🟪 Larry Fink Loves Tokens Now

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Larry Fink Loves Tokens Now

The Bitcoin ETFs are now live, which means we can begin looking for our next narrative.

I’ve noticed that narrative rotation is something crypto people think is unique to our space, but it certainly is not.

TradFi wrote the playbook on narratives and, to quote the Architect of The Matrix, they have become exceedingly efficient at utilizing them to great effect.

Perhaps no one understands this better than the head of the largest asset manager on the planet, Larry Fink.

Now that the Bitcoin ETFs are launched, my guess is that you won’t hear him talk much more about Bitcoin.

Larry Fink’s job is to find the next idea that will help him onboard $1 trillion of assets onto the mothership that is BlackRock.

To a lesser extent that will be an Ether ETF, but it feels like he has identified what he believes is the mack daddy of all narratives: tokenization.

Tokenize the World

In the last several weeks, Larry Fink has been on an interview tour, preaching the values of tokenization to the recently converted.

Here is a link to my personal favorite interview, which I’ve quoted below.

“These [ETFs] are just stepping stones towards tokenization.

And I really do believe this is where we are going to be going, we have the technology to tokenize today.

If you have a tokenized a security and you have a tokenized identity, the moment you buy or sell an instrument it is known, it’s on a general ledger that is all created together.

If you want to talk about issues around money laundering and all that, this eliminates all corruption by having a tokenized system.”

Take a look at that last sentence. Larry Fink got on national TV and said that tokenization eliminates all corruption.

Now that’s how you sell a narrative, baby! Who wants to waste their time peddling digital gold when instead you could sell the idea of ending a biblical sin.

To be fair, selling the idea of ending human corruption is only the second most audacious narrative I’ve seen wheeled out this year.

The first prize belongs to Sam Altman, who claimed that he was inventing god.

Now that’s how you define TAM — VCs take note!

The idea of tokenizing isn’t new. Some folks reading this email might be interested to know that it’s a 2018 vintage narrative that never really took off. 

Here’s a link to the full article from Pomp, which I think holds up well, although the idea has shifted a bit from raising capital to moving existing “real world” assets onchain.

So if tokenizing the world isn’t a new idea, and it’s failed to take off in the past, what makes today any different?

The Larry Fink Difference

The Finkerance (ha ha) between today and 2018 is that we didn’t have the head of the largest asset manager in the world selling the idea of tokenization.

It’s analogous to Paul Tudor Jones publicly proclaiming bitcoin the “fastest horse” back in 2020, which led to a wave of macro investors buying it that never would have otherwise.

Larry Fink as the head of the largest, most regulated pool of assets in the world is a far more meaningful endorsement, both in terms of credibility but also in terms of resources.

The concept of career risk around touching bitcoin is dead. RIP.

Now that we have ETFs, advisors can onboard clients to bitcoin without the risk of lowering their fee.

Hedge funds and public market investors can easily trade in and out of direct bitcoin exposure, as opposed to using proxies like MicroStrategy.

And now that Larry Fink has publicly blessed tokenization, a whole new wave of MDs at banks and large asset managers can begin the process of migrating TradFi assets onto crypto rails.

Finally, Larry Fink is catching all the headlines, but it’s worth shouting out Abby Johnson and Jenny Johnson of Fidelity and Franklin Templeton, respectively.

They have also been extremely vocal proponents of bitcoin and other digital assets and have meaningfully moved the needle on crypto adoption.

Final Musings on Tokenization

There are lots of open questions that remain as to the timeline, method and overall end state of what a tokenized world might look like.

One question that many people are going to begin asking very soon is, where do these tokenized assets live?

My guess at least to start is behind secret door number three, which is BlackRock Chain.

You could imagine a construction very similar to Circle and USDC, where BlackRock constructs a money market-like fund of offchain securities (assets) but where its yield bearing liabilities can be traded easily onchain.

There are a lot of reasons for this, but it’ll ultimately come down to regulatory reasons (KYC) and control for BlackRock.

Unlike new startups that rollups have been designed for, BlackRock doesn’t need Ethereum’s security or help to bootstrap a network of validators.

(Side note: this won’t be relevant only for BlackRock. The economics of rollups create a compelling value proposition primarily for startups, but not for large corporates or successful products that have distribution.)

Most folks in crypto don’t like this idea.

Crypto is supposed to be permissionless, and adding in new elements like KYC feel like a step back.

And so many crypto natives worry that the end state for crypto market structure will be what TradFi is today: siloed, permissioned pools of KYCFi.

Because after all, who doesn’t trust BlackRock or Circle? 

Personally, I am not worried because it’s not the end state that I see for crypto.

Yes, it will be far more complex than some of the maxis would have you believe. Everything is not going to exist solely on Bitcoin or Ethereum rails.

There will be institutions that are only allowed to interact with entities that they have KYC’d, and like it or not, BlackRock will have a stake in crypto’s future from here on out.

But the benefit of crypto has always been that the technology is better than what exists today.

Crypto has succeeded as a bootstrapped, global financial system from day one because it provides strong cryptographic assurances to its users.

This stands in stark contrast to the TradFi financial system, which is siloed and relies on local legal assurances to function.

That is way, way worse! Because, as we’ve seen in 2023, most of the world doesn’t trust each other.

If you’re reading this thinking, “yeah ok, but everyone trusts the US,” then I’m going to assume you’re American because that is a very US centric opinion.

How much do you think China trusts the US right now? Or Russia, after we confiscated their central bank assets.

Crypto as a financial system is not only a massive upgrade to the underlying core tech (RIP Excel spreadsheets), but it also ensures ownership through cryptography instead of law, which is a massive improvement.

And so yes, BlackRock entering the fray is in some ways bittersweet because it’s the end of the beginning for crypto.

The industry may need to compromise on some of its hard line stances, but it will be worth it because we’ll end up with is a financial system that is two orders of magnitude better than what we have today.

In the long run, though, my belief is that crypto will end up impacting TradFi more than the other way around.

Human history shows that the wheels of change are driven from advances in technology, which eventually — and after a great deal of resistance — shapes policy.

So to both crypto natives and TradFi incumbents reading this mourning the death of what made crypto special, I would suggest a more optimistic perspective.

Today is likely the day that the values and improved tech of crypto start to truly make their way onto the global stage.

To end, here is a quote from author, futurist and historian, Isaac Asimov.

― Mippo

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