‘Please be careful.' There are risks and rewards as crypto heavyweights push tokenization
'Tokenization is going to open the door to a massive trading revolution,' said Vlad Tenev, the CEO of the trading platform Robinhood at a recent James Bond-themed tokenization launch event in the south of France.
Advocates say tokenization is the next leap forward in crypto and can help break down walls that have advantaged the wealthy and make trading cheaper, more transparent and more accessible for everyday investors.
But critics say tokenization threatens to undermine a century's worth of securities law and investor protections that have made the U.S. financial system the envy of the world. And Robinhood's push into tokenizing shares of private companies quickly faced pushback from one of the world's most popular startups.
What is tokenization?
The basic idea behind tokenization: Use blockchain technology that powers cryptocurrencies to create digital tokens as stand-ins for things like bonds, real estate or even fractional ownership of a piece of art and that can be traded like crypto by virtually anyone, anywhere at any time.
The massive growth of stablecoins, which are a type of cryptocurrency typically bought and sold for $1, has helped fuel the appetite to tokenize other financial assets, crypto venture capitalist Katie Haun said on a recent podcast.
She said tokenization will upend investing in ways similar to how streamers radically changed how people watch television.
'You used to have to sit there on a Thursday night and watch Seinfeld,' Haun said. 'You tune in at a specific time, you don't get to choose your program, you couldn't be watching a program like Squid Games from Korea. Netflix was market-expanding. In the same way, I think the tokenization of real-world assets will be market expanding.'
Growing momentum
Robinhood began offering tokenized stock trading of major U.S. public companies for its European customers earlier this month and gave away tokens to some customers meant to represent shares in OpenAI and SpaceX, two highly valued private companies.
Several other firms are diving in. Crypto exchange Kraken also allows customers outside the U.S. to trade tokenized stocks while Coinbase has petitioned regulators to open the market to its U.S. customers. Wall Street giants BlackRock and Franklin Templeton currently offer tokenized money market funds. McKinsey projects that tokenized assets could reach $2 trillion by 2030.
Crypto's golden age
The push for tokenization comes at a heady time in crypto, an industry that's seen enormous growth from the creation and early development of bitcoin more than 15 years ago by libertarian-leaning computer enthusiasts to a growing acceptance in mainstream finance.
The world's most popular cryptocurrency is now regularly setting all-time highs — more than $123,000 on Monday — while other forms of crypto like stablecoins are exploding in use and the Trump administration has pledged to usher in what's been called the 'golden age' for digital assets.
Lee Reiners, a lecturing fellow at Duke University, said the biggest winners in the push for tokenization could be a small handful of exchanges like Robinhood that see their trading volumes and influence spike.
'Which is kind of ironic given the origins of crypto, which was to bypass intermediaries,' Reiners said.
Trump bump
Interest in tokenization has also gotten a boost thanks to the election of President Donald Trump, who has made enacting more crypto-friendly regulations a top priority of his administration and signed a new law regulating stablecoins on Friday.
'Tokenization is an innovation and we at the SEC should be focused on how do we advance innovation at the marketplace,' said Securities and Exchange Commission Chairman Paul Atkins.
Is it legal?
Securities law can be complex and even defining what is a security can be a hotly debated question, particularly in crypto. The crypto exchange Binance pulled back offerings of tokenized securities in 2021 after German regulators raised questions about potential violations of that country's securities law.
Under Trump, the SEC has taken a much less expansive view than the previous administration and dropped or paused litigation against crypto companies that the agency had previously accused of violating securities law.
Hilary Allen, a professor at the American University Washington College of Law, said crypto companies have been emboldened by Trump's victory to be more aggressive in pushing what they can offer.
'The most pressing risk is (tokenization) being used as a regulatory arbitrage play as a way of getting around the rules,' she said.
However, the SEC has struck a cautionary tone when it comes to tokens. Shortly after Robinhood's announcement, SEC Commissioner Hester Peirce, who has been an outspoken crypto supporter, issued a statement saying companies issuing tokenized stock should consider 'their disclosure obligations' under federal law.
'As powerful as blockchain technology is, it does not have magical abilities to transform the nature of the underlying asset,' Peirce said.
All eyes on private companies
One of the most closely watched areas of tokenization involves private companies, which aren't subject to strict financial reporting requirements like publicly traded ones.
Many hot startups are not going public as often as they used to and instead are increasingly relying on wealthy and institutional investors to raise large sums of money and stay private.
That's unfair to the little guy, say advocates of tokenization.
'These are massive wealth generators for a very small group of rich, well-connected insiders who get access to these deals early,' said Robinhood executive Johann Kerbrat. 'Crypto has the power to solve this inequality.'
'Please be careful'
But Robinhood's giveaway of tokens meant to represent an investment in OpenAI immediately drew pushback from the company itself, which said it was not involved in Robinhood's plan and did not endorse it.
'Any transfer of OpenAI equity requires our approval—we did not approve any transfer,' OpenAI said on social media. 'Please be careful.'
Public companies have strict public reporting requirements about their financial health that private companies don't have to produce. Such reporting requirements have helped protect investors and give a legitimacy to the U.S. financial system, said Allen, who said the push for tokenized sales of shares in private companies is 'eerily familiar' to how things played out before the creation of the SEC nearly a century ago.
'Where we're headed is where we were in the 1920s,' she said. 'Door-to-door salesmen offering stocks and bonds, half of it had nothing behind it, people losing their life savings betting on stuff they didn't understand.'
Alan Suderman, The Associated Press
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CTV News
an hour ago
- CTV News
Big Tech may be breaking the bank for AI, but investors love it
People are reflected in a window with the message 'Let's get real about AI' in a hotel at the Davos Promenade in Davos, Switzerland, Jan. 15, 2024. (AP Photo/Markus Schreiber, File) Big Tech is spending more than ever on artificial intelligence - but the returns are rising too, and investors are buying in. AI played a bigger role in driving demand across internet search, digital advertising and cloud computing in the April-June quarter, powering revenue growth at technology giants Microsoft, Meta, and Alphabet. Betting that momentum will sustain, Microsoft and Alphabet decided to ramp up spending to ease capacity shortages that have limited their ability to meet soaring AI services demand, even after several quarters of multi-billion-dollar outlays. The results offer the clearest sign yet that AI is emerging as a primary growth engine, although the monetization journey is still in its early days, investors and analysts said. The upbeat commentary also bodes well for the largest U.S. cloud provider, which will report earnings on Thursday after markets close, and underscores how surging demand for the new technology is shielding the tech giants from tariff-driven economic uncertainty hobbling other sectors. 'As companies like Alphabet and Meta race to deliver on the promise of AI, capital expenditures are shockingly high and will remain elevated for the foreseeable future,' said Debra Aho Williamson, founder and chief analyst at Sonata Insights. But if their core businesses remain strong, 'it will buy them more time with investors and provide confidence that the billions being spent on infrastructure, talent and other tech-related expenses will be worthwhile,' she added. Microsoft shares rose more than six per cent on Thursday, with the Windows maker crossing US$4 trillion in market value - a milestone only chip giant Nvidia had reached before it. Meta was up even more, rising 12.2 per cent to a record high and on course to add around US$200 billion to its market value of about US$1.75 trillion. Amazon gained about one per cent. All the companies have faced intense scrutiny from investors over their ballooning capital expenditures, which were expected to total US$330 billion this year before the latest earnings. And until a few days ago, the Magnificent Seven stocks were also trailing the S&P 500 in year-to-date performance. Silencing doubts Microsoft said on Wednesday it would spend a record US$30 billion in the current quarter, after better-than-expected sales and an above-estimate forecast for its Azure cloud computing business showcased the growing returns on its massive AI bets. The prediction puts Microsoft on track to potentially outspend its rivals over the next year. It came after Google-parent Alphabet beat revenue expectations and raised its spending forecast by US$10 billion to US$85 billion for the year. Microsoft also disclosed for the first time the dollar figure for Azure sales and the number of users for its Copilot AI tools, whose adoption has long been a concern for investors. It said Azure generated more than US$75 billion in sales in its last fiscal year, while Copilot tools had over 100 million users. Overall, around 800 million customers use AI tools peppered across Microsoft's sprawling software empire. 'It's the kind of result that quickly silences any doubts about cloud or AI demand,' said Josh Gilbert, market analyst at eToro. 'Microsoft is more than justifying its spending.' Other AI companies have also attracted a clutch of users. Alphabet said last week its Gemini AI assistant app has more than 450 million monthly active users. OpenAI's ChatGPT, the application credited with kicking off the generative AI frenzy, has around 500 million weekly active users. Meta, meanwhile, raised the bottom end of its annual capital expenditure forecast by US$2 billion, to a range of between US$66 billion and US$72 billion. It also said that costs driven by its efforts to catch up in Silicon Valley's intensifying AI race would push 2026 expense growth rate above 2025's pace. Better-than-expected sales growth in the April-June period and an above-estimate revenue forecast for the current quarter, however, assured investors that strength in the social media giant's core advertising business can support the massive outlays. 'The big boys are back,' said Brian Mulberry, portfolio manager at Zacks Investment Management, which holds shares in all three major U.S. cloud providers. 'This simply proves the Magnificent Seven is still magnificent at this moment in time.' --- Reporting by Aditya Soni and Deborah Sophia in Bengaluru, Echo Wang in New York; Editing by Muralikumar Anantharaman
CTV News
an hour ago
- CTV News
Moderna plans to lay off 10% of workforce to cut costs
In this file photo dated Wednesday, Feb. 17, 2021, three vials of the Moderna COVID-19 Vaccine are pictured in a new coronavirus vaccination centre in Berlin, Germany. (AP Photo/Michael Sohn, File) Moderna said on Thursday it would trim roughly 10 per cent of its global workforce and have fewer than 5,000 employees by the end of the year, as the biotech accelerates its cost-cutting efforts amid declining sales of COVID-19 vaccines. The move, announced in an internal memo by CEO Stephane Bancel, is part of the company's previous plan to cut operating expenses by about US$1.5 billion by 2027. 'We've made significant progress by scaling down R&D as respiratory trials conclude, renegotiating supplier agreements, and reducing manufacturing costs,' Bancel said in the memo. Moderna had said earlier this year it expects operating costs to be between US$4.7 billion and US$5 billion for 2027. The Cambridge, Massachusetts-based biotech has been banking on revenue from newer mRNA shots, including its experimental COVID-flu combination vaccine, to make up for falling sales of its COVID-19 shot and less-than-expected uptake of its respiratory syncytial virus vaccine. But investor concerns about the prospects of new shots and the changes in vaccine policy under U.S. Health Secretary and vaccine skeptic Robert F. Kennedy Jr. have led to a more than 20 per cent decline in Moderna's shares this year. The stock, which has lost more than 90 per cent of its value since the pandemic-era highs, was trading about four per cent down on Thursday. Moderna had said in May it did not expect regulatory approval for its combination shot until 2026, since the U.S. Food and Drug Administration asked for late-stage data showing the vaccine's efficacy against the flu. The company had previously hoped to launch the vaccine for the autumn respiratory disease season in 2025 or 2026. Bancel in the memo reiterated the company's target to have eight more approvals for its products in the next three years. --- Reporting by Bhanvi Satija in Bengaluru; Editing by Shilpi Majumdar
Globe and Mail
an hour ago
- Globe and Mail
European Union assumes its faces 15% tariffs in the US from Friday. But a key text still isn't ready
BRUSSELS (AP) — The European Union is working on the assumption that the United States will impose a 15% tariff on most EU exports from Friday, even though the two sides have yet to complete a key document clarifying how the agreement will operate. Last weekend, U.S. President Donald Trump and European Commission President Ursula von der Leyen reached a political agreement that would see 15% duties imposed on around two-thirds of EU produce, worth around 380 billion euros ($434 billion). The tariffs are set to enter force on Friday, but as of Thursday the two sides were still working on a joint statement that would lay out the terms of their understanding, European Commission spokesman Olof Gill said. The document wouldn't be legally binding. 'It is the clear understanding of the European Union that the U.S. will implement the agreed across the board tariff ceiling of 15%,' Gill said. The commission negotiates trade terms on behalf of the the EU's 27 member countries. Carve outs were agreed for a range of 'strategic' goods like aircraft and aircraft parts, certain chemicals, some drug generics or natural resources. Gill said that 'it is also our clear understanding that the U.S. will implement the exemptions to the 15% ceiling.' 'The U.S. has made these commitments. Now it's up to the U.S. to implement them. The ball is in their court,' Gill said. European wine and spirits won't escape the 15% levy on Friday, but may do later as negotiations on additional exemptions to the new tariff regime continue, he said. Before Sunday's meeting, Trump had threatened the bloc with 30% tariffs, which the EU's top trade official said would effectively mean the end of trade between them. Over the last three months, the commission drew up retaliatory measures worth tens of billions of euros to enact should the talks fail. Those countermeasures are due to take effect on Aug. 7, but Gill said that 'if everything goes as expected,' they would be frozen. 'If we have reached a deal, we don't need the retaliatory tariffs,' he said.
