With growing tokenization of assets (RWAs) and stablecoins, plus calls to track governmental spending and assets on blockchains, we look at the benefits and limitations of blockchains.
Tokenization of assets and recording transactions on a blockchain could potentially increase transparency, cost efficiencies, auditability, and market access, but still rely on trust and coordination with central entities.
By contrast, Bitcoin is a digital only money and payment network, created explicitly to transfer and store value without trusted intermediaries.
Put a Blockchain on it
Over the past few weeks, a growing movement within the new administration has emerged to audit the US Gold Reserves and mark the assets to current market prices. While the concerns appear to be largely unfounded—the OIS provides a regular audit with fair market value accounting (2024 report) and Trump’s previous Treasury Secretary Steve Mnuchin went to visit Fort Knox himself in 2018—some within the crypto industry and the administration have suggested that blockchain technology would help track the US’s gold as well as other governmental transactions.
With these developments, plus the growth of stablecoins and real-world assets (RWAs), we think it’s helpful to highlight the benefits and limitations of blockchains.
Assets, Liabilities, and RWAs
To understand how blockchains interact with the RWAs, like gold, shares of stock, or dollars, we need to understand a key concept from accounting 101 – assets and liabilities. There’s a central entity, an issuer, like Circle or Tether for stablecoins, that holds dollars as an asset and issues a commensurate amount of digital assets on a blockchain (various blockchains technically) which are a liability. When users request more stablecoins, users send the issuer dollars, the issuer’s assets go up, and the issuer sends the user digital assets, increasing its liabilities by a similar amount. Once a user has some stablecoins in their wallet, they can move them around the network to other users, representing value transfer.
Blockchain Limitations
Here's the thing about blockchains. They’re not very smart. While there’s little debate that blockchains are a revolutionary technological development, they’re limited in the information they convey. For example, Bitcoin has no idea what the price of bitcoin is or even the current time, commonly described as the oracle dilemma (Satoshi initially referred to the blockchain as a “timechain” because cryptographically chaining blocks of transactions together put them in order, thus creating the progression of time).
In the context of RWAs, this is important because blockchains have no understanding of the asset side of the equation (or any external data like stock prices, weather temperature, or sports scores). While blockchains can when directed transfer ownership by moving tokens (that represent US dollars, bars or gold, or shares of stock) from one address to another, they require instructions from the issuer to balance the asset side of the equation.
Back to Tokenizing US Gold Reserve
With that understanding, let’s imagine a tokenized version of the US Gold Reserve. The US Treasury has 13,452,810 fine troy ounces of gold held by Federal Reserve Banks. It could issue a similar number of tokens, let’s call them USTG, each representing 1 fine troy ounce of gold held within the reserve. If Treasury were to acquire more gold and put it in this reserve, it could increase (mint) the number of USTG coins (held within its own wallet). If it were to sell some reserves, it could retire (burn) a commensurate amount of USTG. It could also move the tokens associated with the sale to a wallet controlled by the purchasing entity. It would then need to move those physical bars of gold associated with the sale to purchasing entity as well.
Another technique using a blockchain could be recording the transaction on the blockchain, a proposed practice called “triple entry” accounting – debit, credit, and a digital receipt. While this term seems to have fallen out of favor, the technique is something Elon Musk suggested recently with tracking the Treasury’s spending. It has also been floated as potential techniques for revamping USAID as well as tracking spending at HUD. While this technique may help with outside auditing and real time inspection using digital receipts, it still requires outsiders to trust the entity recording these entries.
Enter the RWA
RWAs have been one of the important developments of the current cycle, with BlackRock, Franklin, Apollo, Figure, and WisdomTree, to name a few, issuing tokenized versions of various funds. Today, these funds collectively have $18.9B in value according to RWA.xyz. Over half of that is private credit tokenized by Figure ($9.6B), but there are $4.6B in tokenized money market and US Treasuries funds, $1.26B in tokenized gold and precious metals, and $400 million of other institutional funds.
There are numerous potential benefits to tokenization - transparency, cost efficiencies, administrative, liquidity, and investor access to name a few. But it’s important to note that these RWAs don’t necessarily operate the same way open, permissionless digital assets do. Some are issued on private or enterprise blockchains (Provenance, Canto, etc.), while others are issued on open networks like Ethereum. Investor suitability and access varies depending on the instrument as well – these instruments generally don’t trade in DeFi or aren’t available through traditional crypto exchanges.
Bitcoin Not Blockchain
We don’t know which models will ultimately win and changing regulations may ultimately have an impact in ways that are difficult to predict at this point. Judging by our recent conversations with industry participants, however, tokenization is a trend that is here to stay. It is important to separate these tokenization efforts from something like Bitcoin—the former relying on coordination with centralized entities while Bitcoin was designed to explicitly remove centralized entities. While tokenization has little direct impact on Bitcoin, we view these efforts as orthogonal rather than competitive, the growing trend and increased awareness of digital assets could ultimately benefit Bitcoin.
Market Update
Bitcoin rebounded this week, rallying 5.0%., while US stock markets also posted strong gains—the S&P 500 rose 2.6% and the Nasdaq Composite rose 2.3%. Markets benefitted from monetary policy on Wednesday with the FOMC leaving interest rates unchanged and signaling a more dovish stance. The FOMC also indicated it would lower the cap on Treasury redemptions, from $25 billion to $5 billion per month, a measure of quantitative easing.
Traders still seem to be undecided about bitcoin’s next move as positioning still appears to be fairly muted. Open Interest weighted funding rates on offshore perpetual swaps sits at 2.7% annually (0.0024%/8h). The gross basis on CME April contracts is hovering around 6% annualized.
The flows in the ETFs have reversed, with the past 5 days showing consistent inflows into the complex totaling $702.6 million. Given the unattractiveness of the basis, our guess is that most of those flows were directional traders rather hedge funds putting on delta neutral basis trades (short futures, long ETFs).
Mar 28 - CME expiry Apr 10 - CPI release May 27 - Bitcoin 2025 conference Jul 2 - Final SEC deadline for decision on GDLC ETF conversion Jul 22 - EO Working Group report deadline
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