Interview with Morgan Krupetsky from Ava Labs

Tokenization is nothing new, says Morgan Krupetsky of Ava Labs, but here’s what we’ll stay for now.

Tokenization has emerged as one of the most influential stories in cryptography, with the promise of increased efficiency, liquidity and accessibility. Still, while major institutions are increasingly jumping into the field, reality remains mixed.

Crypto.News spoke with Krupetsky from Ava Labs. AvaLabs discussed Avalanche’s early role in tokenization and how to separate hype from reality.

Crypto.News: A work related to “Tokenization 101” that writes that tokenization is still a hype. Which part do you think is hype, and which one?

Morgan Krupetsky: Tokenization is not new. Since 2017, people have been experimenting with it. We’ve seen all sorts of headlines about tokenizing everything from uranium to burj khalifa. There was no shortage of announcements, but many of them were announcements of announcements, not live products.

That’s why I like to look at metrics like the RWA.xyz dashboard and see what the marketing is actually unfolding and reflected on chain.

The clearest success story to date is Stablecoins, a typical tokenized asset with a market capitalization of over $280 billion. Stablecoins has spurred interest in tokenized money market funds. That segment is still small, but it’s growing.

We also see the publishers of Stablecoin and Synthetic Dollar expanding to personal credibility. There is an ongoing effort to represent stocks, and people are experimenting with symbolizing collectibles, products, etc. But again, the key is to separate it from the hype in real life and in production.

Aside from Stablecoins, which tokenization segments look the most promising to you? Whether it’s regulatory or technical reasons, where is the biggest opportunity?

MK: I’m very excited about my private credit space. The big reason is that these products have yields. If you can use Stablecoins to automate interest, waterfall distribution, and more, the benefits of tokenization can be very specific.

Take, for example, Private Equity. They do not generate spending the same way, and NAVs do not change frequently. The advantages over the chain lie there, but it’s not so obvious. In contrast, credit products allow you to quickly see how programmaticity adds value.

Specifically, Asset-Backed Finance (ABF) uses stubcoins and program facilities to streamline and upgrade processes. After the global financial crisis, banks were pulled back from certain lending activities. Fintech originators intervened, followed by private credit companies, but today the ABF space is controlled by the largest alternative asset managers. They can take on well and they have a huge middle office and back office team to handle the loan.

These processes can be made more efficient by using programmable facilities and stubcoins. This opens the door for small funds, emerging managers and family offices to participate in ABF loans. This is a segment that will grow significantly over the next few years.

Currently, we run several pilots with FinTech originators with the goal of scaling. For us, it’s not just about “better technology” but also about upgrading the ABF industry with better programmable money.

By adding, this is not simply tokenizing loans for secondary market transactions. Many initiatives are trying to create fluidity in that way, but before that, there has been a real impact from using the underlying technology stack to improve how processes work today.

When it comes to automating lending decisions, some companies have tried before, as they often have mixed results, such as carvanas for used cars and Zillow for homes.

MK: I don’t think the goal is to replace human decision-making. It’s about having better tools for institutions and individuals.

That’s how many AIs are used today. It’s not replacing expertise, it’s about helping people make more informed decisions. Blockchain allows for faster standardization and verification of data. This means that you can make your decision faster and fresher information, rather than having your Excel spreadsheet work within 30 days.

In this context, technology acts as an enabler rather than as a substitute for underwriting capabilities. Human judgment is still important.

The same misconception leads to tokenization. Just because you tokenize an asset doesn’t mean people want to automatically buy it, it shows their liquidity. Tokenization does not create a secondary market on its own. What it does is provide the tools that enable those markets when there is actual demand.

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You mentioned lessons from the financial crisis and subprime mortgages. Several industry voices warn that tokenization can also pose risks, especially if it is not clear about funding being packaging. Do tokenized asset issuers actually use blockchain transparency and compliance possibilities?

MK:No compliance is guaranteed, so that tokenization does not guarantee liquidity or secondary market demand. Technology is a tool. It can reflect laws, rules and regulations, helping you manage your compliance more proactively. However, it does not create rules or set up a governance framework. It still has to come from regulators and financial institutions.

For example, in the work we do with private credit, blockchain is used to create better risk-adjusted returns for us and our capital partners. Certain things are more transparent and programmable. This allows FinTech originators to manage compliance and take risks more effectively. From an investor’s perspective, its visibility allows for a more comfortable deployment of capital.

Ultimately, it is up to each issuer to ensure that the token or funds are started in a compliant manner, depending on the underlying assets and jurisdiction. There are a wide range of approaches to a wide range of markets. This technology is useful, but it does not replace human responsibility to ensure compliance.

Regarding tokenized assets, what are your views on the current US regulatory environment?

MK: Generally, I think the regulatory environment has changed dramatically since the election. This change provides a strong tailwind for the entire industry. Institutions, banks and asset managers are now more open to exploring public blockchain infrastructure. You can feel the difference in conversation.

Comparing tokenized assets with off-chain equivalents actually brings the full advantage when more asset lifecycles are issued and managed directly on the chain. Friction occurs when you try to tokenize something issued off-chain and manage it on two different systems. Over time, we will see more issuances occur natively in the chain, but we are still in the transition period.

The long-term vision is to accept stubcoins with daily use, tokenized assets issued from the start, and tokenized assets with management fully processed in a chain. That’s when the benefits of complexity and programmability are actually shown. For example, idle assets may earn interest while being held in escrow. But we’re not there yet.

I also sympathize with large incumbents like the banks. Some of them have been running for hundreds of years. Overhaul systems are expensive and disruptive, and before making a big move, there is a need for a clear business case or a threat to revenue. In the meantime, Neobanks and Fintech are often flexible and experimenting quickly.

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Established companies like Nasdaq have filed for tokenized shares. MasterCard file for Stablecoins. Do you think Defi can compete with traditional players in these markets? What benefits does decentralization bring?

MK: I think there will always be a place for public, unauthorized debt, as exists today. But what’s really happening is the convergence of defi, cefi, and tokenization. When I first started with AVA Labs three years ago, these were considered separate worlds. Now they’re gathering, and I hope it continues.

While institutions are unlikely to jump directly into the defi platform, defi primitives can absolutely work on the backends of fintech, neobanks, and even traditional platforms. We’ve already seen it on exchanges that launch acquisition programs that rely on behind-the-scenes integration.

From a tokenization perspective, the best path to adoption is integration with the platforms people already use. It could be a wealth technology platform like Robinhood, or a private bank’s asset management system. For end users, the blockchain layer should be invisible. You don’t need to know which chains are being used. The key is that they get new or better financial products.

For example, imagine that you can use a debit card to spend directly from a tokenized money market fund. This is the type of experience that drives mass adoption, and on the backend it can be driven by a Web3 infrastructure including defi.

Can you give an overview of what AVA labs do in this field?

MK: From the start, our mission was to digitalize and tokenize assets around the world. Many of us at AVA Labs were already working on tokenization before it was called “RWAS.” We have always believed that this will become a core use case for blockchain.

One of our early milestones was working with Securitization and KKR to tokenize a portion of the Healthcare Growth Fund in 2021. This was before tokenization was the mainstream narrative, but it showed the potential to bring high quality assets into chains.

Since then, we have focused on two things. First, we cultivate a high-quality supply of tokenized assets from top managers such as Apollo, BlackRock and Wellington. Second, it builds distribution and demand by operating platforms built on an avalanche. We do many outreach to potential distribution partners so that tokenized assets can reach investors through channels they already use.

The reality is that most fluidity is not yet a chain. The path to adoption connects its liquidity with iconic assets through traditional distribution systems. That is what drives changes to adoption steps.

What about the Avalanche Treasury initiative??

MK: I see it as another way for a wide range of investors to access the avalanche ecosystem. Not everyone is used to holding tokens directly, setting up a Web3 wallet, or doing that user experience. To be honest, there is still something to do in the industry about ease of use.

Such products are similar to ETFs or ETPs in that they provide a structure that is more well known to investors. That includes both institutions and individuals who want exposure but prefer traditional rappers. Ultimately, they begin access to the avalanche for people who may not otherwise be involved.

What kind of work is there still to be done to make that vision come to fruition?

MK: From the start, we have focused on institutional and chain finances, but that remains our prioritization. We doubled areas such as Defi, Payments, Treasury tokenization, and Wholesale Finance. We are proud of the progress we have made, but there is still a lot of work to do.

The truth is, we still don’t have a massive adoption. The liquidity of the system does not flow into large chain assets. There are many puzzle pieces currently in place, such as custodians, on-ramp and off-ramp, compliance frameworks, tokenization platforms, and more, but we’re not at the point where the industry can say, “We made it.”

Compare it with the early internet. At the time, people were still talking about “internet companies.” Today, all businesses use the internet and you don’t make that distinction. When blockchain is used as the core infrastructure for businesses, governments and financial institutions, we reach the same milestone. At that point there’s nothing like a “blockchain company.” It will become part of how the world works.

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