One of the common criticisms of the traditional financial system, especially after events like the 2008 financial crisis, is the lack of transparency and the inability for different sectors to share information effectively. Financial institutions have become so large and complex that it is almost impossible to fully understand the risks and liabilities they carry. Advocates for blockchain technology are quick to highlight the transparent and immutable nature of the ledger, ensuring that no third party can dispute the records. While concerns about security and oversight remain, particularly from regulatory bodies like the SEC, the technological innovation happening in the crypto world cannot be ignored.
Although the divide between traditional financial institutions and cryptocurrency enthusiasts may seem difficult to bridge, the application of blockchain technology in the financial sector is inevitable—and, in some cases, it is already happening. For example, JPMorgan Chase’s recent use of blockchain technology to clear equity trades and the Strike network’s facilitation of fee-free remittances have shown that this technology can have real-world applications. While these developments may seem niche in the context of the $738 billion remittance market and the multi-trillion-dollar clearing industry, their potential to snowball into the mainstream is real.
One area of the financial services sector ripe for disruption is wealth management. Investment-grade products—traditionally reserved for high-net-worth individuals and institutional investors—are generally considered stable and low-risk, offering predictable returns. These include:
- Corporate Bonds: These debt securities issued by companies are considered lower risk than equities and provide regular interest payments. They are generally reserved for large institutional portfolios due to the high capital needed to buy these bonds in bulk.
- Real Estate Investment Trusts: These are companies that own or finance income-producing real estate, and they provide dividends to investors. Institutional investors traditionally dominate the commercial real estate space, where REITs typically invest.
- Infrastructure Investments: These involve financing projects like highways, airports and utilities, which are typically considered stable and essential services, providing long-term returns. However, such projects are normally only available to institutional investors due to the high upfront capital costs.
In the current system, investment-grade products are generally available to institutional investors or accredited individuals because they require large sums of money to access directly or the expertise to structure and manage them. However, with tokenization, these assets can be fractionalized and made available to a broader audience. Tokenization works by creating digital tokens that represent a fraction of an underlying real-world asset—whether that’s a corporate bond, a share in a REIT or a piece of an infrastructure project. These tokens are stored on a blockchain, a decentralized ledger that ensures transparency and security. Retail investors with smaller sums, say $5,000 or $10,000, can now buy fractional ownership in these products. Instead of purchasing an entire corporate bond that might require $100,000 or more, they can purchase a small percentage of it, gaining access to the same yield and interest payments as larger investors.
For example, let’s say a company issues a corporate bond valued at $1 million, with an annual interest rate of 4%. Instead of needing to buy the entire bond or a large chunk of it, tokenization allows the bond to be broken down into smaller units, each represented by a digital token on a blockchain. A retail investor with $5,000 can purchase tokens that represent their proportional share of the bond, and they would receive interest payments based on the amount they own, all while benefiting from the stability of investment-grade products.
REITs can be similarly tokenized. Instead of needing to invest in a large-scale REIT with a minimum capital requirement, retail investors can purchase tokenized shares of income-producing commercial real estate or residential properties. These tokens represent ownership in a portfolio of properties, allowing retail investors to earn a portion of rental income or profits from real estate development without the need for large amounts of capital or expertise in property management.
Infrastructure investments, which typically require billions in capital, can also be broken down into smaller units via tokenization. Retail investors could own tokens tied to projects like toll roads, airports or energy plants, giving them exposure to stable, long-term returns generated by essential infrastructure. Such opportunities have previously been exclusive to governments or large institutional players like pension funds.
Tokenizing these investment-grade products gives retail investors access to a range of diversified, stable assets that were previously out of reach. By allowing smaller investments in these products, tokenization democratizes finance, levelling the playing field for retail investors who want access to stable, lower-risk assets without needing to be part of the elite investor class.
This matters because it not only creates a fairer and more equitable investment landscape but also provides more options for individuals seeking to save for their future. In the U.S., where the nature of work and employment is rapidly changing, millennials and Generation Z are unlikely to spend their entire careers with one employer or benefit from the defined benefit pensions of previous generations. As the workforce evolves—with gig work, short-term contracts and multiple career shifts—the need for flexible, accessible savings and investment options is more pressing than ever. Unfortunately, the infrastructure available for most Americans to take control of their financial future remains outdated.
Decentralized finance offers a solution by democratizing access to financial products that were traditionally reserved for institutional investors. With tokenized investment-grade products, individuals who may not have the benefits of employer-sponsored pensions can gain access to sophisticated financial tools. Greater transparency, flexibility and performance metrics, along with reduced fees, make these options appealing to a new generation of investors. Although the future of work and the broader economic landscape remains uncertain, one thing is clear: the old methods of financial planning are no longer sufficient. Now is the time to harness blockchain technology to empower Americans to take control of their financial futures and secure the economic freedom they deserve.
Nathan Guavin is founder and CEO of Gray Digital.