The author of this article believes that public blockchains, particularly Ethereum, have a significant role to play in the future of financial markets. They argue that Ethereum is well-positioned to act as a settlement layer for financial transactions. The use of blockchain and tokenization in financial markets aims to streamline settlement processes, reduce reconciliation efforts, and make asset types easier to use as collateral and manage liquidity. The main use cases so far have been digital bonds and tokenized money market funds, but adoption of these assets on blockchain has been slow. The two key challenges hindering adoption are interoperability and executing the cash leg of payments on-chain. Interoperability issues arise from the use of private permissioned blockchains for tokenized assets, limiting the creation of a liquid secondary market. Traditional payment systems have been used rather than on-chain payments for digital bonds, which weakens the incentive for issuers and interest from investors. The article suggests that emerging solutions such as the use of stablecoins and regulatory frameworks could address these challenges. Institutions remain cautious due to legal and regulatory questions, particularly regarding privacy and KYC/AML obligations, when using public blockchains like Ethereum. Technical innovations such as zero-knowledge-proof technology and new token standards aim to address these concerns. Ethereum is viewed as well-positioned among public blockchains due to its liquidity, technology, token standards, and decentralized finance markets. However, its success depends on institutions' ability to understand and monitor concentration risks in Ethereum's network.



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