Cryptocurrencies: Once assets are on the chain, the opportunities are endless

At this year’s KeyBanc Capital Markets^® Emerging Technology Summit held at the Hyatt Regency San Francisco Downtown SOMA, a panel of digital asset and financial infrastructure leaders explored how blockchain technology is reshaping the underlying systems that power global finance.

Moderated by Alex Markgraff, vice president of equity research at KeyBanc Capital Markets, the discussion brought together AJ Mildenberg of Blockstream, Ben Spiegelman of Figment, and Billy Miller of Securitize to talk about how emerging technologies, from blockchain to AI, are enabling faster, more transparent, and more accessible financial systems.

Panelists began by discussing cryptocurrencies, noting that once people got past the excitement and the chaos that was happening in the crypto markets, it became clear that the real innovation is in the infrastructure underlying them.¹ Today, financial institutions are exploring how distributed ledger technology, tokenization, and smart contracts could modernize the “plumbing” of capital markets by upgrading the systems and processes that make securities and money move behind the scenes. As Miller pointed out, the financial sector has started to look past the speculative side of crypto to focus on the technological breakthroughs that make blockchain systems powerful tools for financial services.

At its core, blockchain functions as a shared digital ledger that multiple participants can access simultaneously. Spiegelman noted that instead of institutions maintaining separate records and reconciling them at the end of the day, having a decentralized database allows all participants to reference the same real-time source of truth.

The concept, which panelists say was introduced in a 2008 white paper behind Bitcoin,² is important to the industry today because blockchain networks allow institutions to transact globally without relying on a single central intermediary. Spiegelman points out that this potentially lowers costs while also increasing transparency and speed.

Turning traditional assets into digital ones

One of the main themes from the panel was tokenization, which is the process of converting traditional financial assets into digital representations³ that live on a blockchain. Tokenization doesn’t change the asset itself, but it changes how the ownership is recorded and transferred, panelists said.  

“If you take a share of stock and tokenize it, it’s still the same share of stock,” Miller said. “But instead of a paper certificate or a brokerage statement, you have a digital token representing that ownership.”

What this means is that once assets are on chain, the opportunities are endless. “It is an opportunity to issue shares of securities in a different way and unlock incredible value for both the issuers doing it, the intermediaries that want to interact with it, and the end investors who ultimately benefit from the cost savings,” he added, noting that tokenized assets can be transferred instantly between wallets, used as collateral in automated financial systems, or fractionalized to broaden investor access.

Panelists said that even though tokenized real-world assets represent only tens of billions of dollars globally at the moment, the potential for growth is huge.

For perspective, Miller noted that global equity markets exceed around $100 trillion, so even if just 2% or 3% of that total moves to blockchain-based systems, the market for tokenized securities could be bigger than all of cryptocurrency.

Blockchain brings speed and liquidity

In addition to bringing efficiency, which is perhaps one of the bigger benefits of the blockchain infrastructure, blockchain has the potential to accelerate transactions. Blockstream’s Mildenberg explained that traditional markets often rely on settlement cycles of one or two days after a trade is executed, but blockchain networks can enable near-instant settlement while also reducing counterparty risk. “You can have transactions happening 24/7 with near-instant finality,” he said.

One example of one of these systems is Liquid Network, a Bitcoin-based sidechain developed by Blockstream, which is designed to accelerate transactions and settle them in one minute, instead of the 10 minutes that usually happens on the Bitcoin main chain. “By moving certain operations off the main Bitcoin blockchain, these systems can happen faster but allow for programmable finance and still maintain the security benefits of the underlying network,” said Mildenberg.

Another development panelists discussed was the rise of stablecoins,⁴ a cryptocurrency designed to maintain a stable value relative to a certain asset. Once dollars exist on the chain, securities and cash can move, and you are able to receive dollars back instantaneously with pure finality, which Spiegelman explained is a “huge aha moment.”

New economic models in digital finance

The panel also discussed how blockchain networks are reshaping the economics of financial services and the changing dynamics of who is getting paid and who is earning.

Traditional financial infrastructure relies on multiple intermediaries like custodians, clearinghouses, transfer agents, and brokers, but blockchain-based systems may streamline many of those functions through software automation, making “less cooks in the kitchen” as Miller pointed out.

New revenue streams are also emerging such as staking, the process of locking up cryptocurrencies to help secure a blockchain network. Spiegelman’s company, Figment, provides infrastructure that allows institutional investors to participate in these networks and delegate their assets to staking providers and earn rewards generated by blockchain protocols. “It is similar to an asset management model and essentially creates a new yield-generating opportunity within digital markets,” Spiegelman explained.

Bridging the gap between traditional finance and crypto

Even though there is rapid innovation in blockchain, panelists agreed that adoption won’t replace traditional finance. Instead, they note that it will happen alongside.

Markgraff noted that some of the more traditional or more established infrastructure parties that have powered the broader capital markets for some time, such as DTCC or Nasdaq, are starting to dip their toes into their own tokenization initiatives.

However, SEC rules and legacy systems, some dating back to the 1970s, control about 95% of the financial market. “The market is so ripe for modernization, but the transition to blockchain-based infrastructure will likely unfold gradually,” said Miller.

Regulatory clarity has been one of the larger hurdles to overcome when it comes to institutional adoption. However, panelists agreed that progress has been made over the past few years. In the United States, for example, there has been new guidance from regulators that has helped clarify key questions around custody, tokenization, and staking.

The industry itself has also matured and forced organizations to focus on transparency, compliance, and institutional-grade infrastructure. According to Miller, today we are seeing a clear separation between spec crypto activity and the use of blockchain technology for traditional finance. 

For the future, panelists agreed that blockchain’s role in financial markets will expand significantly in the coming years and there are many trends that could help accelerate adoption. Some of those trends include the continued growth of tokenized real-world assets, the expansion of stablecoin payment systems, and integrating artificial intelligence with blockchain networks.

One of the biggest indicators that things are progressing is that large asset managers and financial institutions are actively exploring tokenization strategies. “The conversation isn’t ‘should we do this?’” said Mildenberg. “The conversation is ‘how do we do it, and how quickly can we get there.’”

About the Emerging Technology Summit

The 21st Emerging Technology Summit in San Francisco brought together technology leaders from public and private companies, alongside industry executives and institutional, VC, and PE investors. Participants engaged in high-impact discussions and gained valuable perspectives on emerging trends shaping the market. For details on future attendance, please reach out to our Corporate Access team.
 

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