BlackRock’s Fink and Goldstein say tokenization could reshape market development

BlackRock’s top executives say the financial system is on the cusp of the biggest infrastructure overhaul since the advent of electronic messaging in the 1970s, powered by blockchain-based tokenization.

In a new column for The EconomistBlackRock CEO Larry Fink and COO Rob Goldstein say the financial industry is “entering the next great evolution in market infrastructure,” an evolution that can move assets “faster and more securely than systems that have served investors for decades.”

Tokenization records asset ownership in digital ledgers, allowing stocks, bonds, real estate and other assets to exist as verifiable digital documents that can be traded and settled without traditional intermediaries.

The executives’ vision fits neatly within BlackRock’s tokenization agenda, harkening back to Fink’s 2022 statement that “the next generation for markets, the next generation for securities, will be the tokenization of securities.”

“In the beginning, it was hard for the financial world – including us – to see the big idea,” the duo wrote, noting that tokenization was “caught up in the crypto boom, which often looked like speculation.”

But beneath that noise, “tokenization can vastly expand the world of investable assets” and “provide the ability to settle transactions immediately,” while “replacing manual processes, bespoke settlements and documents that the rest of the financial world has failed to keep up with.”

Executives at the world’s largest asset manager warned that the technology will not immediately replace existing systems, describing it instead as “a bridge being built on both sides of a river” connecting traditional institutions with digital innovators.

A transition of several cycles

Joshua Chu, a lawyer and co-chairman of the Hong Kong Web3 Association, said Declutter that BlackRock is “probably directionally right that tokenization will be part of the ‘next generation for markets,’ but the implied timing may be too compressed in my view.”

“This is a multi-cycle transition where narrow, well-regulated use cases will expand over time, not a single-cycle revolution where everything is tokenistic next year,” Chu said. “That is simply not how innovation works.”

“Tokenization absolutely has a place in modern finance,” he said, but emphasized that it “only makes a living if it solves a real problem that a simple structure cannot,” whether by reducing settlement risk, improving collateral mobility, or opening access to previously inaccessible assets.

Growing but still emerging

Tokenized financial assets remain a piece of the global stock and bond markets. Yet they are expanding rapidly, up about 300% in the past 20 months, Fink and Goldstein noted, comparing the current situation to “the Internet in 1996,” when Amazon had sold just $16 million worth of books.

The world’s largest asset manager is already building that future with BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL), which debuted last year and has grown to $2.3 billion, making it one of the largest tokenized assets in the world, according to its website RWA.xyz data.

“We need to tokenize all assets, especially assets that have multiple levels of intermediaries,” Fink told investors during BlackRock’s third-quarter earnings call, citing real estate as a sector where technology could reduce costs and improve affordability by eliminating layers of middlemen.