Nasdaq CEO: Tokenization could free billions of dollars in trapped capital

Nasdaq CEO Adena Friedman said tokenization could free up tens of billions of dollars in capital tied up in assets used as collateral across the global financial system.

Friedman told CNBC Editor-in-Chief and APAC Head of Digital News Joanna Osinger at the TOKEN2049 conference in Singapore that there is the potential to tokenize assets such as U.S. Treasuries, stocks and money market funds, increasing the liquidity of collateral as funds flow.

“If you tokenize all these products as the money flows, the collateral becomes very liquid,” 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 increased over the past year, pointing in part to the passage of the U.S. Genius Act, which established a regulatory framework for stablecoins.

“If you can tokenize money, you can tokenize capital flows,” she says.

Friedman said this increased interest from institutional investors is being coupled with demand from retail investors, who have long sought the ability to trade around the clock. The retail ecosystem is “about 10 years ahead of its time,” she says.

Friedman said the transition to a completely 24/7 marketplace will be a huge undertaking for the financial industry.

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

Friedman said financial institutions have traditionally closed markets for periods to update systems and manage risk. However, to operate around the clock, these processes, including risk and collateral management, must be executed continuously.

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

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

Over time, banks may use these agents to take more direct action, he added.

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

Arjun Sethi, co-CEO of cryptocurrency exchange Kraken, told CNBC that companies outside the US have expressed interest in tokenization and access to US capital markets.

Sethi pointed to companies with around $25 million in revenue that were looking for ways to access capital markets, as well as large international companies interested in tokenization and US listings.

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

But Friedman says 24-hour trading isn’t right for everyone.

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

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