After FTX, crypto-tokenization can rebuild the American dream

The focus of many in Washington, DC this year will be on crypto tokens – such as the FTT token linked to the failed FTX exchange. Arguably, there is a role for oversight of the token economy to prevent abuse and to shine a spotlight on innovation. As this appropriate oversight takes place, Washington – and especially the US Congress – should focus as much energy on tokenization, which has the potential to be a paradigm shift for the economy, ordinary Americans and people around the world.

John Rizzo is senior vice president of public affairs for Clyde Group, a public relations and marketing firm based in Washington, DC

Real-world asset tokenization—the process of representing tangible assets cryptographically—is already happening, but is a topic too rarely discussed in Washington. Yet it is the blockchain-enabled innovation that, generations from now, could have the most significant impact on the economy and on the lives of middle-class Americans and those on the fringes of society. To understand why Washington, and Democrats in particular, should be eager to seize this opportunity, it’s important to understand the recent history of Democratic power in DC

I began serving as a congressional staffer at the beginning of the Obama era during the Great Recession, and was later appointed by President Joe Biden to the Treasury Department as the COVID-19 pandemic and accompanying economic crisis ravaged the nation. Much has changed in the United States between 2009 and 2022, but one constant was the role that Democrats in Congress and the White House played in the fight against ground crises that occurred under Republican administrations.

Within Democratic ranks, there was always a sense of palpable frustration and gallows humor that our political capital, as former President George W. Bush once called it, was being used to put out fires we did not create. When the job was done, the Democrats had—in our view—saved the American economy from a fire, but failed to enact the kind of structural changes to the economy that would fundamentally change the circumstances of everyday Americans.

The driving motivation for democratic politics from the 1980s to the present has been to create an economy that can allow a person from a working-class family to improve their circumstances through hard work and appropriate government assistance. It is demanding to turn such a vision into a political reality – especially when the economy is going through a crisis. It is possible that towards the end of President Biden’s time in office, the Inflation Reduction Act could be seen as such a catalyst. But the opportunity before the country to symbolize trillions of illiquid assets may just be the silver bullet that Democratic politicians had been searching for for generations; and it may also appeal to conservatives, who want to achieve economic mobility also through free market principles.

Today, public officials in Washington have an opportunity to come together and focus on driving an alternative asset revolution that unlocks the famous American dream for millions.

Generational wealth is often created through illiquid assets, such as property. There is no doubt that access to the stock market through savings vehicles, such as 401(k)s, has had a significant, positive impact on the financial livelihoods of Americans who earn their living primarily from a paycheck. It is also true that long-term value creation can be increased through investments in illiquid, alternative assets. So what if market participants and policy makers support the tokenization of these illiquid assets and create avenues for the average American to invest in a piece of them? Suddenly, the gains that a person can achieve in a lifetime of work are multiplied.

In addition, tokenization on a blockchain will create a level of transparency and risk reduction for individual investors that would not otherwise exist. For example, consider a worker who has an on-chain token for an attractive illiquid asset. It only costs them a small amount of their own money due to large-scale tokenization, and gives them a piece of a valuable resource that they would otherwise need significant resources to buy into.

There are certainly risk considerations in alternative asset investment and tokenization that need to be considered by decision makers. Alternative assets, even those that are tokenized, contain additional downside risk for retail investors. Market participants will face skepticism from lawmakers and regulators in Washington who believe alternative investing is merely a means for companies to increase profits while exposing consumers to greater risk of loss. After the financial crisis, lawmakers and regulators have deep-seated concerns about firms socializing losses and privatizing gains.

If lawmakers, especially my fellow Democrats, spend the next year focusing as much on tokenization as individual tokens, we could years from now create a fairer economic future. The American Dream will be more than a story we tell ourselves, but a tangible opportunity for everyone.