Tokenized real-world assets require no additional intermediaries
Centralized layer 2 solutions and permissioned blockchains recreate traditional middlemen for tokenized real-world assets. Based rollups maintain Ethereum's security infrastructure while supporting regulatory compliance.
Opinion by: Joaquin Mendes, chief operating officer of Taiko
Throughout human history, value exchanged hands directly: grain traded for gold, land bartered for livestock. There existed no middleman determining arbitrary valuations; pricing emerged through direct negotiation between transacting parties. No third party evaluated the worth of livestock, assessed transaction fairness, or judged participant qualifications. The mechanism remained straightforward: One individual possessed what another desired, mutual terms were established, and the exchange completed.
Modern transactions have evolved into increasingly intricate processes. Financial institutions safeguard capital, brokerage firms facilitate asset transfers, and custodial services authenticate ownership. This evolution has dissolved the direct connection linking buyers with sellers, while reducing individual autonomy. In contemporary markets, institutional entities establish asset valuations, regulate market access and dictate transactional parameters.
This emerging wave of institutional participation shows promise, though methodology remains crucial. Major institutions including BlackRock and Grayscale are committing substantial resources toward tokenized real-world assets (RWAs), however numerous implementations depend on permissioned blockchain networks, centralized layer 2 platforms and restricted access systems — architectural decisions that contradict blockchain's foundational vision by reestablishing superfluous intermediaries.
Emerging intermediaries
Blockchains requiring permission limit who can participate and establish restrictive terms, whereas centralized blockchain architectures create vulnerability through single points of failure, enabling select entities to manipulate transaction sequencing and block specific trades. Restricted-access chains isolate assets, concentrating authority within operator control and drastically reducing cross-platform compatibility.
Imagine tokenized real estate valued at $10 million. When divided into 10,000 fractional units and exchanged via a permissioned blockchain or centralized layer 2 solution, market participation continues requiring approval from controlling entities. This asset's valuation remains governed by platform regulations rather than direct negotiation between transacting individuals. The traditional middleman persists; their presence has merely migrated onchain.
Industry preference for centralized control
The underlying motivations are readily apparent.
Adherence to regulatory frameworks represents the foremost consideration. Regulatory authorities mandate identity authentication, transaction surveillance and enforcement mechanisms. Industry participants presume these requirements necessitate centralized oversight (supervision by a singular operator) because traditional financial systems function accordingly. When authorities must immobilize assets or invalidate transactions, a centralized operator (one controlling entity) can respond without delay.
This concentration of authority amplifies regulatory exposure: A centralized blockchain infrastructure may be classified as a regulated intermediary, introducing unanticipated licensing requirements and custodial responsibilities that operators failed to predict. The probability of unforeseen complications remains substantial.
Concerns regarding legal responsibility generate reluctance. These authentic apprehensions possess legitimacy, yet addressing them by reconstructing centralized systems atop blockchain technology negates its fundamental objective.
The authentic solution
Regulatory obligations do not require centralized infrastructure. Identity verification processes ('Know Your Customer' or KYC) and transaction surveillance mechanisms function more effectively implemented at the application layer atop public blockchains where transparency exists inherently. Public rollup solutions that inherit Ethereum's security framework deliver essential advantages: They accomplish regulatory compliance, guarantee transparency and facilitate widespread participation more dependably than permission-based alternatives.
Based rollup architectures address centralization concerns while preserving institutional prerequisites. Ethereum validators manage sequencing operations, eliminating single points of vulnerability. Transaction finality occurs with Ethereum's comprehensive security guarantees. This methodology provides numerous advantages including reduced operational hazards, enhanced regulatory compatibility and sustained asset liquidity. The foundational layer remains permissionless, while applications execute necessary compliance protocols.
Most importantly, properly architected blockchain systems are trustless by fundamental design, guaranteeing global ledger integrity through cryptographic verification and economic consensus mechanisms rather than depending on human trust relationships. This design eliminates requirements for privileged operators, simultaneously resolving security vulnerabilities and regulatory liabilities stemming from centralized authority.
This technological capability currently exists and operates successfully. Financial institutions can implement compliance protocols and identity verification procedures while satisfying regulatory mandates — without introducing additional gatekeeping entities.
What's at stake
The market for tokenized real-world assets may achieve valuations measured in trillions. Infrastructure decisions made today will determine whether assets exchange freely or whether traditional finance merely transfers onto a different ledger system.
Continued reliance on permissioned or centralized blockchain architectures will simply transplant historical barriers into modern systems. Market access, participation opportunities and wealth creation mechanisms will continue residing under gatekeeper control, contradicting blockchain technology's core objectives.
Cease constructing temporary fixes
The blockchain industry possesses the solution already. Ethereum stands as the most decentralized, neutral, dependable and secure blockchain platform available. Rollup technologies inherit these characteristics, delivering rapid, cost-effective transactions, institutional-quality settlement processes and the transparency regulatory bodies require. Advantages encompass expanded market accessibility, robust infrastructure resilience and integrated compliance functionality. They satisfy all requirements for tokenized real-world assets without reintroducing the intermediary layers blockchain technology was designed to eliminate.
Financial institutions maintaining commitment to centralized or permissioned methodologies are selecting the incorrect path. Reconstructing traditional financial systems atop blockchain infrastructure replicates identical vulnerabilities: single points of systemic failure, reliance upon operator entities and access controlled by gatekeepers.
Adopt rollup-based infrastructure immediately to facilitate genuine compliance alongside authentic decentralization. Abandon outdated restrictions and construct a more equitable, openly accessible financial ecosystem.
Opinion by: Joaquin Mendes, chief operating officer of Taiko.