Bye Bye Brokers, Hello Blockchain Technology

The expansion of the electronic payments infrastructure build-out over the past 20 years addresses some of these issues. We believe the market and technological innovation will overcome the risks in time.

However, there is another impediment to tokenization.

The Road Block

Standing in the way of progress are the well-connected banks and brokers with a lot to lose.

Note the highlighted words from Charlie’s quote below.

It’s different because we can build a system based on assets rather than a system built on institutions.” – Charlie McGarraugh

The current trading environment is entirely dependent on institutions such as JP Morgan, Goldman Sachs, Citadel, and others. These institutions take on risk, provide liquidity, and profit handsomely as intermediaries.

They have enormous corporate profits and generous wages to protect. There is no doubt these firms will use their strong lobbies and overwhelming support from the Fed and U.S. Treasury to slow down efforts to tokenize assets.

15 Billion Reasons to Stop Technology

To help you appreciate why intermediaries will try to block the economic benefits of tokenization, consider Ken Griffin. His equity trading firm, Citadel, handled about a quarter of all trading volume in U.S. equity markets last year.

Per Bloomberg: “The trading operation, which is separate from Griffin’s hedge fund business, generated $3.84 billion of revenue in just six months, more than the $3.26 billion for all of 2019, according to a presentation to investors. Net income was $2.36 billion in the first six months of 2020, compared with $982 million for the same period a year earlier.”

The enormous profits from Citadel’s equity trading operations are almost entirely risk-free!

Forbes estimates Mr. Griffin’s net worth to be around $15 billion. What do you think the odds are that Ken Griffin and his competitors walk away from such easy money?

Tokenizing Game Stop

During the GME fiasco, Robin Hood (RH) reportedly required emergency funding to cover collateral requirements. Without funding, RH may have failed at costs to its clients. Additionally, RH and other large brokerages restricted trading, causing angst and losses for many retail GME investors.

RH’s largest source of revenue comes from Citadel. Citadel pays RH to execute its client’s trades. While Citadel was “acting on behalf of RH’s clients”, they also had exposure to GME through Melvin Capital, a hedge fund in which they hold a principal interest. In fact, they provided $2 billion in funding to Melvin to keep it afloat.

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