Larry Fink, CEO and Chairman of the world’s largest asset manager BlackRock, touched on three blockchain related topics in this year’s annual letter. The first part of his letter was about how private markets have been out of reach for most investors and BlackRock is in the process of changing that. For the same reason, the digital assets sector often sees private assets as low hanging fruit for tokenization, as illustrated in this State Street survey.

Later he moved on to tokenization, highlighting how fractionalization can democratize access. Finally he referenced Bitcoin. On the one hand, BlackRock manages the largest Bitcoin ETF. However, his concern is more about getting control over the United States’ government debt.

“Decentralized finance is an extraordinary innovation. It makes markets faster, cheaper, and more transparent. Yet that same innovation could undermine America’s economic advantage if investors begin seeing Bitcoin as a safer bet than the dollar,” he wrote.

He also shared that half of the demand for the Bitcoin ETF has been retail, and three quarters of those investors are new to iShares ETFs.

Private assets and tokenization

On the tokenization front, Mr Fink noted that the “world’s money moves through plumbing built when trading floors still shouted orders and fax machines felt revolutionary.” He was less than complimentary about payments network SWIFT saying it was like routing emails through a post office. SWIFT currently dominates cross border payments, which are seen as a major real world use case for stablecoins. And it’s worth remembering that BlackRock looks after most of the reserve assets for the second largest stablecoin issuer, Circle.

He is bullish on tokenization because he sees it as democratizing access, shareholder voting and yield. The access is because tokenization enables fractionalization, lowering the barrier to entry. Even for relatively wealthy people, lower investment amounts will allow them to diversify their investment. Of course, people can vote already, but blockchain can potentially make it easier. He had one caveat about tokenization 👉 the need for digital identity.

Despite BlackRock managing the largest Bitcoin ETF, there was a striking omission in Fink’s projections for the future of investing: cryptocurrency itself. While he outlined a shift from the traditional 60:40 split between stocks and bonds toward a 50:30:20 allocation (stocks, bonds, and private assets), cryptocurrency doesn’t fit neatly into any of these categories.

Fink acknowledged that 20% of investments already exist in private assets, currently accessible primarily to institutional investors. And he highlighted how BlackRock plans to democratize access to these investments, including infrastructure and real estate. Potentially, that could include tokenization. Yet the absence of cryptocurrency in this long-term investment framework is notable, given BlackRock’s current role as a crypto asset manager.

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Sumitomo Mitsui Financial Group, the parent of Japan’s second largest bank SMBC, is planning to issue a stablecoin. It’s collaborating with Ava Labs, the founder of the Avalanche blockchain, as well as Fireblocks, according to a report from the Nikkei.

The bank will work with Japanese IT firm TIS and plans to conduct experiments in Q4 of this year or 2026 Q1, with a live issuance during the following year.

One of the primary use cases is to enable corporates to move money around the world instantly and 24/7, sidestepping Swift. While Swift payments should in theory be almost instant, in reality they tend to be delayed by foreign banks that have different opening hours and rely on the receiving bank crediting the recipient promptly. Additional intermediary banks are often involved, which are not necessary with stablecoins.

Other big US banks are already targeting this use case. JP Morgan has its Kinexys Digital Payments (formerly JPM Coin), a blockchain based bank account. And Citi launched its Citi Token Services. Both use permissioned blockchains.

While Avalanche is a permissionless blockchain, it supports permissioned chains as subnets. For example, its Spruce testnet has institutions as validators. Hence, it remains to be seen which path SMBC adopts.

SMBC’s other blockchain initiatives

Meanwhile, SMBC is also one of the backers of Progmat, the Japanese tokenization platform. It has a stablecoin issuance platform, Progmat Coin. SMBC joined the other big three Japanese banks, MUFG and Mizuho, in an ongoing stablecoin sandwich trial referred to as Project Pax.

A stablecoin sandwich refers to a situation where a stablecoin sits at the heart of a transaction, but it may look like a normal payment to the sender and recipient. The three banks plan for their clients to make trade payments in the usual way, and to use Swift messages. However, stablecoins will replace correspondent banks.

Two years ago, our sources told us that SMBC had joined Partior, the cross border blockchain payment system co-founded by DBS, JP Morgan and Temasek. Partior combines a permissioned blockchain with correspondent banking, removing the typical delays and enabling instant cross border payments. SMBC has not yet confirmed it will participate in Partior. However, the other bank we reported simultaneously – Deutsche Bank – recently said it invested in Partior, highlighting the accuracy of the report.

Hence, SMBC is adopting a multipronged approach to speed up cross border payments using blockchain.

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Hashgraph (formerly Swirlds Labs), the founder of the Hedera Hashgraph distributed ledger, is expecting to launch a permissioned DLT, HashSphere, in Q3. One of the current beta testers is Australia Payments Plus, which operates key Australian payment infrastructures and is a long standing governing council member of Hedera.

The DLT company sees a gap with the current permissionless and permissioned offerings. On the one hand, the challenge with permissionless chains for institutions is the need to repeat KYC and compliance steps that their clients have already done internally. Additionally, institutions want greater privacy and control. At the same time, many are looking for a path to interoperability with the permissionless world and stablecoins, an area where HashSphere is positioned as a good example.

There was much excitement when Australia’s eftpos joined Hedera years ago, with the hope of bringing regulated payments to DLT. Eftpos merged with other Australian payment infrastructures which are part of Australia Payment Plus. With stablecoins now on the cusp of going mainstream, perhaps that time has come. Hedera developed various solutions to make onboarding with stablecoins simple. Filipino banks plan to launch the PHPX stablecoin on Hedera this year.

Rob Allen from Australia Payment Plus commented, “As a Hedera Governing Council member, we are interested in HashSphere primarily for its enhanced privacy and regulatory compliance, while also needing network interoperability for the seamless and transparent interchange of stablecoins between public Hedera and private HashSphere, and other Layer1 protocols.”

HashSphere versus incumbent permissioned chains

The arguments about compliance, privacy and control are for those firms not comfortable with permissionless chains. But without additional details (which we don’t have yet), it’s less clear how HashSphere will compete with the existing permissioned chains, although we can make some guesses.

Hyperledger Besu is currently doing well in the institutional space because it offers a path to integration with the Ethereum mainnet. HashSphere can potentially compete because of its EVM (Ethereum) compatible smart contracts. Assuming HashSphere performs similarly to Hedera, it will have a speed and scalability performance advantage over Besu. HashSphere will use many of the features of Hedera, including its consensus, token service and the Ethereum compatible smart contract service.

However, both Besu and HashSphere have a disadvantage compared to some of the other permissioned DLTs on privacy. Canton and Corda were both designed as privacy first and only share data with those that need to know. It’s unclear whether HashSphere takes this approach, but we suspect not. So the options for Besu and HashSphere is Zero Knowledge Proofs or something similar. While that’s progressing, there is no definitive solution so far. For example, Brazil’s central bank wants to go this route with Besu, but is waiting for a solution that is good enough.

Digital Asset will argue that the Canton Network is permissionless, although we consider it a work in progress. We classify public Hedera as partially permissioned because the nodes with write permissions are still controlled by governing council members, although that is evolving. However, all transactions are viewable by anyone.

Hashgraph returns to its roots

In many ways, for Hashgraph this is a return to its roots. Hashgraph was previously known as Swirlds Labs, which started out with a permissioned ledger, including partnering with credit union startup CULedger in 2018. However, at the time Swirlds’ solution was not compatible with other technologies, whereas the Ethereum compatible smart contracts make it more open.

The news comes as the enterprise world seemed to be coalescing around three DLTs: the Ethereum compatible Hyperledger Besu blockchain, Digital Asset’s Canton, and R3’s Corda. Yet in the past week we’ve seen two new permissioned distributed ledgers, the other being Google Cloud’s Universal Ledger. On the one hand, fewer options make for simpler choices. But competition will keep the leading three on their toes.

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