BlackRock and ARK Invest Push Tokenization Forward
September gave us two more signs that the future of investing will run on crypto-based rails. The first sign was Ondo Finance's launch of three new tokenized portfolios based on strategies developed by BlackRock. These function similarly to a traditional model portfolio but are executed on the blockchain. Investors hold a single token that gives them exposure to a mix of tokenized stock, bond, and bitcoin ETFs, with allocation and rebalancing handled by smart contracts. The portfolios are currently only available to investors outside the U.S.
The same day, ARK Invest tokenized its roughly $1.3 billion ARK Venture Fund (ARKVX) on Ethereum through Securitize. This is the first ARK fund to move onchain. The fund holds stakes in private companies like OpenAI, Anthropic, and Stripe. In contrast to the Ondo portfolios, the tokenized ARKVX shares are currently only available to eligible U.S. investors.
Our Take
The evolution of tokenization looks quite similar to the arc U.S. ETFs followed. The first U.S. ETF simply tracked the S&P 500, and the first tokenized products were Treasuries put onchain. Over time, ETFs expanded to include bonds, commodities, and actively managed strategies. That same growth in complexity is now playing out in tokenization.
When ETFs first launched, many people in the financial industry doubted the structure would catch on. Early movers like Barclays were rewarded; however, BlackRock, which was late to ETFs, paid billions to acquire Barclays' iShares business in 2009. The shift toward tokenization is arguably even more consequential, and this time BlackRock isn't waiting. It launched its first tokenized Treasury fund, BUIDL, in 2024 and is now supplying the strategies behind Ondo's portfolios. We expect other asset managers are watching BlackRock and ARK Invest's launches closely and will follow quickly if tokenization gains the traction we anticipate.
SEC and CFTC Deliver What CLARITY Promised
The CLARITY Act would have written crypto's rulebook into federal law, dividing oversight between the SEC and the CFTC. It also would have given financial institutions a legal footing that a future administration could not easily reverse. The House passed it last year. However, on September 15th, it fell eleven votes short of the sixty needed to begin Senate debate and now looks unlikely to become law in this Congress.
The SEC and CFTC had prepared for this outcome. Both chairs said before the vote that they would keep writing rules under existing law either way. Two days later, the SEC issued a five-year exemption allowing digital tokens that represent US-listed stocks to trade on blockchain venues. The day after, the CFTC sent its crypto market rules to the White House for review. Bitcoin, in the mid-$70,000s after the vote, was above $87,000 by September 24th.
Our Take
Last month we wrote that the SEC and CFTC would deliver most of what the industry wanted with or without CLARITY, and that the bill would mainly decide how permanent the result was. The rules arrived within three days of the vote, so we were right on the first count. On the second, we will likely have to wait until 2029 when the next administration takes office and decides what to keep.
Without a federal law behind them, these rules rest on agency authority, and a future commission could withdraw them. That becomes harder, however, the longer they stay in place. This administration has more than two years left. If firms build products on these rules and customers come to depend on them, any attempt to withdraw them would draw court challenges from those firms. In addition, a future regulator would be unwinding a working market.
Bitcoin Moves to Close Its Privacy Gap
Bitcoin's ledger is public: anyone can see how much is moved between addresses. Zcash, a competing cryptocurrency launched in 2016, solved this with encryption. Zcash’s network can confirm a payment is valid without seeing who paid whom or how much.
On September 24th, researchers at [[alloc] init], a New York cryptography firm, published a design for private bitcoin payments called Shielded Bitcoin. Shielded Bitcoin runs the same Zcash method on Bitcoin itself, with no change to Bitcoin's rules.
The paper arrives as privacy becomes a popular question for institutions moving onchain. Unfortunately, the solution is incomplete. The method for moving bitcoin into and out of the private system is promised for a later paper and there is no launch date.
Our Take
Zcash was built by people who tried to fix Bitcoin first. Its privacy design was proposed as a Bitcoin upgrade in 2013. The Bitcoin community never adopted it, so the cryptographers behind it launched Zcash three years later as a separate currency built on a copy of Bitcoin's code. A decade on, some of Bitcoin's earliest supporters have moved money there for the privacy Bitcoin never added.
While addressing the desire for privacy should be prioritized, our view is it takes a back seat to the need for quantum resistance and a fix to the security budget. Addressing those challenges decides whether Bitcoin survives. Privacy decides how much of the store-of-value market it keeps. It is also the easier fix. Shielded Bitcoin needs no change to Bitcoin's rules, while quantum defenses and fee reform both require an upgrade the network has to agree on.
Over the long run we expect privacy to move from optional to required. Nobody can look up who owns gold, and a reserve asset held by companies and governments will likely need the same.
