TradFi participation, clear rules crucial for crypto adoption: Laser Digital CEO

According to Jez Mohideen, the CEO of Laser Digital, the ongoing regulatory debates surrounding cryptocurrencies will play a crucial role in determining the future trajectory of institutional adoption in this sector. As firms continue to explore and experiment with tokenization, it remains a key area of interest within the industry.

Japan-based financial giant Nomura launched Laser Digital last September. The crypto company was set up to initially focus on investing in firms within the DeFi, centralized finance, Web3 and blockchain infrastructure segments.

A recent survey conducted by Laser Digital, which included professional investors managing approximately $5 trillion in assets, revealed that 82% of respondents hold a positive view of the digital asset class. In particular, they expressed optimism for the performance of bitcoin and ether over the next 12 months.

The internal findings, seen by Blockworks, included responses from wealth managers, family offices, insurance asset managers and various investment funds, among other professional investors.

Despite many surveyed institutions viewing the asset class favorably, a vast majority would like to see the digital asset and traditional finance worlds collide.

Roughly 90% of those surveyed said they or their clients would be more likely to allocate investment vehicles backed by large traditional financial institutions.

About the same percentage — 91% — said they want to see digital assets combined with traditional asset classes to produce “all-weather” income strategies.

Institutions testing tokenization

Various financial institutions believe that by building the right rails, they can bring more trust and credibility to an asset class that over the last year has seen the collapse of Terra’s algorithmic stablecoin, as well as the bankruptcy of FTX and others, Mohideen told Blockworks.

Some are testing such rails on private blockchains. Firms are also experimenting with tokenization, for example — projects the Laser Digital CEO said are among the space’s “low-hanging fruit.”

BlackRock CEO Larry Fink has touted the tokenization of securities as “the next generation of markets.”

Franklin Templeton’s tokenized money market fund — using the Stellar and Polygon blockchains to offer transaction transparency — has gained more traction in recent months after launching in 2021. WisdomTree is getting set to introduce “blockchain-enabled funds” on its upcoming financial app.

Roger Bayston, Franklin Templeton’s head of digital assets, said last week blockchain technology is set to be “transformational” for other capital markets going forward.

“The digital rails set by the Web3 universe will be significant,” Mohideen said. “As you get more and more assets digitized and tokenized, these rails will pave the rails for significant conversion of traditional assets into this universe.”

The CEO added: “I don’t think that’s going to happen overnight. I don’t think that can happen without having serious regulatory debates, which is what’s starting to happen.”

Regulatory resolutions will be key

The Laser Digital survey found that 76% of respondents pointed to legal or regulatory restrictions that could prevent them or their clients from investing in a crypto-related product.

While the EU passed of the Markets in Crypto Assets (MiCA) regulation in April and Hong Kong has become a desirable place for crypto firms, the US lags behind.

The SEC sued Binance and Coinbase earlier this month in the latest examples of what many in the industry have dubbed the agency’s “regulation by enforcement” tactics in the absence of a clear crypto framework in the US.

David Hirsch, chief of the SEC division of enforcement’s crypto division, took exception to that categorization during a keynote discussion at last week’s DACFP Vision conference in Austin last week. While the SEC has put forward a “sincere effort” to provide guidance where it can, “we’re not your lawyers,” he added.

These regulatory actions, which are topics discussed for years, have not come out of nowhere, Mohideen said. The debates around which crypto assets are securities, and the resolutions expected to come from them, are “not unhealthy” in the long run, he added.

“Despite the digital asset world wanting to kind of live on its own terms…the need for [financial institutions] to bridge the gap so that assets can go from one to the other basically,” he said. “For that to happen you need to have some sort of standardization.

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