Shortly before Ethereum’s shock 50% price surge earlier this month, when bearishness about its roadmap was reaching its zenith, Real Vision founder Raoul Pal was asked on a podcast if he thought Ethereum was cooked.
The former Goldman Sachs executive said he’d heard that narrative a lot, but it was wrong — not least because TradFi considers Ethereum to be the “Microsoft” of blockchain.
“It clearly works very well for what the financial markets need,” he said.
“If the finance system comes, they’ll go there. There’ll be stablecoins and SOL and SUI and all of this stuff — but is Goldman going to build in Solana? Highly unlikely. Is JPMorgan? Highly unlikely. And will they build their own Layer 2s? Highly likely.”
The growing awareness that TradFi has already tokenized billions worth of US Treasurys and commodities in the Ethereum ecosystem was cited by Bernstein analysts as a big factor in ETH’s recent price recovery.
And TradFi has plans to tokenize billions — if not trillions more — of real-world assets (RWAs) using custom-built L2s.
The biggest tokenization firm in the world, Securitize, is collaborating with DeFi protocol Ethena to build an RWA-focused L2 called Converge. Alibaba affiliate Ant Digital has just announced its own RWA-focused rollup called Jovay, and last week, Robinhood bought WonderFi, which has just launched the Wonder L2 as part of ZKsync’s Elastic chain network. The Bernstein analysts suggested the L2 may become Robinhood’s new tokenized stock trading platform.
Converge and Ethena founder Guy Young tells Magazine that institutions believe Ethereum is the most censorship-resistant and secure base layer for settlement, and its appeal is only enhanced by a sophisticated DeFi ecosystem of protocols like Aave and Pendle. Ethereum L2s offer the chance to make these protocols more suitable for TradFi requirements.
“It’s hard to imagine an alternative layer 1 coming close to gaining the trust of issuers at scale,” he says. “When Converge launches, those financial primitives and apps will have permissioned versions where institutions can deploy assets in a regulatory-friendly manner, and that’s a key differentiator that could see L2’s gain more market share of RWA’s.”
As Young suggests, Ethereum’s base layer is the undisputed leader for RWAs, accounting for 58% of the total $22.6 billion tokenized real-world assets. But surprisingly enough, in second place is zero-knowledge proof L2 ZKsync Era with $2.19 billion. That’s more than 8x the value of the entire ZKsync market cap.
Why TradFi is using Ethereum L2s for RWAs
So what are the advantages for using Ethereum L2s for RWAs over competing L1s like Stellar, Aptos and Solana? And why are TradFi firms using a scaling solution widely derided by Ethereum’s critics as a mistake?
Although L2s aren’t as uncensorable or decentralized as Ethereum itself, they are relatively cheap to spin up and can be easily configured to comply with privacy and regulatory requirements. They also generate revenue via sequencer fees, and can theoretically enable speeds of 100,000 TPS or more — though only MegaETH on testnet has demonstrated anything within sight of that throughput to date.
ZKsync is also focused on scaling this year with a view to making the sequencer capable of 10,000 TPS by the end of the year. Criticized on social media recently for flagging retail user numbers, ZKsync’s tech clearly holds appeal for big names in finance.
Tradable has tokenized a couple of billion dollars worth of private credit on zkSync Era, UBS has piloted a gold tokenization project there, and Fidelity, Sygnum, Blockchain Capital and Securitize all use the chain. Deutsche Bank has even used ZKsync’s tech to build its own rollup called the Memento ZK Chain Project, which is a core component in Singapore’s massive Project Guardian tokenization effort.
“We’ve been more effective on Enterprize than they have been,” says ZKsync Foundation director Marco Cora, referring to other L2s like Base, Optimism and Arbitrum. “We have been less effective on consumer — but we totally want to be more effective there.”
Cora explains that L2s are faster and cheaper and they can also offer the ability to keep transactions private — which has been a key impediment to institutions adopting blockchain to date. Companies that create their own L2s in the ZKsync Elastic Network can elect to store their data in a company-controlled validium, enabling them to protect their trading strategies and commercially sensitive info, and to comply with regulations like the EU’s GDPR.
“For a bank, if you don’t have privacy, it’s pretty much game over straight away,” says Cora. “There’s no, no way in which they’re going to do anything without privacy.”
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cointelegraph.com