General Q&A

Q: Are public blockchains well suited for RWA Tokenization?

A: Not yet.  Although decentralization is valuable, RWA tokenization prioritizes regulatory compliance, investor account identity, financial privacy and transactional efficiency over anonymous, fully transparent decentralization.  Currently, public blockchain advantages  often run counter to demands made by institutional finance and financial regulators who expect a compliant, private, low-friction platform when tokenizing and trading RWA.  Fully decentralized public blockchains are the eventual final destination for tokenized assets, but only after significant regulatory and technical hurdles are addressed:
 

• Until all decentralized cryptocurrency regulations are formalized by regulators in major financial jurisdictions, public blockchains cannot obtain required financial licensure, nor can they operate under required regulatory oversight, which prevents public blockchains from currently tokenizing and trading securities
   

• Public blockchains lack issuer and investor identity infrastructure required by regulators to enforce asset issuance and trading compliance rules, including mandatory Know Your Customer (KYC), automated Anti-Money Laundering (AML) capabilities and mandatory regulatory filings for issuers and accredited investors
   

• ​Public blockchains are inherently transparent which creates unacceptable privacy risk for traditional financial institutions and investors, who expect privacy for their business transactions, including investor identities, asset valuations, portfolios, investment patterns and history
   

• ​Public blockchains often face scalability limitations during frequent busy periods, resulting in high transaction (gas) fees, high network congestion and longer, unacceptable finalization delay for financial transactions
   

• Public blockchains maintain absolute immutability and lack the ability to automatically rollback transactions as required by regulators whenever fraud or abuse is detected
   

• Public blockchain complexity brings unacceptably high friction for both RWA issuers and investors.  Blockchain details must be eliminated from both issuer and investor user experiences.  No matter whether public or private blockchain, a properly designed low-friction Web3 financial ecosystem must be designed for real-world issuers and investors who own 99% of the capital in this world; they expect account/wallet key management, custody and all other blockchain details to be handled behind the scenes for them. They don't need to, don't want to and will expect not to deal with blockchain details.  Moreover, properly designed RWA infrastructure must be able to interact with multiple blockchains, and must be capable of replacing whatever blockchain implementation is currently used for another without disrupting operations: Users should be totally unaware of such transitions.  Traditional users have zero idea, zero ability to understand how the blockchain that's supporting their investment activity actually works. Why should they? They have no conception how their current, traditional financial system operates in batches overnight on mainframes and in the cloud during daytime trading.  How could they ever understand the blockchain complexities that are replacing the current financial system?  Why should they ever have to?  Users will continue to demand seamless, frictionless access to their investments regardless of supporting technical infrastructure.