Nasdaq CEO: Tokenization Could Unleash Billions of Trapped Capital

Tokenization could unlock tens of billions of dollars of capital tied up in assets used as collateral in the global financial system, said Nasdaq CEO Adena Friedman.

Tokenization of assets such as Treasuries, stocks and money market funds, as well as the flow of money, could make collateral more liquid, Friedman told CNBC’s Joanna Ossinger, editor-in-chief and head of APAC Digital News, at the TOKEN2049 conference in Singapore.

“If you tokenize all of these instruments as well as the flow of money, then the collateral becomes very fluid,” Friedman said.

Tokenization involves representing financial assets, such as stocks and bonds, as digital tokens that can be transferred using blockchain technology.

Friedman said institutional interest in tokenization has grown over the past year, pointing in part to the passage of the Genius Act in the United States, which established a regulatory framework for stablecoins.

“If we can symbolize money, then we can symbolize the flow of capital,” she said.

This growing institutional interest converges with demand from retail investors, who have long sought the ability to trade 24 hours a day, according to Friedman. The retail ecosystem “was ahead by about 10 years,” she said.

Moving to a fully open 24/7 market would be a major undertaking for the financial industry, Friedman said.

“The simplest part is the exchange infrastructure,” she said.

Friedman said financial institutions have traditionally experienced periods where markets are closed to update systems and manage risks. But operating 24 hours a day would require these processes, including risk and collateral management, to occur constantly.

“Everything has to be real-time at all times,” she said.

Artificial intelligence could help financial institutions manage this transition. Nasdaq has launched a series of digital agents within its risk management platform that initially provide recommendations, Friedman said.

Over time, banks could tap these agents to take more direct action, she added.

“AI is essential 24/7,” Friedman said.

Companies outside the United States are showing interest in tokenization and access to U.S. capital markets, Arjun Sethi, co-CEO of cryptocurrency exchange Kraken, told CNBC.

Sethi highlighted a company generating about $25 million in revenue that was exploring ways to access capital markets, as well as large international companies interested in tokenization and public listings in the United States.

He said tokenization could help expand access to capital markets for businesses around the world.

However, according to Friedman, 24-hour trading may not be suitable for everything.

“Not all assets are liquid enough to support a 24/7 environment,” she said.

Still, greater connectivity within the global financial system could also open up access to asset classes that were previously out of reach for some investors, Friedman said.