BlackRock chiefs Fink, Goldstein back tokenization over SWIFT in modern finance

BlackRock’s Chief Executive, Larry Fink, and Chief Operating Officer, Rob Goldstein, have explained how tokenization beats SWIFT in transforming the finance industry. The duo claims that tokenization can modernize the infrastructure that slows down financial systems or makes them more costly.

However, the two believe that this innovation needs guardrails that clearly protect buyers to make tokenized assets transparent and safe.

Fink and Goldstein also emphasized the need for robust counterparty-risk standards to prevent the spread of shocks across platforms. They noted that digital ID verification systems also need protection from shocks to enable users to trade with the same confidence as when wiring money or swapping cards.

The BlackRock executives briefly explained the transformation of trades since 1976, when Fink supposedly started his career. Trades back then were placed over the telephone and settled in courier-delivered paper certificates.

The two then briefly touched on the introduction of SWIFT in 1977, a technology that standardized inter-bank electronic messaging and reduced transaction time from days to minutes. However, they acknowledged that trades (even across continents) now execute in milliseconds, partly due to tokenization.  

Finance enters the tokenization era

According to The Economist, Fink and Goldstein believe that finance is on the verge of its next major transformation in market infrastructure, tracing the origins of tokenization back to Satoshi Nakamoto’s introduction of Bitcoin in 2009. They also mentioned that the same blockchain technology that created Bitcoin also gave rise to tokenization. 

Tokenization records ownership on digital ledgers, allowing any type of asset to exist in a single digital record that can be verified independently. However, the duo pointed out that it was difficult for most people to grasp the big picture of “tokenization” because it was entangled in the crypto boom. 

Fink and Goldstein believe that tokenization can be used to significantly expand the investable assets beyond the bonds and stocks that currently dominate markets. They also note that it can bring two significant benefits: offering the potential to settle transactions instantly and replacing paper with code for faster and cheaper trades.

According to the duo, today’s markets handle settlement timelines differently, exposing buyers and sellers to the risk that one of the parties may fail to fulfill its obligation. They observe that tokenization standardizes instant settlement across global markets in a way that even SWIFT could not make possible.

Tokenization to face regulatory hurdles

Fink and Goldstein’s tokenization report also claimed that the journey from vision to widespread adoption is complicated and full of regulatory hurdles, among other technological challenges. However, they noted that the benefits of improved efficiency, accessibility, and liquidity remain too hard to ignore. Indeed, the “plumbing” of global markets is being redrawn, they added. 

Meanwhile, two execs emphasize that the task for regulators and policymakers is clearly to help bridge traditional finance and tokenization. They also believe that while tokenization is not expected to replace traditional finance anytime soon, it is essential for the two to interoperate rather than compete. 

Regulators should also focus on consistency, judging risks based on their inherent nature rather than how they are presented. A bond is still a bond even when it lives on a blockchain, stressed the duo.

However, both Fink and Goldstein clarify that the best approach may not necessarily be to write a completely new rulebook for tokenized assets, but rather to update existing regulations so that tokenized and traditional markets can work in tandem.   

Similar to what is happening with tokenization presently, Andrew Sorkin revisited the failures that led to the development of the modern financial system in his recount of the 1929 stock market crash. He noted that some were technological, like stock tickers falling hours behind on Black Tuesday. The stock tickers could not keep up with the trading surge. Tokenization could also turn out to be a financial system that outpaces regulatory safeguards. 

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