The Avalanche Foundation, which governs one of the most business-friendly public blockchain networks, has committed to spending $50 million in tokenized assets as part of the “Avalanche Vista” program to encourage greater adoption of its chain for tokenization. The money will go into stocks, credit, real estate, commodities, and native blockchain tokens.

We previously wrote about three tokenization projects on the Avalanche network.

“Spruce” is a permissioned testnet used to test DeFi applications such as FX and interest rate swaps by T.Rowe Price (AUM $1.3 trillion), Wellington Management (AUM $1.4 trillion), WisdomTree and DRW’s Cumberland.

In April, Securitize Capital tokenized part of a KKR fund on the main Avalanche blockchain. And in January, Intain launched IntainMarkets, a licensed tokenized marketplace for asset-backed securities and structured finance projects. Intain already had a management solution serving $5.5 billion worth of assets for clients including WSFS, UMB and the Wilmington Trust.

One of Avalanche’s advantages for businesses is its subnets. ‘Always green’ subnets can be private, authoritative chains where the validators are institutions. They are interoperable with the rest of Avalanche’s public blockchain system.

Sounds great, but is it a good idea?

On one hand, this $50 million commitment is a very crypto move to help develop an ecosystem, and it sounds like a great idea. There is no doubt that the intention is positive.

However, when it comes to regulated markets, you need to tread very carefully. Some regulators are not interested in cryptocurrencies being mixed with traditional finance (TradFi). Getting regulators to entertain the use of a public blockchain for securities is a great achievement. Countless reports on risks to financial stability repeatedly state that there is limited connectivity between cryptocurrencies and TradFi, which is seen as positive for stability by regulators.

Even looking at some of the higher profile tokenization offerings, they are proceeding very cautiously, even if they ultimately have ambitious plans. Franklin Templeton has around $300 million in tokenized funds in Stellar and Polygon. But if you read the terms and conditions, investors always deal directly with Franklin Templeton and pay in the traditional way.

Another problem relates to what is known as a cryptoactive. Banks are trying to keep the dividing lines between securities, stablecoins and cryptocurrencies clear, because Basel capital rules are different for each. However, in the US, the SEC has classified them all as crypto assets that require them to appear on the custodian’s balance sheet. That’s not positive for tokenization.

Crypto projects like Avalanche often use treasury funds to drive network effects. When one blockchain foundation makes a move like this, others often follow. Hopefully, Avalanche Vista will have the desired impact, but there is a chance that this could have unintended consequences.