23 Oct Bitcoin will lead the future of capital markets
in Bitfinex Securities
By Jesse Knutson, Head of Operations, Bitfinex Securities
As financial institutions continue to ramp up their tokenization efforts, many – including Blackrock – have been quick to assume that Ethereum will dominate this space. However, I think that Bitcoin, with its superior security model and emerging programmability, is actually poised to become the foundation for the next generation of capital markets.
It’s true that Ethereum has taken an early lead in real-world asset (RWA) tokenization. According to RWA.xyz the total value of RWA on Ethereum stands at $2 billion (excluding stablecoins) with Stellar in second place at just $420 million. But early leads don’t always last.
In recent years, Bitcoin – the first and probably best-known blockchain – has seen breathtaking growth of its layer 2 ecosystem, which is delivering the secure and scalable programmability that financial institutions need to leverage the benefits of tokenization. The Liquid Network – a Bitcoin side-chain enabling the fast, confidential settlement, and issuance of digital assets – is one example. Its total value locked (TVL) currently stands at $1.7 billion, up from $400 million in 2022.
With the additional functionality we’re now seeing and its top-grade security, Bitcoin is beginning its ascent as the ecosystem of choice for financial institutions looking to tokenize assets.
In Latin America, close to $1B of promissory notes have been issued on the Liquid Network.
Last quarter, the Blockstream Mining Note—a security token that raised almost $50M over eight tranches—executed the largest-ever RWA payout, returning more than 1,200 BTC to investors.
There are more high-profile issuances in the pipeline. El Salvador’s government plans to issue its ‘volcano token’ on the Liquid Network, which will mark the first time sovereign debt has been tokenized anywhere in the world.
Combining security and programmability
Bitcoin’s architecture arguably makes it the natural ecosystem for tokenizing real world assets, even if today’s on-chain activity tells a different story.
Bitcoin utilizes the Unspent Transaction Output (UTXO) model, which represents the individual units of Bitcoin available for future transactions, ensuring that each piece of Bitcoin is used only once. UTXO offers enhanced protection against double-spending, allows for parallel transaction processing, and improves privacy by using new addresses for each transaction.
The UTXO model also simplifies transaction validation, supports advanced features like multi-signature policies without complex smart contracts, and reduces the risk of front-running. In our view, therefore, these characteristics make the UTXO model particularly well-suited for financial applications that prioritize security, scalability, and transaction integrity over complex programmability.
It’s unarguable today that the dominant alternative to UTXO is the account model, commonly controlled by Ethereum smart contracts. But it is also true that the complexity of smart contracts can increase the potential for coding errors and vulnerabilities. Whilst rare, such errors can lead to security breaches, fund losses, or unintended behavior in tokenized securities.
Bitcoin has a much higher degree of regulatory clarity than other tokenization ecosystems, virtually all of which have had more complex interactions with regulators and have an ongoing overhang of potentially being classified as unregistered securities. Bitcoin’s classification as a commodity makes it a cleaner and safer choice for issuers and platforms involved in tokenizing securities and real-world assets.
Added together, we see that the ingredients are there for Bitcoin to play a more prominent role in asset tokenization. With side chains such as Liquid Network, Bitcoin balances the need for network security with the programmability and privacy functions required for asset tokenization.
The recent growth of Bitcoin as a tokenization ecosystem means that more people are taking notice of it. After all, Bitcoin is not just a store of value – but a network that can power the future of our digital capital markets.
Author bio:
Jesse Knutson is the Head of Operations at Bitfinex Securities, where he is responsible for expanding the platform’s issuance pipeline, overseeing distribution, and building its user base while ensuring compliance with regulatory standards. Prior to this role, Knutson served as Vice President of Financial Products at Blockstream, and held roles at prominent investment banks, including Macquarie Group and Barclays.
