According to Sergey Nazarov, co-founder of Chainlink Labs, with Paul Atkins leading the US Securities and Exchange Commission, the direction “towards the tokenization of the financial system” has been set.
In an interview with Cointelegraph, Nazarov acknowledged that the process will be challenging due to various hurdles concerning data tokenization, cross-chain connectivity, compliance, and more. However, the potential consequences of such changes could be immense.
He highlighted that the total market cap of cryptocurrencies now stands around $4 trillion. If conventional financial assets were tokenized and transitioned on-chain, it could potentially increase the market cap significantly, perhaps tenfold or more.
“People often underestimate the enormous scale of TradFi [traditional finance],” Nazarov remarked.
Trump initiated tokenization changes
The global asset management sector hit an all-time high of $128 trillion in assets under management (AUM) in 2024, reflecting a 12% increase from the previous year, as reported by Boston Consulting Group. A significant portion of these assets is managed by institutional investors, including insurance companies, pension funds, sovereign wealth funds, endowments, and family offices.
In contrast, the crypto sector’s $4 trillion market cap is primarily driven by retail investors, according to Nazarov. “How much more retail demand exists? Perhaps [we may reach] $8 trillion, maybe $10 trillion, but not $50 trillion. Reaching $50 trillion requires TradFi.”
Prior to US President Donald Trump’s inauguration in early 2025, US regulators had cautioned institutional investors to avoid crypto. “They advised, ‘Stay away; it’s illegal,’” Nazarov recounted. “Now, however, regulators are saying, ‘It’s not only not illegal; we encourage you to engage with it.’” Thus, moving substantial amounts of TradFi assets on-chain seems unavoidable — “as long as the macroeconomy stays stable.”
A downturn could occur if the economy shifts from a “risk-on” to a “risk-off” investing climate. This doesn’t need to indicate a severe disruption (such as an economic depression); even a slight recession could trigger a “risk-off” response.
“All these novel tokenized assets require a robust market where people are eager to experiment, trade, and invest in new instruments,” Nazarov admitted.
Nevertheless, even in a downturn, tokenization will eventually materialize — just at a slower pace. “Currently, conditions appear favorable: interest rates may be lowered, and the SEC chairman is promoting tokenization. I can’t envision a more optimistic scenario.”
Related: Crypto markets brace for Fed rate cut amidst shakeup in governance
When Trump campaigned for reelection in 2024, he declared his intention to be the “crypto president.” Thus far, he has fulfilled that promise, according to Nazarov.
“We had already begun discussions with the SEC earlier this year,” he remembered, noting meetings with SEC Commissioner Hester Peirce, appointed during Trump’s first term. “I believe she received an early mandate to initiate action.” This occurred even before Atkins was confirmed on April 9.
“Much groundwork was laid, and it became more transparent once the chairman was officially announced. At that juncture, risks and uncertainties were alleviated.”
In May, Cointelegraph highlighted that tokenization is reaching a pivotal moment. Companies such as BlackRock, Libre, and MultiBank initiated billion-dollar tokenization projects, indicating a transition from theory to practice.
The intricate evolution of blockchain “oracles”
Simultaneously, and often in conjunction with, the tokenization efforts is the advancement of blockchain oracles, which is Chainlink’s core business.
Oracles serve as conduits connecting blockchains to external systems. A “pull-based oracle,” for instance, gathers real-world (offchain) data and sends it to a blockchain network for use in smart contracts. This information can be something as straightforward as the price of a stock or cryptocurrency at a specific time.
Less prevalent and more intricate are “push-based oracles,” enabling smart contracts to transmit commands to offchain systems, triggering specific actions. An example is an oracle that “pings” an Internet of Things device to unlock a car door (representing a real-world action) after confirming a rental payment on a blockchain.
Related: Are TGEs signaling the end of blockchains?
Chainlink is the largest oracle provider globally, boasting over 1,000 oracles across approximately 15 categories, including those for data, cross-chain connectivity, compliance, identity, and risk management. Some projects now leverage multiple oracles.
For instance, one practical application (illustrated below) employs three distinct oracles — one for inputting valuation data into a contract, another to synchronize that contract across a different chain, and a third to relay the information back to an institution’s accounting system.
The third oracle in this example is a compliance oracle, offering automated identity services, including Know Your Customer and Anti-Money Laundering verifications, which are vital for institutional investors. The other oracles in this case facilitated data transfer across blockchains, notably from a private blockchain managed by Australia and New Zealand (ANZ) Banking Group to the Ethereum Sepolia chain. This transaction occurred between two TradFi powerhouses — ANZ and Fidelity International — with backing from the Hong Kong Monetary Authority, a central bank.
Another instance (shown below) involved transferring tokenized Hong Kong dollars from a private chain to a public chain and into a tokenized fund. TradFi giant UBS acted as the asset manager, while SBI Digital Markets served as the fund distributor and custodian. Funds were transferred via Chainlink’s oracle network from the Arbitrum blockchain to the Ethereum blockchain.
The expanding landscape beyond Singapore, Hong Kong, and Dubai
Nazarov pointed out that the aforementioned use cases involved the Hong Kong Monetary Authority and the Monetary Authority of Singapore. Last year, those two regions, alongside Dubai, “were virtually the only locations where such initiatives were feasible. Now we’re seeing similar activities in the US, with regulatory involvement.”
Nazarov expects several large-scale US tokenization initiatives to go live this year, but anticipates “next year will witness a race, and by the subsequent year, we’ll see substantial volumes.”
He believes there will be at least $1 trillion in new tokenized asset flows within the next two to three years, possibly even several trillions. “At that juncture, tokenization will comprise such a significant portion of the crypto sector that it will fundamentally reshape the industry,” he stated.
Nazarov commended Atkins and the current administration for their forward-thinking approach, which supports both crypto and tokenization. “This is crucial as crypto reflects the current state of the industry, while tokenization represents its future direction,” he conveyed to Cointelegraph.
Magazine: ‘Help! My robot vac is stealing my Bitcoin’: When smart devices attack
