Rethinking Ownership, Stablecoins, and Tokenization (with Addison)

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Addison (@0xaddi) and I have been engaged in a deep exploration of the immense potential at the intersection of traditional finance (TradFi) and cryptocurrency, focusing on their most practical applications. This dialogue delves into how cryptocurrencies can be integrated into the U.S. financial system based on first principles, challenging conventional narratives and exploring the implications of stablecoins and tokenization.

### The Current Narrative on Tokenization

The prevailing narrative in finance today revolves around the concept of tokenization—the digitization of assets ranging from public market stocks to private equity and government bonds. Proponents argue this transformation could revolutionize the financial landscape, benefiting both the crypto space and global finance. However, a first-principles approach compels us to ask critical questions about the existing asset ownership framework and the necessity of tokenization.

#### How Ownership Works Today

In the U.S., large asset issuers like public companies entrust the custody of ownership certificates to entities such as the DTCC (Depository Trust & Clearing Corporation). The DTCC manages ownership records for approximately 6,000 accounts, which in turn oversee the assets of end-users. Private companies operate differently, with platforms like Carta handling equity ledgers. Both models rely on highly centralized record-keeping systems.

The DTCC operates like a nested structure, where individual investors may interact with one to four intermediaries—brokerages, custodians, and the DTCC itself—before their transactions touch the actual ledger. While this layered system may not directly impact retail investors, it introduces significant due diligence and legal risks for institutional players. A more efficient model would involve native tokenization, allowing market participants to interact directly with the clearinghouse. However, current tokenization efforts typically involve intermediaries holding the underlying assets and creating tokenized versions for trading—a process that adds unnecessary layers and inefficiencies.

#### The Inefficiencies of Current Tokenization

Current tokenization models create additional intermediaries, increasing counterparty risk, settlement delays, and value extraction. This disrupts composability, making it harder for assets to flow seamlessly between traditional and decentralized finance. A superior approach would involve native tokenization, directly digitizing asset ledgers like those of the DTCC or Carta onto the blockchain, unlocking programmability benefits for all holders.

### The Case for Stock Tokenization

One of the primary arguments for stock tokenization is its potential to democratize global market access, offering 24/7 trading and settlement. If tokenization can serve as a bridge for stocks entering emerging markets, it could represent a paradigm shift, connecting billions to U.S. capital markets. However, the necessity of blockchain-based tokenization remains questionable, as regulatory hurdles rather than technical limitations dominate the discussion.

The potential for tokenized stocks to combine with perpetual futures is often highlighted, yet regulatory barriers—not technological ones—are the main obstacles. Stablecoins, while structurally similar to tokenized stocks, face unique challenges due to the complexity of the stock market ecosystem, involving清算所, exchanges, and brokers, all under strict regulation.

Unlike generic cryptocurrencies like Bitcoin, tokenized stocks are not native digital assets but rather representations of real-world assets with limited composability. Replicating the entire traditional financial system on-chain is an incredibly complex task, hindered by concentrated liquidity and existing network effects. Simply tokenizing stocks and placing them on a blockchain does not address all challenges; it requires substantial infrastructure and thoughtful design to ensure liquidity and compatibility with traditional systems.

### The GENIUS Act and Regulatory Implications

A potential legislative solution is the GENIUS Act, which could allow companies to issue digital securities directly on-chain without traditional IPOs, rendering many intermediaries obsolete. This could lower compliance costs for emerging market companies while addressing regulatory concerns in the U.S. However, the Alibaba VIE (Variable Interest Entity) structure, already a form of indirect tokenization, introduces complexity and legal hurdles.

### The Nature of “Real” Dollars

The true dollar resides on the Federal Reserve’s balance sheet, accessible to approximately 4,500 entities like banks and credit unions. Native crypto institutions cannot directly access these funds, except for a few exceptions like Lead Bank and Column Bank, which serve select crypto firms. These institutions leverage Fedwire, a nearly zero-cost, real-time settlement network, enabling almost instantaneous transactions.

The “real” dollar (M0) is distinct from “pseudo-dollars” (M1), created through fractional reserve banking, which is six times larger. While the Fedwire system offers excellent user experience—low-cost, instant settlements—compliance risks and regulatory requirements introduce friction at the user level.

### The Bear Case for Stablecoins

The potential risk for stablecoins lies in the accessibility of “real” dollars. If these funds become widely available without intermediaries, stablecoins could lose their core utility. Most stablecoin issuers rely on bank partnerships to access the U.S. financial system, such as USDC through JPMorgan Chase and NY Mellon, or USDT via Cantor Fitzgerald.

However, stablecoin issuers face regulatory hurdles in obtaining Federal Reserve accounts, as seen with The Narrow Bank’s rejection. The Fed’s stance prioritizes systemic risk and monetary policy integrity. Allowing stablecoins to operate like banks would disrupt the fractional reserve system, potentially halting economic activity.

### Stablecoins as a Form of Private Credit

Unlike banks, which offer FDIC insurance and seamless deposit convertibility, private credit entities like Aave function differently. When you deposit USDC into Aave, you receive aUSDC, which is not always 100% backed, as some funds are lent out. While aUSDC cannot be directly used for payments, its acceptance could function similarly to a bank if economic actors treat it as such.

In this scenario, aUSDC would resemble a bank’s promise to depositors, with underlying assets (USDC) lent out. If Addison lends 1,000 USD to Bridget Credit Fund, which then lends it out, the system creates 2,000 USD in value (1,000 in loans + 1,000 in Bridget Fund tokens). This mirrors the fractional reserve model, where debt instruments (like bonds) represent claims on lent funds.

### Stablecoins and Monetary Creation

Applying this logic to stablecoins, they do create “net new money” by mapping government debt (like Treasury bonds) into a spendable form. When you purchase a bond for 100 USD, you hold an asset but cannot use it directly. If Circle buys the same bond with your 100 USD, both the government (spending the bond) and you (receiving USDC) effectively use the funds simultaneously.

Unlike banks, which create money through longer-term, riskier loans, stablecoins primarily use short-term Treasury bonds, limiting their monetary impact. However, if stablecoins were to dominate (e.g., Circle accounting for 30% of M2), they could threaten the U.S. economy by reducing the money supply and undermining the Fed’s monetary policy tools.

### Global Benefits and Future Challenges

Despite risks, stablecoins offer undeniable advantages: expanding U.S. dollar influence, enhancing its reserve status, improving cross-border payments, and providing stability to non-U.S. residents. As stablecoin supply grows to trillions of dollars, issuers like Circle may become integral to the U.S. economy, forcing regulators to balance monetary policy with the demands of programmable money.

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