Blockchain Capital Partner: Tokenization Will Reshape the Underlying Structure of Capital Markets

Author: Aleks Larsen, Partner at Blockchain Capital

Compiled by: Jiahua, ChainCatcher

The financial industry has long faced a costly "packaging" problem.

Each type of asset has different recording and management methods, existing in fragmented systems: a mortgage consists of contracts, PDF files, databases, and post-loan management relationships; an equity in a private equity fund may just be a line in a subscription agreement and transfer agent form; ownership of a stock is scattered across a series of records held by brokers, custodians, and securities depositories.

When assets are transferred from one institution to another, it often requires dismantling the original records, followed by verification and reconciliation, and finally re-registering according to the receiving party's rules. Many operational processes exist simply because different institutions record the same underlying asset or rights in different ways.

This fragmentation has created significant hidden costs globally. Various asset balance sheets record nearly $180 trillion in assets, a large portion of which cannot freely circulate between institutions unless specially designed operational processes are created for them. These frictions slow down the speed at which capital can be redirected to new enterprises, infrastructure, housing, and other productive uses.

Tokenization fundamentally addresses this issue. Tokens provide a standardized, machine-readable interface for assets or financial rights. When assets can be identified and utilized within a shared network, trading platforms, lending institutions, custodians, asset service providers, and software applications can interact with them directly, without needing to rebuild a financial infrastructure each time.

This allows capital markets the opportunity to be built on a universal, programmable underlying network, enabling smoother circulation, settlement, and utilization of assets.

To understand how tokenization will change the world, the best analogy is containerization.

Containerization Gave Rise to the Modern Global Supply Chain

Before the 1960s, goods were transported in various forms. Coffee was packed in burlap sacks, machinery in wooden crates, cotton was bundled, and oil was stored in barrels. Each type of commodity had different loading and unloading requirements, so every ship had to rely on manual labor for these tasks.

Skilled dockworkers developed a whole set of techniques around this work. They needed to place goods as closely as possible, balance weights, and secure the cargo to prevent movement and damage at sea. The necessity of this craftsmanship stemmed from the lack of a unified shipping packaging standard at the time.

As a result, cargo ships often spent more time in port than at sea. Bulk goods required repeated loading and unloading and counting as they were transferred between ships, trains, trucks, and warehouses, making them more susceptible to damage, loss, or theft.

In 1956, North Carolina freight entrepreneur Malcolm McLean converted an oil tanker into the Ideal-X, carrying 58 detachable truck containers from Newark to Houston.

Upon arrival, trucks could directly transport the containers without opening them. The unloading cost of the Ideal-X was only $0.16 per ton, about 36 times cheaper than traditional bulk cargo transport. This marked the birth of modern shipping containers.

Over the next 20 years, the dimensions, connection devices, and load requirements of containers gradually formed unified standards. The entire supply chain began to reorganize around this standardized box, allowing each link to further specialize.

Cargo ships began using vertical holds to safely stack containers; cranes were designed for high-speed, standardized lifting needs; truck chassis and rail freight cars adopted uniform sizes and securing devices; ports gradually transformed into large hubs for efficiently transferring containers between different modes of transport.

The most direct impact of containerization was a significant reduction in transportation time and costs. The shipping time from Australia to Europe was reduced from 70 days to 34 days, and shipping capacity increased fourfold.

International trade began to focus more on finished goods and intermediate products, with companies starting to split production processes across different countries. As supply chains rapidly expanded, a new wave of logistics companies emerged to coordinate the increasingly complex global network.

The deeper impact was a substantial increase in the scale of economic activity. The World Bank estimates that in the 15 years following the adoption of containers by both trading parties, bilateral trade between developed countries grew by 1240%.

Containerization and the infrastructure reconstruction it drove enabled the large-scale expansion of global supply chains and significantly accelerated the development of the world economy.

Tokens are the Containers of the Financial World

Tokens are standardized containers for financial rights.

They carry not goods, but ownership of assets, transfer rules, cash flows, permission requirements, and other status information. In other words, tokens record who owns the asset, how it circulates, what cash flows it generates, and what operations software can perform on it.

When an asset has a machine-readable interface, trading platforms can offer trading for it, lending markets can accept it as collateral, custodians can safeguard it, and wallets can receive and manage the cash flows it generates. Software applications can directly recognize the asset and execute corresponding rules without needing to negotiate and connect with each relevant institution separately.

This is the fundamental difference between tokenization and "digitizing documents" or "adding a database": all participants can identify and use the asset according to the same set of standards. Once this standard is adopted by the entire ecosystem, network effects will continue to accumulate.

Stablecoins most clearly demonstrate the potential of tokenization.

Traditional international wire transfers typically require a network of correspondent banks, taking days to complete a dollar transfer; stablecoins can arrive globally in seconds, with near-zero on-chain transfer costs.

This is because a global network has formed, consisting of trading platforms, custodians, fiat and stablecoin conversion service providers, payment processors, and wallets, all of which can recognize the token interface of stablecoins. They function like ports, cranes, trucks, trains, and cargo ships in the financial world, responsible for transporting value in token form.

Much of this infrastructure was initially built for Bitcoin and Ethereum, but once these facilities were established, stablecoins and other tokens could flow along the same network. The activity of stablecoins further attracts users, liquidity, applications, and infrastructure, allowing other tokens that enter later to directly utilize this network.

The results are already evident. The current circulating supply of stablecoins is about $300 billion, with transaction volumes nearing that of Visa, and the velocity of funds is approximately ten times that of traditional M1/M2 money.

Cross-border payment costs have decreased by an order of magnitude, providing hundreds of millions of people with more reliable access to dollars and payment channels. At least in the dollar context, this network has proven its value, significantly outperforming traditional systems in terms of cost, speed, and coverage. The same dollar funds can circulate more frequently within the network, thereby improving capital efficiency.

Today, this highly active pool of dollar funds is beginning to attract other assets onto the chain to accommodate this portion of stablecoin capital. Currently, the scale of on-chain tokenized assets beyond stablecoins is nearing $40 billion, about ten times what it was two years ago, and growth is still accelerating.

These assets encompass U.S. Treasury bonds, money market funds, commodities, private credit, stocks, and fund equities, with hundreds of issuers involved.

Figure: RWA.xyz, Total Scale of On-Chain RWA

The next natural development is to bring the business processes behind financial assets onto the chain.

For example, our investment Tare is bringing loan issuance, lifecycle management, and securitization onto the chain, using tokens to record the complete lifecycle information of each underlying loan.

Through lightweight software and a transparent market, Tare can replace the costly, multi-step lending chain of the traditional system. In this market, both borrowers and lenders can record and verify tokenized loans on the same ledger.

This model can reduce borrowing costs and make loans easier to use as collateral in different on-chain applications, thereby attracting more assets and capital into the tokenized network.

Every asset class has similar opportunities. As infrastructure continues to improve, network effects will keep attracting more liquidity, users, and applications, further accelerating the growth of tokenized assets.

Capital Markets Will Reconstruct Around Tokens

Just as global supply chains reorganized around containers, global capital markets will reconstruct around tokens.

This new form can already be seen in DeFi. Another company we invested in, Aave, allows users to use eligible tokens as collateral to obtain funds from the lending market at floating rates. The relevant rules are written into the protocol, and whether an asset can be used as collateral is determined by asset-level standards.

This is fundamentally different from the structure of traditional lending markets.

In today’s financial system, when individuals or businesses want to obtain a loan using an asset, they typically need to find an institution first. Institutions control access channels, assess borrowers according to their own processes, and provide products through their networks. The financial services a customer can access mainly depend on their relationship with financial institutions.

On Aave, the true access condition is the asset itself. Smart contracts recognize tokens, execute open and transparent rules, and connect them to the funding market.

The logic of access to financial services thus changes:

Financial services begin to revolve around the asset itself, rather than depending on the relationship between the asset holder and any institution.

In other words, tokens allow assets to be executable like software.

When an asset exists in a form recognizable by public networks, different applications can provide services such as trading, financing, payment, and capital management around the same asset. Trading platforms can bring it to market, lending protocols can accept it as collateral, and wallets can receive and manage the cash flows it generates.

Issuers only need to put the asset on-chain once to connect to different applications, without having to build a separate system for each use case.

This will also change the organizational structure of financial institutions. Banks, securities firms, and asset management companies currently typically package functions such as custody, underwriting, liquidity, asset management, compliance, and distribution within closed product systems.

Cryptographic networks allow these functions to be separated and specialized. One institution can be responsible for issuing and managing loans, while others can provide funding, assess risks, complete transactions, offer insurance, or develop applications using the asset.

Assets can flow between different specialized services through a unified interface, without needing to re-register and connect each time they enter a service provider's system.

Thus, scale advantages will shift from individual institutions to the entire network.

In the traditional financial system, large institutions can support more products because they can bear the fixed costs of building infrastructure for different assets and customer groups. In public crypto networks, much of the infrastructure is shared among all participants.

New service providers can connect to existing asset, capital, and user networks without having to rebuild ledgers, trading, custody, and settlement systems. This not only reduces the costs of building systems but also lowers the barriers for new service providers to enter the market.

The network effects of stablecoins have already crossed a critical point, beginning to form a self-reinforcing cycle. Capital markets will increasingly reorganize into open service networks built around tokenized assets.

In this new paradigm, institutions will compete on who can provide better funding, underwriting, risk management, asset services, and distribution, rather than who owns the database or who controls the sole entry point for customers to access the market.

Global Balance Sheets Will Go On-Chain

The most important outcome of this transformation is the establishment of a capital market that covers the globe.

Today's capital markets are still constrained by financial institutions. Most individuals and businesses cannot directly access capital markets and can only choose from limited products offered by institutions willing and able to serve them.

Which customers to serve, which regions to cover, which asset classes to support, and what scale of transactions to accept are all determined by institutions.

Investors face the same limitations, but in the opposite direction. They cannot access all global assets and can only invest in those that have already been underwritten, packaged, accessed, and distributed by institutions.

As a result, a significant amount of economic value remains in places that existing capital markets cannot reach.

Small receivables, local infrastructure, private enterprises, emerging market credit, and non-traditional cash flows may have real economic value, but they are too small, too fragmented, insufficiently recognized in the market, or too far from major capital centers to bear the high costs required by traditional financial systems for financing.

Investment opportunities may exist, and capital may exist, but the network connecting the two does not.

Tokenization provides a standardized interface for assets, allowing them to be discovered and utilized within the global financial network. As the financial system reorganizes around this interface, the cost for all participants to enter the market will significantly decrease.

Financial functions will be able to be directly embedded into various software like payment and data interfaces. Developers can build specialized services targeting specific asset classes and regions, allowing capital markets to cover areas that have been difficult to reach in the past.

Commercial applications that previously struggled to access complex financial services can also integrate functions such as payments, working capital financing, collateral management, and capital management directly into their systems, enabling a large number of idle or yet-to-enter mainstream financial systems assets to access on-chain capital markets.

Of course, tokenization will not magically make assets that do not meet financing conditions eligible for financing. But in the long run, it can allow many well-quality assets that are currently isolated from capital markets due to structural reasons to participate.

AI will further amplify this change, helping to handle the complexities in asset evaluation and operations.

AI agents can assess assets, price risks, allocate capital, manage collateral, and complete settlements in this globalized, efficient, machine-readable market, further lowering the costs of providing financial services.

With the joint push of AI and crypto infrastructure, markets that currently rely heavily on customization and have discontinuous transactions have the opportunity to transform into continuously operating, globally covered, and increasingly automated markets. This will create more opportunities worldwide and gradually free capital from the constraints of institutional barriers.

Capital allocation is one of the core mechanisms that determine the flow of social resources. It decides which enterprises can expand, which technologies can be scaled, which homes and factories are built, and which regions can develop.

For today’s financial system, some assets may be too small in scale, too localized, too specialized in structure, or too costly to manage, making them not worth dedicating resources for evaluation and financing. However, when the costs of finding, financing, and managing these assets significantly decrease, they may re-enter capital markets.

This is also a deeper impact of containerization. Containers not only reduced transportation costs but also made new trade and production models economically viable. Goods can be produced where costs are lowest, assembled elsewhere, and then sold globally, as the costs of coordinating this network have significantly decreased.

Tokens can have the same effect on capital.

In the coming decades, global balance sheets are expected to evolve from a set of isolated records into a market that software can directly recognize and access. Capital will flow more based on asset quality and return potential, rather than just towards institutions that control market channels.

If the development of stablecoins can serve as a reference, this change may drive a significant expansion of global capital markets and reach areas that have never truly been covered before.