The Tokenization Convergence: A Clearer View of the Future Comes Together

In recent years, the landscape of financial markets has been shaped by divisions: Traditional Finance (TradFi) versus Decentralized Finance (DeFi); Private blockchains versus public; on-chain versus off-chain.

At each pivotal moment—whether a breakthrough or a setback—these opposing perspectives have only solidified, with each side growing more confident in their vision of the future of finance.

However, we are now witnessing a remarkable shift in the industry. What were once distinct and often conflicting business models, participants, and markets are beginning to converge. Collaboration is a tangible reality. This transformation is fueled by increased institutional involvement, a more profound understanding of the underlying technology, and a growing recognition of the potential synergies between institutional and decentralized finance.

At the heart of this emerging collaboration lies a single, transformative force: tokenization.

In this article, we'll explore how tokenization has not only become the catalyst for these collaborations but also how it is fundamentally reshaping the trajectory of the financial industry.

Institutional Impact on Tokenization

Why now? What makes this convergence more significant than previous waves of tokenization hype?

One powerful driver of this collaboration is JPMorgan’s entry into the tokenization market. As one of the world’s leading financial institutions, JPMorgan’s involvement has drawn significant attention, even from those previously skeptical of digital assets, legitimizing tokenization as a cornerstone of financial innovation.

JPMorgan has been at the forefront of integrating blockchain technology into traditional finance. Their Onyx platform, which includes the JPM Coin, represents a significant step toward the tokenization of assets. This platform allows for the tokenization of U.S. dollar deposits, enabling real-time transfers of payments between institutional accounts, reducing settlement times and increasing efficiency.

These developments mark a significant turning point. What was once skepticism is now interest, and what was once competition is now collaboration. JPMorgan’s 2023 launch of the Tokenized Collateral Network (TCN) underscores this commitment. TCN allows institutional clients to use tokenized versions of traditional assets, such as U.S. Treasuries or equities, as collateral for transactions on the blockchain. This move sent ripples through the financial industry, demonstrating the potential of tokenization to transform capital markets infrastructure.

This development notably shifted the dialogue between traditional finance (TradFi) and decentralized finance (DeFi). "Our core remit is to redesign infrastructure on how to move money, how to move assets," said Umar Farooq, CEO of Onyx by JPMorgan. "Our core objective is to rewire the financial system. The financial system is siloed. It is siloed by countries, it's siloed by geographies, by asset types. We are just thinking about how we use this tech to rewrite the core."

While JPMorgan leads in institutional blockchain integration, BlackRock has followed suit by making substantial investments in tokenization. CEO Larry Fink, in a January 2024 interview with CNBC, stated, "I think ETFs are step one in the technological revolution in the financial markets. Step two is going to be the tokenization of every financial asset.”

Having been a part of the ETF Trading group at Barclays in 2008, I witnessed firsthand how institutional adoption reshaped the ETF market. When BlackRock acquired Barclays Global Investors in June 2009. The deal was part of BlackRock's acquisition of Barclays Global Investors (BGI), which included the iShares ETF business. This acquisition made BlackRock the largest asset manager in the world.

What happened when Blackrock purchased the iShares business was a decade-long mission to educate investors of the value that ETFs have within the modern portfolio; resulting in today's $13.1 trillion industry today.

The old adage is that markets do not repeat themselves but they do rhyme. That comes to mind as Blackrock lit the fuse, just like they did with ETFs And now we know the game we are in.

The Convergence of Institutions and DeFi

Blackrock's BUIDL fund is just the beginning. In May, BlackRock reinforced its long-term commitment to blockchain by leading a $47 million fundraising round for Securitize. This isn’t just a financial move; it’s a strategic step to position BlackRock at the forefront of the tokenization revolution. I expect most institutions are looking for strategic tokenization partners right now.

Other financial giants are following suit. Goldman Sachs will launch three tokenization projects by the end of 2024, signaling a recognition that tokenization could fundamentally reshape global finance. Franklin Templeton and Fidelity International are also intensifying their efforts in real-world asset tokenization, believing that this technology can unlock new efficiencies and opportunities.

These institutions are not just participating in DeFi—they are transforming the landscape. By partnering with platforms like Securitize, Centrifuge, MakerDAO, and Etheena, they are blurring the lines between centralized and decentralized finance, paving the way for a hybrid financial ecosystem.

This convergence is more than a market trend; it’s a paradigm shift in how capital is sourced, allocated, and managed. The integration of TradFi and DeFi could redefine liquidity, transparency, and accessibility, creating a more inclusive and resilient financial system. It opens the door to decentralized credit markets and tokenized funds with global access, driving the next wave of economic growth and wealth creation.

In essence, the convergence of institutions and DeFi is reimagining the financial system, combining the strengths of both worlds to build a more interconnected, innovative, and equitable future.

The fading divide between public and private blockchains is a key indicator of crypto and traditional markets converging. The focus is shifting to seamless connectivity between these ecosystems, with a hybrid approach leveraging both public and private blockchain strengths becoming the norm. The Bank for International Settlements (BIS) has called for closer collaboration with the private sector, signaling more integration efforts ahead.

As financial giants like BlackRock, Goldman Sachs, and JPMorgan embrace tokenization, they highlight DeFi’s benefits—transparency, speed, real-time settlements, and interoperability. These early moves are already creating industry-wide ripples. According to a 2024 EY report, 55% of investors plan to allocate funds to tokenized assets within the next one to two years, reflecting a broader shift toward this emerging technology.

Tokenization Now and In the Future

TradFi and DeFi are converging, with DeFi offering access to innovative financial products and a new capital base, while TradFi brings regulatory compliance and large-scale market mobilization.

We can look to other industries to see how this might play out. Consider the rise of cloud computing. Initially met with skepticism, it rapidly gained traction by offering lower costs, scalability, and efficiency. DeFi is following a similar path—its benefits are clear, and both consumers and institutions are quickly embracing the shift.

The narrative of "TradFi versus DeFi" is rapidly evolving into one of "TradFi and DeFi." This shift reflects the recognition that the future of finance is not about division but about integration and synergy.

Tokenization is the catalyst driving this transformation. In an industry once characterized by protective moats and isolated silos, tokenization is dismantling barriers and replacing them with bridges that connect diverse markets, ideas, and innovations.

As we look ahead, I expect that the continued building of these bridges will not only unlock unprecedented opportunities but also reshape the global financial system. Those who embrace this collaborative ethos will be the architects of a future where finance is more inclusive, dynamic, and resilient than ever before.

Anil Sood is the co-founder of Anemoy.