Translation: Baihua Blockchain

SECTokenization innovation exemption has officially ended years of crypto “financial nihilism.”

As meaningless governance tokens accelerate in clearance, a trillion-level migration of on-chain assets has begun. However, under this jubilation, there are undercurrents: 75% of tokens are doomed to become cannon fodder, how to reconstruct the valuation of the remaining 25% that actually possess cash flow, the “on-chain equity”? In the face of a global fiat currency devaluation tide led by finance and volatility in US Treasuries, top institutions have long turned to the extreme anti-fragility barbell strategy of “real income agreements + hard currency against quantum storage.”

At the turning point of the complete convergence of crypto and traditional finance, understanding this underlying capital re-evaluation and relay logic will determine the direction of your wealth in the coming years.

1. Regulatory breakthrough and the wave of tokenization: Underlying reconstruction to escape “financial nihilism”

Host: Welcome back to "Tokenization Tower." Today, we have Felix Javin, Head of Content at Blockworks, as our macro consultant.

The industry dynamics in the past 24 hours have been crazy. The SEC has released a policy for tokenization innovation exemption. Before the official release of the document, the market had already heard the news, and it appears that a large number of traditional funds will accelerate the process of asset tokenization and on-chain conversion. This super narrative of tokenization is speeding up comprehensively. I would like to first hear your in-depth analysis of this entirely new regulatory framework, and how investors should reposition themselves in this new phase.

Felix Javin: Clarifying regulatory boundaries is a qualitative change for this industry.

Since 2020, during the regulatory period led by Gary Gensler, the SEC has generally adopted a harsh enforcement logic of “replacing rules with litigation and business closure orders.” No one in the crypto industry knows where the red lines actually are, and the resistance to compliant innovation is enormous. Over the past decade, the industry has built a solid blockchain network and decentralized underlying facilities, but as soon as the business touches the attributes of securities, entrepreneurial teams face extremely high unknown legal risks. For example, top protocols like Uniswap may face sudden Wells notices at any time. This state of "dancing with shackles" has greatly suppressed genuine innovations in financial engineering.

This is also the core reason why the market has been mired in “financial nihilism” for the past five years, leading speculative funds to flock to meme coins. Speculative trading has its market position, but for a long time, the industry's original exploration in the financial underlayer has been forced to stagnate, and the vast majority of protocols can only issue “pure governance tokens” without substantive cash flow rights.

With the new SEC and CFTC policy shift, the mechanism of the crypto regulatory sandbox has officially made it onto the agenda, the standards for fundraising limits and disclosure exemptions have also begun to be clarified, coupled with the potential advancement of the Clarity Act in the future, the industry finally has a clear compliance action guide. The high efficiency, 24/7 transparency, and instant settlement characteristics of blockchain networks can finally be invested in real financial business experiments without reservations.

Previously, I held a long-term cautious attitude towards most governance tokens with no value capture mechanism, except for a few with actual protocol income and buyback logic. But now that the compliance channels are open, assets can truly accumulate value and return it to token holders, the entire market's underlying evaluation framework must be completely reset and reconstructed.

Host: Looking back at our discussion at the Brooklyn Permissionless event last year, the topics of “revenue meta-narratives” and “whether staking is dead” sparked widespread industry discussions. At that time, the market pain point was that public chain networks generally experienced high inflation and low actual returns, and investors were questioning whether there truly existed investable business entities in the crypto market capable of generating cash flow.

If we break down the major trend of tokenization into second and third-order impacts: protocols like Aave, Uniswap, Morpho, Hyperliquid, Lighter, and Aerodrome were previously seen as the core architecture of the crypto-native economy. However, with the implementation of regulatory exemptions, this paradigm has been completely reconstructed. They are transforming into the settlement cornerstones of a future trillion-level global on-chain financial system. This scale is no longer limited to the total market value of several trillion dollars in crypto or the hundreds of billions level of DeFi TVL, but points to hundreds of trillions of massive pools linked to traditional assets. This reset has far-reaching implications for the actual impact on on-chain underlying protocols.

Felix Javin: Taking on-chain lending as an example. The global financial crisis in 2008 caused systemic collapse primarily due to black-box operations among financial institutions: no one in the market could accurately penetrate the real leverage, underlying asset quality, and the true depth of assets being multi-layered rehypothecated.

In decentralized lending protocols represented by Aave and Morpho, the counterparty risks of all liquidity pools, the health of collateral, and the real-time liquidation lines are completely transparent at all times. Had Wall Street had such a level of transparency back then, the impact range of systemic crises would have been significantly compressed, and market participants could have precisely stripped away bad debts instead of totally liquidating the entire balance sheet as toxic assets due to liquidity panic.

This underlying logic penetrating into traditional finance is extremely disruptive. Currently, the market is enthusiastically discussing tokenized stocks, which, while addressing the barriers for retail investors in immature markets to access core assets like US stocks, are less explosive than the long tail and structurally complex traditional financial assets—such as government bonds and structured derivatives that include different maturities, complex duration structures, and yield curves. Such targets often suffer from liquidity fragmentation and delayed price discovery in the traditional OTC market. If blockchain networks can achieve instant delivery, frictionless settlement, and all-system leverage penetration monitoring, the productivity unleashed by tokenization in this area will be immeasurable.

2. From mindless buybacks to corporate finance: Maturity watershed of protocol value capture

Host: An open, transparent, and borderless market is forming, which is precisely the core vision Satoshi Nakamoto proposed in the Bitcoin white paper after the 2008 banking crisis. Traditional institutional allocators have begun to recognize the settlement advantages of on-chain infrastructure. But the real issue is: facing this wave, what exactly will institutional funds buy?

If a large asset management giant tokenizes the shares raised through Securitize and deploys them in Morpho Vault, does it mean that investors only need to buy the governance token of Morpho correspondingly? Is this transmission path really that direct? Where does the actual allocation logic of institutional investors lie?

Felix Javin: Large-scale asset on-boarding has become a foregone conclusion, but on-chain capital inflow does not equate to the appreciation of value of all associated tokens.

We are currently still in a chaotic transition period. About 75% of crypto tokens in the industry lack any binding value capture relationship with this wave of asset tokenization, which is a cognitive blind spot for many retail investors. Only the remaining approximately 25% of tokens, which possess substantial income capability—that is, those with protocol dividends, buyback destruction, or underlying cash flow direct mapping—are being endowed with certain liquidity premiums by institutions and smart money.

In the previous regulatory cycle, entrepreneurial teams adopted a dual structure of “off-chain company equity and on-chain no-profit tokens” to avoid securities compliance risks, resulting in commercial profits generated by the protocol being retained within the company entity, and token holders unable to enjoy any economic dividends. As the regulatory breakthrough occurs, this dual structure is rapidly being cleared by the market and merged.

Taking Morpho’s single structured advancement and Ethena’s recent promotion of value return and token buyback governance as examples, the capital market has begun to strongly positively price agreements with clear economic models and transparent financial disclosures. But after the market crosses the rudimentary stage of “buy when there’s income,” the core question in the next phase is: how to assign a reasonable valuation multiple to the free cash flow of these on-chain agreements?

This must return to the basic logic of modern corporate finance (Corporate Finance 101): after a protocol or enterprise generates retained earnings, what is the best capital allocation path—full dividends, open market buybacks, or continuing to reinvest in business research and development and ecosystem expansion?

The crypto industry has previously overlooked this dynamic game of capital allocation. For example, Hyperliquid chose to use almost all platform fees for open market buyback destruction to boost token prices, while projects like Pump retained greater freedom of capital allocation.

From the perspective of mature investors, if a protocol possesses a strong business moat, investors prefer the management team to have professional and rational capital reallocation capabilities. Blindly using 99% of protocol fees for buyback is not necessarily the optimal solution. If these profits are retained for developing new financial derivatives, recruiting core R&D personnel, or building a liquidity ecosystem, yielding dozens or even hundreds of times future market cap growth, this capital efficiency is clearly higher than short-sighted direct buybacks. As Morpho founder Paul holds, the pursuit is for exponential expansion of the protocol over a long cycle, rather than distributing profits completely to meet short-term volatility in the secondary market.

Host: Hyperliquid's flywheel effect has made it a model for various protocols to imitate, but this mechanism clearly has its lifecycle limitations. In the traditional secondary market, if the management of a high-growth company chooses to lower the profit distribution ratio from 99% to 90%, because the market has fully discounted for a complete buyback, its asset valuation often suffers severe shocks.

Executing buybacks at $90 versus executing them at $9 represents entirely different concepts in terms of capital return rates. As on-chain agreements begin to require management to make more complex discretionary decisions, the industry is transitioning from broad narrative hype to mature financial stratification: some protocols have sustained blood generation capabilities and rational capital allocation, some protocols are transitioning amid exploration, while another large portion of air tokens lacking a business closed loop will be completely eliminated.

Felix Javin: Modern crypto finance has gone through a complete technical spiral: first the construction of decentralized underlying networks, and then the seamless integration of traditional financial analysis systems.

This does not mean that buying tokens must build complex discounted cash flow models (DCF) like traditional investment banks, rather the market needs to face a core fact: the essence of mature finance is continuously assessing how an entity should balance the optimal capital structure among high-cost borrowing, issuing equity, share buybacks, dividend payouts, and reinvestment.

Over the past few years, due to strict regulatory limitations, the industry has been forced to do horizontal involution on homogeneous underlying infrastructure. Currently, the expansion and throughput capabilities of on-chain infrastructure are already abundant, and the costs of initiating transactions on the Ethereum mainnet and layer two networks have significantly decreased. With the compliance green light now on, crypto assets are officially entering a new phase of “on-chain equity securitization” fully aligned with traditional financial analysis.

3. Macroeconomic deep water zone: Fiscal-led, coordinated exchange rate interventions, and “barbell strategy”

Host: This aligns with my asset allocation structure. In the current configuration framework, the core positions are primarily carried by a “barbell strategy” composed of two parts:

One end consists of protocol assets with stable cash flows and real profitability on-chain; the other end comprises hard currency reserve assets characterized by strong reflexivity, vague value capture, but clear monetary attributes—mainly consisting of Bitcoin, traditional gold, Zcash, and Ethereum. While these assets may lack the traditional dividend discount logic, their transparent monetary policies and rigid supply caps contain high re-evaluation elasticity in the context of sustained devaluation of fiat currencies.

On a macro level, the global liquidity landscape is undergoing subtle shifts: U.S. Treasury Secretary Scott Bessent is about to launch a long bond buyback plan; Federal Reserve Chair Worcester's threshold for interest rate hikes remains extremely high; the competitive devaluation narrative of global fiat currencies proposed by Arthur Hayes is accelerating its evolution; coupled with massive AI capital expenditures now reaching the dimension of national industrial competition, fiscal and monetary policies are unlikely to proactively hit the brakes before the mid-term elections.

Arthur Hayes believes the marginal influence of the Federal Reserve is declining, and the world is entering a fiscal-led monetary expansion cycle. In the face of this macro tide of global credit currency devaluation, what is your allocation logic and macro reasoning?

Felix Javin: The barbell strategy is the most anti-fragile approach to address the current macro environment, and my asset base is also constructed based on this logic.

On the macro dimension, the relative discourse power of the Federal Reserve is continuously diluted compared to the U.S. Treasury and White House economic decision-makers, with the global macro mechanism transitioning from being driven solely by monetary policy to being dominated by fiscal deficit expansion and bond market management.

Taking Treasury Secretary Scott Bessent's bond buyback actions as an example, there is deep financial game theory behind this move. Generally, the issuance scale, duration structure, and buyback plans of the U.S. Treasury are clearly guided in each quarter's refinancing announcement (QRA). However, just two weeks after the last QRA was published, the Treasury suddenly bypassed established expectations and announced it would double the long-end U.S. bond buyback limit from $2 billion to $4 billion.

The underlying motivations for this sudden intervention point to the rare coordinated interventions in both the foreign exchange and bond markets of Japan and the U.S. over the past 30 years. Japan's Ministry of Finance's previous monthly foreign exchange report shows that its holdings of U.S. Treasury positions abruptly dropped by $87 billion within a month. As one of the largest overseas holders of U.S. Treasuries, Japan was compelled to massively sell U.S. bonds on the open market to support the yen's exchange rate and curb the sharp depreciation of the yen against the dollar, subsequently repurchasing yen.

When the yields on 10-year and 30-year U.S. Treasuries continuously hit the critical psychological barrier of 5%, the selling pressure from overseas sovereign capital represented a considerable liquidity burden on long-end U.S. Treasuries. The Treasury's emergency launch of a larger-than-expected long bond buyback was fundamentally aimed at absorbing liquidity shocks, stabilizing the sharp rise in long-end yields, and ensuring the smooth operation of the U.S. Treasury market.

Once the fiscal department and sovereign institutions begin substantial funding interventions in the forex and bond markets, store-of-value assets that resist inflation and protect against fiat dilution will welcome systemic re-evaluation. When the buyback news lands, both gold and Bitcoin show pulse-like surges. The recent pullback in gold is primarily due to the market's excessive defense against the Federal Reserve's interest rate decisions; whereas Bitcoin had already gone through extensive deleveraging, with short covering providing stronger bottom support.

Host: Recently, during the Jackson Hole Global Central Bank Annual Meeting, Federal Reserve Chair Worcester expressed a clear rejection of the so-called “forward guidance.” The market is now highly focused on its actions in the September monetary policy meeting. Do you think the Federal Reserve will choose to forcibly raise interest rates to maintain central bank credibility?

Felix Javin: From the probability distribution perspective, the likelihood of the Federal Reserve raising rates in September is low, but this highly depends on the upcoming inflation and employment data.

If the core CPI month-on-month growth exceeds 40 basis points, coupled with overheating labor market data, the Federal Reserve may be compelled to implement a defensive credibility interest rate hike. However, the current drivers pushing up inflation stem from the societal level of AI computing power and infrastructure capital expenditure. These structurally invested initial phases naturally carry the characteristics of raising upstream costs, and blindly tightening monetary policy cannot effectively resolve supply-side frictions.

The current independence of the Federal Reserve is being constrained by multidimensional political and fiscal pressures. Treasury Secretary Bessent has extremely high-frequency contacts with the Federal Reserve, and the White House continues to release policy appeals to lower borrowing costs. Bessent has explicitly stated that the central bank's monetary policy should not excessively counteract cost shocks driven by the supply side, which effectively compresses the space for aggressive Federal Reserve rate hikes.

Moreover, the internal divisions within the Federal Open Market Committee regarding the interest rate path have already been made public, with factions among voters highly divided. If the market translates potential rate hikes into the “last remedial shoe to drop,” long-end yields may actually decline due to a fall in term premiums; but if the market interprets it as the beginning of a new tightening cycle, asset pricing could face comprehensive chaos. Overall, even if the Federal Reserve avoids moves before the election considering political cycles and drops a shoe in December, the overall trend of liquidity easing can’t be completely reversed.

4. Position construction and quantum defense: Standards for selecting long-cycle assets

Host: Returning to specific operational allocation: aside from the basics of stocks, bonds, and commodities, on the crypto asset side, what is your core positioning plan in the face of future interest rate fluctuations and macro liquidity projections for 2027?

Felix Javin: My portfolio system follows a strict multi-layer isolation logic:

At the barbell's “currency store of value end,” it is primarily composed of Bitcoin, physical gold, and Zcash. During Bitcoin's bottom formation phase, I gradually established core positions, but after further studying privacy protection and on-chain settlement properties, I chose to rebalance some liquidity toward Zcash.

From the perspective of sovereign and high-net-worth capital allocation, public chain accounting mechanisms that lack absolute privacy have limitations in specific financial scenarios. Macro allocators like Ray Dalio have long viewed physical gold as the top non-credit-risk asset, and one of their major cautious considerations regarding Bitcoin is that the complete transparency of on-chain assets often conflicts with sovereign-level privacy demands, while fully controlled shielded pool technology compensates for this shortcoming.

A more profound but often overlooked strategic risk is the long-term threat posed by quantum computing to modern cryptography systems in the next five to ten years. For long-term institutional funds, the prerequisite for store of value assets is that they must provide absolute certainty over a cross-cycle hold of many years, as allocators cannot bear the tail risk of being forced to undertake emergency technological migration due to breaches in underlying cryptography.

The Zcash team is making clearer strides in post-quantum cryptography and anti-quantum algorithm migration paths, while the collaboration efficiency of the developer community on security architecture is more active; in contrast, the Bitcoin core ecosystem is relatively slow to respond to protocol upgrades in the face of quantum threats due to extreme governance decentralization. From a two- to three-year long-cycle perspective, assets with strong privacy and clear anti-quantum routes possess substantial upward valuation elasticity.

At the other end of the barbell are the native platform assets with high cash flow accumulation and solid moats, such as Hyperliquid and Lighter.

In terms of capital management, I advocate a strict “three-account isolation mechanism”:

• Layer One: Core Savings Account, predominantly allocated to large-cap index ETFs, Bitcoin, and long-term anti-fragile spot assets, held for a period of two to three years, not participating in short-term timing;

• Layer Two: Productive Capital Account, dynamically allocated to top-tier Web3 infrastructures and core on-chain financial agreements with real income, dividends, and reinvestment capabilities;

• Layer Three: High-Elastic Trading Account, using a small proportion of risk capital to capture short-term momentum events.

It must ensure that the short-term excess returns obtained in trading accounts can periodically flow back smoothly to the core spot account of Layer One, instead of allowing profits to be repeatedly exposed to system volatility in short-term contract trading, ultimately leading to the paper wealth experiencing a rollercoaster.

5. Institutional funding perspective and marginal buyers: Penetrating the evolution path of 2026-2027

Host: Over the past year, the crypto industry has faced a deep existential crisis amid the explosion of general artificial intelligence. Many capital and opinions have rushed to the AI track, leading crypto practitioners to question whether the technical narrative of decentralized networks has been marginalized by the times.

With Bitcoin gradually rebounding from deep liquidation and reclaiming key moving averages, combined with the official implementation of SEC tokenization new rules, the overall sentiment in the industry is undergoing a dramatic reversal. However, in every cycle's advancement, we must objectively assess the core question: who is the “next marginal buyer” of assets at different valuation stages?

The market is at a critical juncture transitioning from the game of existing crypto natives to institutional capital. The first batch of buyers consists of those who previously missed out and are waiting for a pullback; subsequently, high-net-worth individuals, compliant ETFs, and family offices will come in as long-term capital. What is your view on this capital relay process?

Felix Javin: This evolutionary path aligns with the objective laws of capital rotation.

The rebound momentum initiated from the bottom region is primarily due to the passive short covering of excess shorts within the market, coupled with some funds taking profits from the high valuations of AI hardware computing and storage sectors, subsequently seeking reallocation in comparatively undervalued areas.

The ensuing deep water zone will be entirely dominated by long-term compliant capital. As institutional investment committees begin comprehensive reviews of on-chain targets, their evaluation frameworks will completely align with the stringent logic of traditional asset management:

• The legal definition of on-chain tokens is fully converging to “digital equity securities operating on high-performance distributed networks”;

• Investment committees will not pay for vague community consensus; they demand penetration into the underlying business models, examining the actual EBITDA generated by the protocols, the security of valuation multiples, and the reasonableness of governance teams in capital allocation;

• At the value storage end, compliance risk control departments will rigorously verify technical audit roadmaps, and any assets facing cryptographic failures or quantum technology interruptions in the future will struggle to pass the risk control reviews of ultra-large long-term trust funds.

For secondary market investors, understanding this shift in institutional perspective is key to determining whether assets can enjoy liquidity premiums in the coming years.

Host: By the way, I would like to ask a question regarding cross-border private market allocations: do you hold a position in SpaceX in the private market? What is your outlook for its long-term potential?

Felix Javin: I have allocated toward SpaceX. The decision logic behind this investment is directly linked to its technological barriers.

With the in-depth tracking and utilization of cutting-edge AI technologies, after experiencing deeply integrated data model tools, it is clear that high-value proprietary data is becoming an absolute moat for the next generation of AI systems. The real-time telemetry data, communication networks, and native data sediment of the physical world that SpaceX and its ecosystem manage are constructing an extremely high compound technological barrier.

For this allocation, the multi-year lock-up period of the asset does not pose liquidity concerns. Many seasoned macro investors choose to treat it as a supergrowth stock across cycles for ultra-long-term holdings, even considering it one of the future globally highest market cap business entities. When the underlying technologies and business models showcase dominating generational advantages, participating at a relatively reasonable valuation range and holding long-term is the most direct investment approach to address the liquidity devaluation of fiat currencies.

Host: A very thorough breakdown. Thank you, Felix, for the deep sharing.

Article Link: https://www.hellobtc.com/kp/du/09/6439.html

Source: https://www.youtube.com/watch?v=FglorylSm0Q