Last week, on RWA Tokenization:
Rebels seeking to overthrow the kingdom of traditional finance launched stablecoins; Royal House intrigue forced up the price of ducats; monktech Ondo introduced tokenized money-market funds; Don Larry led a counterrevolution; the worshippers of Number Go Up demanded numbers go up; and the wars over tokenization had begun.
[Scene: Hong Kong, satrapy of the Middle Kingdom – The Peak – Day]
[Enter Paul Chan, a baronet, with his retainers and Ambassadors of all the Royal Houses.]
Chan: Hark! I hear not the clinking coins of investors in my two digital green bonds. Pray tell me, House HSBC, why hast not thy wizard Orion brought me more merriment?
House HSBC Ambassador: Your lordship, we have tokenized your second green bond in 2024 across four currency tranches, yea, verily a marvel of our time! We raised for thy coffers 750 million ducats (Americano). Thanks to linkages with the monetary authority’s Central Moneymarket Unit, investors from around our globe may access your digital bonds via their accounts with Clearstream and Euroclear, making this truly a distribution effort most worthy of our emperor’s name!
Chan (aside): His wit’s as thick as a Tewkesbury mustard.
Ambassador: My lord, first we issued thy bonds in a traditional manner, and then our magician Orion recreated them a digital format, so as to streamline issuance. These tokens, braced by the contracts of smartness, also embed the documentation. This was truly a propitious event.
Chan: I must tell you friendly in your ear, sell when you can, you are not for all markets.
Ambassador: My lord doth protest too much! Your green bonds are in all the markets, euro, dollar, yuan! Investors great and small hold thy debentures!
Chan: But there lacketh secondary market liquidity. None trade my bonds. If they trade not, then new issues they shall buy not. A pox on all you Houses! We shall return to the traditional means of issuing bonds so that our fief becomes a hub of green finance, the greenest in the realm, and into thine valleys of blockchain folly we essay no more.
[Chan exits stage left. End scene.]
What the Royal Houses want
Yes, Season 2 of RWA Tokenization begins on an ominous note. The Royal Houses have seen the mass demand for tokens, notably that Philosopher’s Stone, Bitcoin, whose alchemy the Royal Houses have failed to perfect. Yet they have also discovered properties tokens that please them.
Indeed, although an invention of shadowy rebels, blockchain rails offer features that the aristos fancy. If they could move more of their own palace servants to operate around the clock, transact and settle instantly, provide an immutable audit, and use smart contracts to make money more than just a ducat but a ducat that can be programmed…
Now they can envisage a world in which money turbocharges through their veins. Money creation and new products go hand in glove. Counterparty risk is banished – your code, your keys. True, the masses may no longer wish to place their hard-earned ducats in the Houses’ coffers, but the explosion in payments and capital markets transactions will more than compensate.
In short, the Houses see what the rebels have wrought, and they want to get in the game – on their terms. If that means partnering with rebel groups, so be it! They create their own tokenization platforms, but not those unruly ones favored by the masses, certainly not those strange networks where the mad acolytes of the cult of Number Go Up practice exchange without intermediaries. No, the Houses will create their own private networks, just like the private channels that operate in real life, and they will tokenize assets there for their friends and confidants.
In their excitement, the Houses have even convinced some monarchs to enter into this new world. The monarchs have been perplexed by these newfangled ways of finance. But they are getting with the program. Dukes are wearing Patagonia fleece vests and marquises are dallying in hip-hop videos. And so in Hong Kong the local aristocracy authorized the Houses to distribute government bonds in tokenized form.
Utility, schmitility
While all concerned declare this a success, there’s the problem that these bonds don’t trade. There’s no secondary market. In fact, that’s true for all the digital bonds created by the Royal Houses. Of course, the houses could trade these instruments among themselves…ha ha, just kidding! No house would dare sully itself by touching the blockchain of a rival house.
So they look on at the growing horde of peasants mesmerized by the priests of Number Go Up. They realize it is the nature of those networks, more magical and mysterious than what the Orion wizard can understand, that excites the crowd. Even as more and more people suffer losses, see their little copper pieces sucked into the black maw of crypto, their frenzy only increases.
The problem the Houses have is that they are also true believers, in their own way. They may not worship the cult of Number Go Up, and they continue to treat warily with rebels looking to overthrow the regime. But the Houses know that there is utility in tokenizing assets. There’s utility, but is there demand?
There is not. The masses don’t give a fig about utility. They are very clear on this point. So when the prices of ducats eased off, the masses lost interest in tokenized money-market funds. Yet more Houses continue to launch them: the great latifundi of Blackrock, Franklin Templeton and Wellington create products to be tokenized for the masses, trading on public, permissionless networks, but they offer 4 percent yields. Booooring.
It’s the same with institutional investors who come from the aristocracy. They are also not particularly interested in utility. And they can already get the risk and return profiles in traditional capital markets.
The tiniest violin
There is also little demand from issuers. The RWA rebels talk about unlocking liquidity from real estate, ships, infrastructure, or cases of wine. One rebel leader, Yat Siu, bought a 316-year old Stradivarius violin with money borrowed from another rebel, Mike Novogratz, for $9 million and tokenized it. You too can own a fraction of this treasure, effectively subsidizing Yat Siu’s ability to turn the violin into collateral. Value unlocked! But you don’t get to keep the violin. Perhaps if you visit Yat Siu’s house, he’ll let you touch it.
It’s hard to see how professional investors would pour money into such intangibles, although some of the more aggressive might speculate in the tokens. The masses who worship Number Go Up might be tempted. But so far owners of buildings and ships and such have not shown an inclination to sell into these new markets when they can perfectly sell into traditional ones. Utility! cry the tokenites. But for investors great and small, utility doesn’t seem to be very compelling.
The mystery of demand is what really keeps digital assets from trading. So far the Royal Houses have only sold these products into their private clubs, and their friends have bought in for the novelty. Until the aristos open the clubs to a broader membership, RWA will be DOA.
Episode 2 ends on another cliffhanger, as the Royal Houses look to the world of the sullied masses and their strange speculative manias to salvage their usurpation of the RWA revolution. Is this the solution, jettisoning the trappings of royalty and diving into the mosh pit of decentralized crypto? Maybe, maybe…but that brings its own dangers.
Stay tuned for Episode 3!
