
one
Central not necessarily Reser well sort
of like a reserve currency where
everybody could exchange their their
tokenized uh assets
one that everybody recognizes and
respects some people say that stable
coin should be a settlement asset I
think that is a a terrible reason I
really think that the the settlement
asset has to be some kind of central
bank money ultimately all right long
story short stable coins aren't
currently used for making payments for a
cup of coffee that's that's a sort of a
narrative that is incorrect right now
they're helpful for gambling you can
stake them or use well that's one of the
laws you try to evade yeah and we're
told that Innovation is wonderful but
then this Congress passes a bill against
even studying
cdbc uh it's certainly not a hearing
about Central Bank digital currency uh
and and what a terrible idea that is I
by all means Mr Lynch continue to study
it uh know and come to the conclusion
that it is a terrible idea particularly
the one currently conceived and so I
hope we can move on and have a focus on
this hearing topic and and not the straw
man that some of our colleagues want to
continue to
pillage all right so you can kind of see
this is a problem right now within
Congress I at one point I thought we
were going to see a little bit more
awareness of what was happening within
the markets especially around uh all
things tokenized and there was a point I
think that we started to see that maybe
it's just the the certain
Representatives that don't necessarily
understand it that were highlighting
here but I want to go to this next clip
that goes into tokenized assets for
things Beyond on money take a look in
Ohio mortgages or you know title to
property is one of the things that's
under study as chairman of housing
Insurance we're paying a lot of
attention to that if you look at the
representation of a title to a home or a
car deed to a land or property you know
what kinds of things as you look across
the market do we need to address and
where do we need to address them to
provide functional markets for seeing
applied to ticketing um tokenized
concert or Sports tickets real estate is
another use case that we're seeing where
you can record tokenized title leases
mortgages all on blockchain to have the
level of
transparency all right and this is
already happening actually out there
right now what they're talking about is
getting into real estate is it is one of
the big categories that's coming soon to
be tracked on you know when you look at
real world assets but propy is a good
example we've had the propy CEO on
before talking about this very thing
these are opportunities I think that all
start to lead in the right direction I
want to go to this last clip this is the
one you got to you wait for because this
is a bit of a trigger warning this is uh
Mr Caston versus Mr Domingo take a look
calling blockchain a ledger is like
calling a cup of flour a cake to call
that a ledger is disrespectful to
ledgers right it's it's it's just a list
of names and numbers securitized
tokenized and distributed shares of a
private money market fund issued by
Black Rock on the ethereum blockchain a
public blockchain um my understanding is
that any wallet on ethereum can accept
tokens from any other user on the
network right that's not correct for the
tokens we issue they're only
transferable to Wi listed wallets so you
put controls to protect against what
we're talking about here we do correct
this is totally possible on a public
distributed blockchain and saying that
you know providing AML controls or kyc
Etc on a public distributed blockchain
is not possible it's like saying it's
not possible to run Financial transac we
help me out then because almost
immediately after that money market fund
was deployed internet trolls found the
wallet addresses they sent mean coins
they sent nfts tainted funds from
tornado cash there were more than 100
cryptocurrencies that were mixed up in
legitimate funds that black rock haded
to access that how is that possibly
compliant so first they the those meme
coins and uh and sanctioned tokens were
not sent to a black Ro wallet at all it
was sent to some other wallet that was
you know labeled with black rock so
there was a misperception in the Press
of what happened second the fact that
somebody can send you a m point to your
wallet it doesn't mean that the token
that represents the unit of the money
market fund which is a security can be
freely sent to some other uh wallet or
are you suggesting there's a technical
solution to this or that we will have to
actually have indivual Technical
Solutions there's other blockchains that
prevent uh assets to be sent to a wallet
unless the asset has been preapproved
and that's something that could be built
on top of a public permissionless
network without no problem well I'm I'm
fundamentally dubious do any of you
believe that a blockchain system that
allows mixers and Anonymous wallets can
provide a robust Ledger of of of all the
transactions and and block anti-money
laundering I do believe so the same way
the internet is also used for you know
legal things and illegal things and it's
a public distribut infrastructure I
think the industry would be a lot more
credible if they were fighting harder
before the enforcement actions to
protect against money gentlemen time has
expired all right so you can kind of see
the problem there of really
understanding how this works um much
like any other open network system
whether it's internet even to a certain
extent the traditional banking system
also works in that fashion this actually
starts to really give the kind of
security elements that blockchain is
designed for all of this is an issue
because one of the things that we have
to do to overcome most of this is going
to be education and this is educating
our lawmakers so it's going to take some
time but I feel like there is at least
some steps in the right direction yes
you know fit 21 will be a big step in
the right direction so will stable coins
once we start to see some of those
activities and the use cases start to
become reality that's I think when uh
we're going to see lawmakers starting to
open up and understand really what's
happening here from a Technology
Innovation standpoint not un normal that
we don't see these kind of things when
they're dealing with new technologies
has happened you know in the era of the
internet most likely in
telecommunications and mobile many of
those kind of things uh were faced with
what we're dealing with now so anyway
we'll get and continue to cover this for
you guys uh there's going to be a couple
more here hearings and we'll obviously
see a lot of action toward the end of
the month as we start to see Ma and
stable coins become reality along with a
ton of products most likely rolling out
rolling out in the EU that could some
put some pressure on us so uh make sure
and stick around for that and if you're
not following me on X do so it's it just
Paul Baron we'll catch you next time
right here on techb
[Music]
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