With Paul Atkins as US Securities and Exchange Commission chairman, the path “towards the tokenization of the financial system” is now clear, according to Sergey Nazarov, co-founder of Chainlink Labs.
Speaking to Cointelegraph, Nazarov said it won’t be easy because it comes with a slew of separate challenges with regard to tokenizing data, cross-chain connectivity, compliance and many other areas. But if and when it happens, the consequences could be huge.
Consider only that the market capitalization of all the cryptocurrencies in the world is now about $4 trillion. If traditional financial assets were tokenized and brought onchain, that could boost market cap tenfold or more, he said.
“What people don’t fully appreciate about TradFi [traditional finance] is its sheer scale,” said Nazarov.
Trump ushered in tokenization change
The global asset management industry soared to a record-breaking $128 trillion in assets under management (AUM) in 2024, up 12% from the previous year, according to a recent report from Boston Consulting Group. A good portion of those assets is controlled by institutional investors, including insurance companies, pension funds, sovereign wealth funds, endowments and family offices.
Now look at the crypto sector. Its $4-trillion market cap is powered mostly by retail investors, noted Nazarov. “How much more retail demand is there? Maybe [we reach] $8 trillion, maybe $10 trillion, but not $50 trillion. To get to $50 trillion, you need TradFi.”
Before US President Donald Trump took office at the start of 2025, US regulators warned institutional investors to stay clear of crypto. “Don’t touch this stuff; it’s illegal,” they said, Nazarov recounted. “But now regulators are saying, ‘Not only is it not illegal, we want you to do it.’” So, the movement of significant amounts of TradFi assets onchain seems inevitable — “as long as the macroeconomy doesn’t crater.”
A “cratering” could be caused by an economy moving from a “risk-on” to a “risk-off” investing environment. It need not necessarily be a major perturbation (e.g., an economic depression) to tilt to “risk-off” — a mild recession could make this happen.
“All these new tokenized assets need an active market where people want to try new things, trade and deploy capital into new instruments,” Nazarov acknowledged.
Still, even with a downturn, tokenization will happen eventually — just not as fast. “Right now, the conditions are positive: Interest rates are expected to be cut, and the SEC chairman is making speeches about how everything will be tokenized. I can’t imagine a more positive scenario.”
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When Trump was running for office again back in 2024, he said he would be the “crypto president.” So far, he has delivered, in Nazarov’s view.
“We were already having meetings with the SEC early in the year,” he recalled. He met with SEC Commissioner Hester Peirce, appointed in Trump’s first term, as did his team. “I’d say she already had a green light to start doing things early in the year.” This was even before the US Senate confirmed Atkins on April 9.
“So, a lot of work was already underway, and then it became more public once it was clear who the chairman would be. At that point, risk and doubt were removed from the equation.”
In May, Cointelegraph reported that tokenization is having its breakout moment. Firms like BlackRock, Libre and MultiBank made billion-dollar tokenization moves, “signaling the shift from theory to execution.”
The growing complexity of blockchain “oracles”
Parallel to, and sometimes working in tandem with, the tokenization process is the evolution of blockchain oracles, which is Chainlink’s primary business.
Oracles are entities that connect blockchains to external systems. A “pull-based oracle,” for example, retrieves data from the real world (i.e., offchain) and delivers it to a blockchain network where it can be used in smart contracts. This information could be as simple as the price of a stock or a cryptocurrency at a certain time of day.
Less common and more complex are “push-based oracles,” which allow smart contracts to deliver commands to offchain systems that trigger them to execute certain actions. One example is an oracle that “pings” an Internet of Things system to unlock a car door (i.e., something real-world) after a rental payment has been confirmed on a blockchain.
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Chainlink is the world’s largest provider of oracles. It has more than 1,000 spread over roughly 15 broad categories, including oracles for data, cross-chain connectivity, compliance, identity and risk management. Some projects now involve multiple oracles.
One actual use case (see chart below), for example, uses three different oracles — one to write valuation data into a contract, one to synchronize that contract across another chain, and a third to synchronize the data back to an institution’s accounting system.
The third oracle in the example is a compliance oracle. It provides automatic identity services, including Know Your Customer and Anti-Money Laundering verification, which is important for institutional investors. The other oracles in the example were used to move data across blockchains, in this instance from a private blockchain owned by Australia and New Zealand (ANZ) Banking Group to an Ethereum Sepolia chain. The transaction was between two TradFi giants — ANZ and Fidelity International — with support from the Hong Kong Monetary Authority, a central bank.
Another example (see below) involved moving tokenized Hong Kong dollars from a private chain to a public chain and into a tokenized fund. TradFi giant UBS was the asset manager in this case, SBI Digital Markets was the fund distributor and custodian, and funds were moved via Chainlink’s oracle network from the Arbitrum blockchain to the Ethereum blockchain.
No longer just Singapore, Hong Kong and Dubai
Nazarov noted that the two use cases provided above involved the Hong Kong Monetary Authority and the Monetary Authority of Singapore, respectively. Last year, those two jurisdictions, along with Dubai, “were the only places where such things were possible. Now we’re doing them in the US, too, with regulators involved.”
Nazarov expects some large US tokenization projects to go into production this year, but “next year, you’ll see a race, and by the year after, we’ll have meaningful volumes.”
One should see at least $1 trillion in new tokenized-asset flows within two to three years, and “probably multiple trillions,” added Nazarov. “At that point, tokenization will be such a large portion of the crypto industry that it will redefine what the industry is.”
He applauds Atkins and the current administration for its forward-looking thinking, which is pro-crypto as well as pro-tokenization. “That’s important because crypto is what the industry is today, but tokenization is where it’s going next,” he told Cointelegraph.
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