30s Summary

Donald Trump’s presidency could modernize U.S. financial markets by supporting the growth of tokenization, blending conventional practices with decentralized finance (DeFi) and tweaking outdated policies. Replaceable KYC rules and investor protection can enable tokenization of securities markets, while custody of funds and incorporation of decentralized exchanges need further revision. Despite issues, Trump aims to make the U.S. the “world’s crypto capital”.

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Tokenization could revamp the U.S. financial markets if only some out-of-date policies weren’t in the way. Enter Donald Trump, the crypto-friendly President-elect, in the right position to make needed changes.

While ending the U.S. crackdown on cryptocurrency is an awesome start, it doesn’t quite hit the spot. To truly let tokenization flourish, Trump and his crew, including the potential new crypto guru and the future chair of the Commodity Futures Trading Commission, need to get clever with old rules. They need to blend the good bits of conventional markets with decentralized finance (DeFi).

It’s a tricky task, preserving key investor protections, without spoiling the advantages of tokenization. But Trump and his team don’t need to come up with new laws to make it work. They just need to get started from day one.

When you tokenize real-world assets, like stocks and bonds, you can give a big boost to the securities markets.

Smart contracts, public blockchain ledgers, and self-custody of tokens, all bring unique benefits to investors. That’s probably why even the U.S. Treasury Department is on board with making tokens out of U.S. Treasury bills.

Security tokens are catching on, but they’re not as popular as they could be. They’re worth an impressive $12 billion in total, as of November 20, but that’s peanuts compared to the $30 trillion market they could potentially tap into, as Colin Butler from Polygon said in an August chat with Cointelegraph.

KYC rules, which force investment apps to check each user’s identity independently, are the biggest headache for the spread of tokenization. Putting the same demands on DeFi would be a deal breaker. Regulators need to tweak KYC rules accordingly.

It’s harder to incorporate decentralized exchanges into U.S. financial markets. Regulators will need to consider putting securities exchanges’ trade settlement processes on the blockchain.

There’s also the issue of custody of funds. In the world of Web3, users usually hold their own assets. About 70% of crypto owners use non-custodial wallets like MetaMask, according to Arrington Capital. Regulators need to make the necessary adjustments to existing rules.

But don’t be surprised if third-party crypto custodians, who are insured against cybersecurity attacks, become the preferred choice for many investors. Regulators should get behind this trend and make things as easy as possible for newcomers.

Despite the challenges, Trump has big plans for cryptocurrency, hoping to turn America into the “world’s crypto capital.” His presidency could be a game changer for the industry. Let’s see if he can make it happen.