Public blockchains too ‘fragile’ for tokenization: Professor tells Congress

A financial law professor told Congress in a speech on Wednesday that public blockchains are too “fragile” to tokenize trillions of dollars in real-world assets as they’re highly inefficient and can’t handle large transaction volumes.

“Crypto runs on permissionless public blockchains, and tokenization does not need to,” claimed Hilary Allen, professor at the American University Washington College of Law, in a speech to the United States House Financial Services Committee (HFSC) on June 5.

Allen was one of several industry leaders who was invited to speak about the impact that tokenized RWAs can have on financial markets — where she argued that public blockchains aren’t a suitable enough infrastructure:

“Blockchains suffer from inescapable inefficiencies and operational fragilities that make them unsuitable as supporting infrastructure for real-world assets.”

Allen said she thought blockchain would be a “revolutionary” technology upon discovering it a decade ago before she eventually started learning from independent technologists how “limited and problematic” the infrastructure is.

“Permissionless public blockchains are a poor fit for the vast majority of problems people have tried to make it solve,” the self-described “pessimistic financial futurist” said.

Allen speaking to the HFSC on June 4. Source: HFSC

Allen claimed that public blockchains “can’t process large volumes of transactions.”

However, there have been countless transfers above $1 billion on Bitcoin and Ethereum.

For example, a Bitcoin whale transferred $6 billion to a new address in a single transfer in March.

Allen claimed other ledgers and databases may be more suitable for tokenization but didn’t make a case for any specific technology.

“We should be very thoughtful about where tokenization is deployed,” Allen concluded.

Related: Tokenized asset market could hit $16T on public blockchains — RippleX VP

Allen’s comments contradict those of BlackRock CEO Larry Fink, who believes every stock and bond will eventually be tokenized on a blockchain.

BlackRock notably tokenized its BlackRock USD Institutional Digital Liquidity Fund on Ethereum in March. According to analysts at 21Shares, the fund has already amassed $462 million in assets.

Today, over $1.53 billion in U.S. treasurys have been tokenized on the blockchain.

In March 2023, investment bank Citi estimated between $4 trillion to $5 trillion of RWAs will be tokenized on blockchains by 2030.

However, Citi acknowledged that there remain challenges with building the infrastructure and obtaining a widely followed set of interoperability standards.

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