The focus of many in Washington, D.C., this year will be on crypto tokens – for example, FTT the token associated with failed exchange FTX. Without question there’s a role for oversight of the token economy to prevent abuses and to spotlight innovations. As this appropriate oversight takes place, Washington – and particularly the U.S. Congress – should focus just as much energy on tokenization, which has the potential to be a paradigm change for the economy, everyday Americans and people throughout the world.
John Rizzo is a senior vice president of public affairs for Clyde Group, a public relations and marketing firm based in Washington, D.C.
Tokenization of real-world assets – the process of representing tangible assets cryptographically – is already occurring but is a topic too rarely discussed in Washington. Yet, it is the blockchain-enabled innovation that, generations from now, may have the most significant impact on the economy and on the lives of middle-class Americans and those at the margins of society. To understand why Washington, and especially Democrats, should be eager to seize this opportunity, it’s important to understand the recent history of Democratic power in D.C.
I began serving as a staff member in Congress at the beginning of the Obama era during the Great Recession, and later was an appointee of President Joe Biden to the Treasury Department as the COVID-19 pandemic and accompanying economic crisis ravaged the nation. A lot has changed in the U.S. between 2009 and 2022, but one constant was the role that Democrats in Congress and the White House played in wrestling to the ground crises that occurred during Republican administrations.
Within Democratic ranks, there was always a sense of palpable frustration and gallows humor, that our political capital, as former President George W. Bush once called it, was spent putting out fires we did not create. By the time the work was done, Democrats – in our view – had saved the American economy from a conflagration but failed to enact the kind of structural change in the economy that would fundamentally alter the circumstances of everyday Americans.
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The driving motivation of Democratic politics from the 1980s through today has been the creation of an economy that can allow a person from a working-class family to improve their circumstance through hard work and appropriate government aid. It’s a tall order to make such a vision a policy reality – particularly when the economy is enduring a crisis. It’s possible that by the end of President Biden’s time in office, the Inflation Reduction Act may be seen as such a catalyst. But the opportunity before the country to tokenize the trillions of illiquid assets may just be the silver bullet that Democratic politicians had searched for over generations; and it could also appeal to conservatives, who wish to achieve economic mobility through free market principles as well.
Today, public officials in Washington have an opportunity to come together and focus on powering a revolution in alternative assets that unlocks the storied American Dream for millions.
Generational wealth is often created through illiquid assets, such as real estate. There’s no question that accessibility to the stock market through savings vehicles, such as 401(k)s, has had a substantial, positive impact on the economic livelihoods of Americans who primarily earn their living through a paycheck. It’s also true that long-term wealth creation can be augmented through investments in illiquid, alternative assets. So what if market participants and policymakers support the tokenization of those illiquid assets and create pathways for the average American to invest in a piece of them? All of a sudden the gains that a person can achieve in a lifetime of working are multiplied.
Additionally, tokenization on a blockchain will create a level of transparency and risk mitigation for individual investors that would not exist otherwise. For example, think of a worker holding an on-chain token for an attractive illiquid asset. It only costs them a small amount of their own money due to large-scale tokenization, and gives them a piece of a valuable asset that they otherwise would need significant resources to buy into.
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There are certainly risk considerations to alternative asset-investing and tokenization that must be considered by policymakers. Alternative assets, even those that are tokenized, contain additional downside risks for retail investors. Market participants will face skepticism from Washington lawmakers and regulators who believe alternative asset investing is merely a means for firms to increase profit while exposing consumers to greater risk of losses. Post-financial crisis, lawmakers and regulators have deep-seated concerns about firms socializing losses and privatizing gain.
If lawmakers, especially my fellow Democrats, spend the next year focused on tokenization as much as individual tokens, then years from now we may create a more equitable economic future. The American Dream will be more than a story we tell ourselves, but a tangible opportunity for all.