Tokenization is still in the early stages of the hype cycle, but experts indicate a need for additional use cases.

According to Securitize’s Graham Ferguson, experts in crypto assets need to align the excitement surrounding tokenization with tangible real-world applications.

Left to right: Graham Ferguson, head of ecosystem at Securitize; Min Lin, managing director of global expansion at Ondo; and Coindesk’s Kris Sandor (CoinDesk)

Key points:

• Securitize’s strategy, which involves issuing regulated securities directly on blockchains, “has consistently aimed to proceed in tandem with regulators.”
• Ondo’s rapid scaling wrapper model has seen widespread acceptance: stablecoins are essentially wrapped U.S. dollars.

If a typical technology hype cycle can be associated with tokenization — the digital representation of any asset on blockchains like Ethereum — we are just at the beginning.

This perspective was shared by Min Lin, managing director of global expansion at Ondo, who noted that the U.S. Treasuries market alone is valued at $29 trillion. When considering the global equities market, this figure rises to approximately $127 trillion, with $69 trillion attributed to the U.S., as stated by Lin during CoinDesk’s Consensus Hong Kong conference.

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However, despite the staggering figures and clear interest from traditional finance in exploring tokenized real-world assets (RWAs), caution is essential in aligning the enthusiasm with practical applications, Ferguson from Securitize emphasized.

“It’s up to us to determine how we distribute these, and historically, we haven’t excelled at assigning utility to these assets,” Ferguson stated. “We have numerous assets that could be tokenized. We have a variety of options. We must determine how to integrate that excitement and bring it together.”

Ferguson of Securitize highlighted the importance of not “rushing the regulatory aspects.” Nevertheless, the U.S. Securities and Exchange Commission (SEC) is beginning to acknowledge that tokenization could underpin future markets and should not be seen merely as “isolated compliance islands.”

“We have long discussed the advantages of settlement concerning tokenization and the programmatic compliance embedded within the token standard itself, as well as the transferability of these assets among KYC’d [know-your-customer] individuals,” Ferguson remarked. “We are genuinely looking forward to receiving regulatory clarity. No pun intended.”

Ondo prioritizes efficiency. The firm has been actively involved in tokenizing stocks and ETFs and recently introduced Ondo Perps, allowing those tokenized equities to serve as collateral margin directly — instead of using stablecoins for collateral on exchanges or DEXs, Lin clarified.

In essence, the varying approaches these firms take toward tokenization revolve around two design choices: for Ondo, it focuses on the swift and straightforward wrapping of assets into tokens; for Securitize, it emphasizes the issuance of securities natively on-chain while addressing the jurisdictional compliance challenges linked to that process.

Securitize’s method “has always been to proceed in sync with regulators,” Ferguson mentioned. “In the U.S. and the EU, we operate as a regulated transfer agent and broker dealer, and we have consistently adhered to regulatory standards,” he added.

This presents challenges when engaging with DeFi protocols, Ferguson acknowledged, due to the necessity of tracking the beneficial owner of an asset at all times.

“In the crypto and DeFi space, we are accustomed to large asset pools, so we are focused on identifying methods to collaborate with these protocols, enabling us to implement the tracking mechanisms essential for trading and transferring securities. Thus, it is not necessarily the most comfortable approach within DeFi,” Ferguson stated.

For Ondo’s Lin, tokenization can be categorized into either permissionless or permissioned frameworks.

For instance, OUSG, the Ondo Short-Term U.S. Treasuries Fund, is accessible to a global audience and operates on a permissioned basis, meaning users can only transfer this asset to whitelisted addresses.

Conversely, Ondo Global Markets tokenizes publicly traded U.S. stocks and ETFs, which follows a permissionless model after a defined compliance period, yet is exclusively available to non-U.S. investors.

“What we have implemented at Ondo is a wrapper model for our Ondo global markets products,” Lin explained. “This permissionless strategy enables us to function and transfer freely from peer to peer within DeFi. As a result, you can utilize DeFi protocols to leverage these products for lending and collateral margin.”

Regarding the tokenization of various assets, it is clear that this wrapping methodology will yield quicker results; for example, Ondo successfully tokenized BitGo stock just 15 minutes after the firm began trading on public markets.

“This wrapper model significantly accelerates our scaling efforts. Currently, we have over 200 tokenized stocks and ETFs, and we aim to expand that number to thousands,” Lin stated. “The wrapper model has gained considerable traction. Stablecoins effectively function as wrapped U.S. dollars, and we have adopted a comparable model.”