Tokenization could unleash billions in trapped capital

Tokenization could free up tens of billions of dollars in capital tied up in assets used as collateral across the global financial system, Nasdaq CEO Adena Friedman said.

Tokenizing assets such as Treasurys, equities and money market funds, along with the flow of money, could make collateral more liquid, Friedman told CNBC’s Joanna Ossinger, managing editor and head of APAC Digital News, at the TOKEN2049 conference in Singapore.

“If you tokenize all those instruments along with the flow of money, then the collateral becomes very fluid,” Friedman said.

Tokenization involves representing financial assets, such as stocks and bonds, as digital tokens that can be transferred using blockchain technology.

Friedman said institutional interest in tokenization has grown over the past year, pointing in part to the passage of the Genius Act in the U.S., which established a regulatory framework for stablecoins.

“If we can tokenize money, then we can tokenize the flow of capital,” she said.

That growing institutional interest is converging with demand from retail investors, who have long sought the ability to trade around the clock, according to Friedman. The retail ecosystem “has been about 10 years ahead,” she said.

Moving to a fully 24/7 market would be a major undertaking for the financial industry, Friedman said.

“The easiest part is the exchange infrastructure,” she said.

Friedman said that financial institutions have traditionally had periods when markets are closed to update systems and manage risk. But operating around the clock would require those processes, including risk and collateral management, to take place continuously.

“Everything has to be real time all the time,” she said.

Artificial intelligence could help financial institutions manage that transition. Nasdaq has launched a series of digital agents within its risk management platform that initially provide recommendations, Friedman said.

Over time, banks could use those agents to take more direct action, she added.

“AI is critical for 24/7,” Friedman said.

Companies outside the U.S. are showing interest in tokenization and access to American capital markets, Arjun Sethi, co-CEO of cryptocurrency exchange Kraken, told CNBC.

Sethi pointed to a company generating roughly $25 million in revenue that was exploring ways to access capital markets, as well as larger international companies interested in tokenization and U.S. public listings.

He said tokenization could help expand access to capital markets for companies around the world.

However, round-the-clock trading may not be suitable for everything, according to Friedman.

“Not every asset is liquid enough to support a 24/7 environment,” she said. 

Still, greater connectivity across the global financial system could also open up access to asset classes that were previously out of reach for some investors, Friedman said.