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Author: Jack Inabinet, Source: Bankless, Compiler: Shaw Bitcoin Vision
In the cryptocurrency space, liquidity is crucial.
This principle applies no matter which angle you analyze the industry.Liquidity affects everything from token prices to Ethereum’s staking landscape.
Institutional-scale tokenization of real-world assets (RWA) is gaining traction last week after the Depository Trust and Clearing Corporation (DTCC), the U.S. clearing core, was approved to offer tokenization services in compliance with federal regulations.Nowadays,The cryptocurrency industry faces an unknown: how these RWAs will be distributed on-chain.
Today, we’ll look at the DTCC’s own tokenization requirements and discuss the role liquidity plays in determining cryptocurrency kingship, in an effort to better understand which blockchains have the best chance of winning in the RWA tokenization space.
DTCC requirements
In a “no-action” request letter filed with the U.S. Securities and Exchange Commission (SEC), the DTCC laid out technical requirements for key components of the tokenization system, includingUnderlying blockchain and token tracking support software.
The letter forms the basis for the SEC’s “no action” waiver and clarifiesSpecifies that any system used to perform key functions of the tokenized service must comply with DTCC’s internal “Tier 2” system requirements.
In addition, the standard also requires key system components to have the following capabilities:“Ability to operate in primary and backup locations, with a maximum recovery time target of 4 hours, data loss due to outage of up to 2 minutes, and annual cross-region disaster recovery and restart testing.”
While the DTCC has chosen to remain technology neutral—it will not mandate a specific blockchain or tokenization protocol that each tokenized RWA must use—a qualified portfolio of solutions must support compliance controls and achieve a Tier 2 system rating.
liquidity dominance
In 2024, DTCC will handle $3.8 trillion in securities transactions.It is the financial processor with the highest transaction volume in the world,Its assets under custody exceeded $100 trillion this summer.If you want to ask what is the most important key link in the global financial system, “DTCC” is undoubtedly a reliable answer.
Assuming that those with more liquidity will inevitably win again in the tokenized market, then DTCC’s nearly unlimited supply of existing assets will provide it with a lasting advantage, ensuring that it will always dominate the tokenized securities market.
Which blockchain will win?
Just as DTCC is destined to become the dominant tokenization service provider due to its sheer scale, liquidity dynamics dictate that a single blockchain and a single tokenization service will inevitably become the default choice for tokenized products supported by DTCC.
It remains to be seen which blockchain will ultimately win the RWA space, but given the technical requirements of DTCC, some candidates may have been eliminated outright.
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Solana NetworkAn outage lasting more than four hours does not meet the DTCC’s uptime requirements; Solana has had multiple outages, most recently last year.
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XRPIt is another blockchain that supports smart contracts. It is highly regarded for its hidden bank integration functions and has the unique advantage of carrying institutional-level financial services.However, it has experienced service outages; the network was most recently disrupted in February.
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AlthoughL2 networkis widely regarded asEthereumfuture directions for scalability, but they may not meet the requirements for DTCC tokenization.The current design uses a single sequencer, which is prone to failure.In addition, it is questionable whether they meet the DTCC requirement of being able to “operate” in both primary and secondary locations.
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Although part ofBitcoin related to OrdinalsUsers may support the launch of tokenized assets on Bitcoin, but the ecosystem lacks the necessary smart contract functionality to support complex financial applications and the transfer restrictions required by the DTCC.
In this environment, Ethereum is likely to become the default option.
The Ethereum network has been running continuously for over a decade, making it one of the few blockchains that can meet the DTCC uptime requirements without question.
Even so, DTCC requires its critical systems to pass “annual cross-region disaster recovery and restart testing.”So how can the Ethereum blockchain, which is designed to never go down, conduct any kind of failure recovery testing?Will high market-determined fees during peak hours constitute an unaffordable failure?
Arc of CircleMay be another solution.The chain’s permissioned proof-of-authority validators are decentralized enough to run from multiple locations and centralized enough to allow testing.
Another contender is Canton, a public blockchain created by Digital Assets, claims to be the only network able to offer configurable privacy and institutional-grade compliance.Canton claims to support over $6 trillion in real-world assets on-chain and handles $280 billion in daily transactions through its network of 500 validator nodes.
However, this does not prevent the adoption of another proprietary database technology that can run in multiple locations.There doesn’t seem to be anything preventing DTCC support eitherSome kind of government-sponsored permissioned ledger like Fedwire.
Conclusion
The tokenized market is a winner-takes-all game.
Whether DTCC tokenization ultimately opts for an existing general-purpose blockchain like Ethereum, a dedicated RWA solution like Circle’s Arc, or a yet-to-be-released Fedwire-style government ledger, a future characterized by multi-chain fragmentation seems unlikely.
Cryptocurrencies are clear on this:Liquidity is everything.No matter which chain can support the tokenization process of DTCC, it will gain a powerful influence far beyond other chains.
