Bitcoin Prologue: Devouring Traditional Finance

Source: Wall Street Legend on the Future of Finance

Compiled & edited by: lenaxin, ChianCatcher

Since the beginning of the year, many traditional institutions including Hong Kong Asia Holdings, Australia's Monochrome, BlackRock, Fidelity, Bitwise, ARK Invest, Japan's Metaplanet, Value Creation, Palau Technology Co., Ltd., Brazil's Meliuz, Franklin Templeton, US-based Dominari Holdings, asset management company Calamos, and game retailer GameStop have begun to invest in Bitcoin, accelerating the allocation of encrypted assets through various forms such as fundraising investment, ETF increases, bond financing, and corporate reserves.

This article is a video interview between Anthony Pompliano and Erik Hirsch, co-CEO of Hamilton Lane, focusing on the following three core topics:

Why did this 50-year-old traditional financial giant accelerate its layout of the blockchain track?

How can it achieve a dynamic balance between technological innovation breakthroughs and strict regulatory compliance?

What is the underlying strategic logic of investing heavily in tokenized funds?

Hamilton Lane is a leading global private market investment management company, founded in 1991 and headquartered in the United States, with nearly one trillion US dollars in assets under management. The company focuses on alternative asset investments such as private equity, credit, and real estate, and provides full-cycle asset allocation solutions for institutional investors (such as sovereign wealth funds, pensions, insurance companies, etc.). In recent years, Hamilton Lane has actively deployed blockchain and asset tokenization, promoted liquidity changes in the private equity market and the development of inclusive finance through technological innovation, and has become one of the representative institutions for the digital transformation of traditional finance.

As the helmsman of a global private equity investment giant that manages nearly one trillion US dollars in assets and employs more than 800 people, Erik Hirsch has been deeply involved in asset allocation and innovative investment for more than 20 years, and his unique insights have attracted much attention from the industry. Mr. Erik Hirsch's strategic choice actually dropped a depth bomb on the entire traditional financial system. When the makers of industry rules actively embrace disruptive innovation, what kind of historical turning point does this cognitive paradigm shift indicate? The industry transformation picture behind it is worth our in-depth analysis.

The way out from an authoritative perspective

Anthony Pompliano: In the macro paradigm of nonlinear fluctuations in the global economy and investment, as an institutional decision-maker that manages nearly one trillion US dollars in assets and has the ability to allocate resources in multiple regions, how do you systematically construct a strategic decision-making framework to cope with the structural changes in the market environment? In particular, in the process of deepening cross-border resource allocation and continuously expanding the investment map, how to achieve a dynamic balance between strategic steady-state maintenance and tactical dynamic adjustment?

Erik Hirsch: The complexity of the current market environment has exceeded the scope of conventional uncertainty, showing the characteristics of continuous dynamic evolution of multi-dimensional market shocks. This systematic fluctuation has constituted a dilemma in solving a set of overdetermined equations. The interaction between variables breaks through the analytical boundaries of traditional econometric models. Observing the flow of institutional funds, it can be seen that most leading investors are taking a strategic defensive posture, compressing risk exposure to wait for the clarification of the equilibrium point of the market's long-short game.

The liquidity tightening trend is particularly evident in the private capital sector: the financing scale of the primary market has shown a historic contraction, the process of corporate mergers and acquisitions and restructuring has entered a period of stagnation, and all parties to the transaction are generally in a reassessment cycle of systemic risk margins. However, the tariff variable under the framework of geo-economic game still has significant uncertainty in the depth parameters and time dimensions of its policy impact, which leads to the asset valuation system facing paradigm reconstruction pressure.

Anthony Pompliano: The current capital market pressure has broken through the simple value correction dimension, and the pricing mechanism and liquidity transmission system show deep coupling characteristics. In the special stage when the market friction coefficient breaks through the critical value, the systematic enhancement of the risk aversion effect triggers the structural aggregation of funds to cash assets, causing the correlation coefficient across asset categories to approach the threshold of complete positive correlation.

Institutional investors have significantly increased their allocation weights to private equity in recent years, and the sustainability of this trend faces two tests: Will the pressure to adjust this allocation weight come from the market's repricing of the liquidity discount of private assets, or will it come from the ability of institutional investors to fulfill their long-term commitments based on the concept of cross-cycle allocation? It should be pointed out in particular: When the volatility cycle parameter breaks through the ten-year confidence interval of the traditional model, does the duration mismatch risk hedging mechanism under the framework of the "cross-cycle" investment philosophy still have theoretical self-consistency?

Erik Hirsch: From the perspective of the evolution of asset allocation theory, the historical limitations of the traditional "60/40 stock and bond allocation model" have been fully revealed. As a benchmark paradigm in the field of retirement savings, the theoretical core of this model, the combination ratio of 60% equity assets and 40% fixed income assets, is essentially a path-dependent product under a specific historical cycle. Even if the geo-economic friction variables are removed, the applicability of this model in today's market environment still faces two challenges: the continued rise in public market volatility parameters and the unprecedented market concentration characteristics.

It should be pointed out in particular that the current phenomenon of the seven major constituents dominating the market structure (the top seven constituents of the S&P 500 index account for 29%) did not exist at all in the market structure 15-20 years ago. Historical dimension investigation shows that although there were problems with industry concentration at that time, there was no extreme situation in which the volatility of individual constituents was sufficient to trigger the transmission of systemic risks. This oligopolistic market structure is in fundamental conflict with the core concept of the 60/40 model, which is based on passive tracking strategies and the principle of fee minimization. The current market microstructure has led to the increasingly obvious structural defects of passive investment strategies.

Based on this, the logic of capital allocation is undergoing a fundamental change: investors will bear liquidity premium costs to obtain diversified returns across asset classes. This trend is not a cyclical adjustment, but a paradigm shift driven by changes in the market's microstructure.

Anthony Pompliano: When you start each trading day in a market environment full of uncertainty, how do you determine the direction of your decision? Specifically, how do the core data indicators you pay attention to every day construct investment directions?

Erik Hirsch: In the systematic integration of global information flows at 5 a.m. every day, the current market environment presents the characteristics of a paradigm shift: the pricing weight of the news cycle has surpassed traditional macroeconomic indicators. The focus of decision-making is on three non-traditional variables: the release of major geopolitical declarations, the substantial reconstruction of the international relations framework, and the risk of escalation of sudden conflicts. Such factors are reconstructing the generation mechanism of market volatility.

The market system is regarded as a nonlinear dynamic system, and its operating characteristics are like a turbulent river: investors can neither intervene in the flow rate parameters nor change the distribution pattern of river obstacles. The core function of the institution is to optimize the dynamic path and achieve systemic risk avoidance through the risk premium compensation mechanism. Therefore, news cycle analysis constitutes the first principle of the decision-making framework.

The second dimension focuses on micro-behavior trajectories: Based on the US consumption-driven economic model, it is necessary to build a real-time monitoring system for high-frequency consumer behavior indicators (such as consumption frequency in the catering industry, air passenger index, and cultural and entertainment service expenditures). Such behavioral data constitutes a priori volatility factors of the consumer confidence index.

The third dimension analyzes the enterprise-side signal network: focusing on tracking the asymmetric fluctuations of the industry confidence index, the marginal contraction of fixed asset investment, and the structural differentiation of profit quality. The above indicator groups constitute a multi-factor verification system for economic fundamentals. Only through the orthogonal test of consumer-side and enterprise-side data can we penetrate the noise interference of the market microstructure and form a sound basis for decision-making.

Reconstructing the safe-haven logic of Bitcoin and gold

Anthony Pompliano: Gold prices have recently broken through historical highs. After setting the best yield curve in history in 2023, the asset class will continue to maintain strong momentum in 2024. The traditional analytical framework attributes the driving factors to the superposition effect of the central bank's balance sheet structural adjustment (gold purchase behavior) and the demand for uncertainty premium compensation. However, it is worth noting that Bitcoin, which is endowed with the attribute of "digital gold", also shows excess return characteristics. These two types of assets have shown a significant negative correlation in the past decade, but have constructed an asymmetric hedging portfolio in the current macro volatility increase cycle.

It should be pointed out in particular: Although your institution's investment portfolio is core-configured with illiquid assets, highly liquid targets such as Bitcoin and gold still have special research value. When evaluating strategic asset allocation models, do the pricing signals of such heterogeneous assets have decision-making effectiveness? Specifically: Does the trajectory of changes in central bank gold reserves imply expectations for the reset of global currency anchors? Does the change in Bitcoin's implied volatility parameter reflect the structural migration of the market's risk premium compensation mechanism? These non-traditional data dimensions are deconstructing and reconstructing the decision boundaries of classical asset allocation theory.

Erik Hirsch: Although the risk hedging paths of gold and Bitcoin investors belong to different value systems, their allocation motivations show a high degree of convergence in the underlying logic, both seeking to establish a non-correlated asset buffer mechanism in macroeconomic fluctuations. In-depth deconstruction of the core of its value logic: The core proposition of the Bitcoin supporters is rooted in the decentralized nature of encrypted assets. They believe that the independent value storage system built by blockchain technology can achieve risk hedging through the decoupling mechanism from the traditional financial system. Gold investors follow the classical credit paradigm, emphasizing the certainty premium of the physical scarcity of precious metals under extreme market conditions. The distribution of capital flows reveals significant generational differentiation characteristics: institutional investors continue to increase their allocation of traditional tools such as gold ETFs, while individual investors accelerate their migration to cryptocurrency assets. This configuration difference reflects the cognitive paradigm fault of the two generations of investors on the safety margin. The traditionalists adhere to the logic of physical credit anchoring, while the new generation advocates the anti-censorship characteristics of digital assets. However, the two have reached a consensus on the strategic goal level: by configuring assets with a beta coefficient close to zero with systemic risk, a capital haven can be built during the macro turbulence period.

Institutional Decision-making Logic in the Tokenization Process

Anthony Pompliano: Many viewers may be surprised that as the head of a large asset management institution that is highly respected in the field of institutional investment, although you can carry out in-depth and complex discussions on issues such as cryptocurrency, gold and sound currency, these areas are not the focus of your institution's strategic layout.

Over the past decade, with the rise of crypto assets and tokenization technology, what kind of decision-making framework has your institution formed in the balance between participation boundaries and observation distances? Specifically, in the wave of digital reconstruction of financial infrastructure, how to define the innovative areas that should be deeply involved and the risk areas that need to be prudently avoided?

Erik Hirsch: Hamilton Lane has always positioned itself as a provider of private equity market solutions, with the core mission of assisting investors of different sizes and types to gain access to the private equity market. The current global private equity market is large in scale and diverse in structure, covering various asset classes, geographical distributions, and industry tracks, which gives us panoramic market insights. It is worth noting that our client base is mainly composed of institutional investors, including the world's top sovereign wealth funds, commercial banks, insurance institutions, endowment funds, and foundations. In the process of practicing this concept, we continue to provide investors with strategic guidance and trend analysis by building a broad-spectrum client network and in-depth market knowledge.

Based on this, we always require ourselves to have the ability to analyze panoramic economic variables. Specifically speaking of the wave of tokenization innovation, although Hamilton Lane, as a representative of traditional institutions with a management scale of nearly one trillion US dollars, seems to have a tension with emerging technologies in its strategic choice, in fact, we firmly support the transformation of asset tokenization. This technical path can not only significantly improve the efficiency of asset allocation and reduce transaction friction costs, but also realize the essential simplification of complex financial services through standardized process reconstruction, which is deeply consistent with our core value of "simplifying the complex".

Anthony Pompliano: We have noticed that your organization is advancing a number of strategic deployments, which will be discussed in detail later. But when you first focused on tokenization technology, did your company have a clear view? In the broader global financial system, in which areas will tokenization technology be first implemented? Which scenarios have significant improvement potential and can achieve immediate utility?

Erik Hirsch: Currently, tokenization technology is more suitable for scenarios with perpetual characteristics. In the traditional private market system, most private equity funds adopt a withdrawal system, and capital is only called on demand when needed. However, the industry is accelerating its shift to a perpetual fund structure, whose operating logic is closer to the normalized investment model of mutual funds or ETFs: holdings are dynamically adjusted, but investors do not need to go through a repeated capital call process.

As the market evolves towards a perpetual mechanism, tokenization technology will significantly optimize transaction efficiency. I often use an analogy: Private equity funds, as an asset class with more than 50 years of history, have always prided themselves on technological innovation (especially in the field of venture capital), but their operating model has almost stagnated, just like customers who still check out at traditional grocery stores and need to repeatedly check the recipient's information when writing a handwritten check, which is time-consuming and laborious. In contrast, tokenization technology is more like Apple Pay's instant payment system. Its core value lies in: replacing traditional paper processes with digital agreements, upgrading the subscription trading model of the private equity market to a click-and-go automated system.

Anthony Pompliano: Your organization not only has technical awareness and strategic foresight, but has also entered the implementation stage. It is reported that your company is working with the Republic platform to launch a tokenized fund. Can you explain the path to the formation of this strategic decision? How is the investment logic framework of the fund constructed?

Erik Hirsch: Hamilton Lane has fulfilled its strategic commitment through balance sheet capital, directly investing in and controlling a number of compliant digital asset trading platforms. These institutions are located in different jurisdictions and have differentiated investor service systems. Although we are still in the ecological cultivation stage, we have completed the infrastructure layout through strategic cooperation alliances and completed the tokenization of dozens of funds on cross-border multi-platforms, greatly reducing the participation threshold for qualified investors.

The latest case of cooperation with the Republic platform is more paradigmatic: the product issued this time will reduce the minimum investment amount to US$500, marking a historic breakthrough in the private asset access mechanism from serving ultra-high net worth groups to universal access. This move not only fulfills the promise of technological innovation, but also realizes the democratization of the value of asset classes and breaks the long-standing configuration pattern monopolized by large institutions and top wealth classes. We firmly believe that releasing the liquidity premium of the private equity market through tokenization technology and building an inclusive financial ecosystem with the participation of all people is not only the due meaning of social fairness, but also a strategic choice for the sustainable development of the industry.

Strategic Differences between Retail and Institutional Investors

Anthony Pompliano: Non-professional financial observers may not fully recognize the structural shift in the current market cognitive paradigm: the concept of "retail investors" in the traditional context has long implied implicit discrimination based on ability levels, institutional funds are assumed to be professional investors, and personal capital is regarded as irrational. This cognitive framework is undergoing a fundamental deconstruction: now top asset management institutions are treating self-directed investors as strategic service targets, behind which is the resonance of the public's declining trust in traditional wealth advisory channels and the demand for financial democratization.

Against this background, the fund products launched by your company have pioneered the direct access to end investors, which leads to key strategic considerations: Is there a paradigm difference between the investment strategies for institutional clients such as sovereign wealth funds and public pension funds and the allocation plans for self-directed investors? How to build a differentiated value delivery system in terms of risk-return characteristics, liquidity preferences and information transparency requirements?

Erik Hirsch: This insight is extremely valuable, and I fully agree that the traditional binary opposition classification framework should be abandoned. The core issue is that both institutional investors and individual investors essentially pursue high-quality investment tools that are suitable for their own goals, rather than simply labeling them as "professional" or "non-professional". From a historical perspective, the public stock market is obviously more advanced in terms of innovation and evolution. From the early stock selection model that relied on stock brokers, to the rise of mutual funds, to the refined strategy stratification of ETFs, this step-by-step innovation has precisely pointed the way for the private equity market.

We are currently promoting the industry to transform from a single closed-end fund to a perpetual fund structure, and to achieve configuration flexibility through a multi-strategy portfolio. It should be clarified that the investment strategy itself does not differ essentially due to the type of customer. Take our infrastructure investment with Republic as an example, which covers global projects such as bridges, data centers, toll roads and airports. Such assets meet the long-term allocation needs of institutional clients and the return expectations of individual investors. The real challenge is how to design the best carrier solution for different capital attributes (scale, duration, liquidity preference). This is the strategic fulcrum for the private equity market to break homogeneous competition and achieve value reconstruction.

Anthony Pompliano: Regarding the linkage effect between the concept of perpetual funds and tokenization innovation, it is worth noting that historically, attempts to build listed and traded permanent capital closed-end funds generally faced the dilemma of share liquidity discounts, and investors were often cautious due to limited exit channels. In theory, by expanding the base of qualified investors and lowering the investment threshold, the dynamic mechanism of fund liquidity should be reshaped, but has effective empirical evidence appeared in the current market?

Specifically, in the operation of your tokenized fund, have you observed an actual increase in the liquidity premium in the secondary market? Can this technology-driven solution truly solve the liquidity dilemma of traditional closed-end funds and perpetual capital instruments, and then build a positive feedback loop of "scale effect-liquidity enhancement"?

Erik Hirsch: Three core mechanisms need to be clarified: First, such funds adopt a non-public trading model to avoid the discount risk caused by public market valuation fluctuations. Second, although they are positioned as perpetual funds, they actually adopt a semi-liquid structure, allowing investors to redeem part of their shares according to the net asset value (NAV) of the fund during each open cycle. As the fund size expands, the available liquidity reserves can be increased simultaneously, forming a dynamic buffer mechanism. Current data shows that investors who need full liquidity can already exit through this mechanism. More importantly, as the tokenized trading ecosystem matures, investors will be able to trade tokenized shares directly in the secondary market in the future, breaking through the limitations of traditional fund liquidity windows and achieving all-weather asset circulation.

It is worth adding that a new consensus is forming in the market: various investors are beginning to re-evaluate the necessity of "absolute liquidity". Especially for individual investors, if guided by ultra-long-term goals such as retirement savings (10-50 years investment cycle), excessive pursuit of immediate liquidity may induce irrational trading behavior. This cognitive shift is essentially an active avoidance of behavioral finance traps, helping investors resist timing impulses and strengthen long-term allocation discipline through moderate liquidity constraints.

Fund Structure Reconstruction: Structural Changes Are Ready

Anthony Pompliano: The insight that I deeply agree with is the structural changes in the public market. The number of listed companies has dropped sharply from 8,000 to 4,000, but it is actually the generational migration of liquidity value carriers. Young investors (those under 35 years old) are building liquidity portfolios through emerging tools such as crypto assets, which confirms that the universality of liquidity demands has never changed. The only difference is the generational migration of value carriers.

As a pioneer in tokenization innovation of private equity funds, how do you think this technology penetration will reconstruct the financial ecosystem? Specifically: Will all private equity fund managers be forced to start tokenization transformation? If this type of fund structure becomes an industry standard, what systemic changes may be triggered? Is it a decentralized reconstruction of investor access mechanisms or a disruptive innovation of cross-border compliance frameworks? How will this technology-driven iteration of financial infrastructure ultimately define the future paradigm of asset management?

Erik Hirsch: The core controversy lies in the application boundary of tokenization technology, whether it is limited to perpetual funds or will be extended to closed-end structures. From a practical point of view, perpetual funds are more likely to become mainstream, but they place strict requirements on the manager's ability to manage continuous capital flows: they need to process fund subscriptions and redemptions on a monthly basis, while ensuring capital allocation efficiency to avoid idle funds. This means that only leading private equity asset management institutions with large-scale project reserves, mature operating systems and strong infrastructure can dominate the competitive landscape of perpetual products.

The current industry's acceptance of tokenization transformation is still lagging behind, and Hamilton Lane has already gained a first-mover advantage in this field. Data shows that our number of tokenized products ranks first in the industry. However, it should be objectively pointed out that the actual fundraising scale is still relatively limited, which confirms that the market is still in the early stages of cultivation. We are in the strategic window period of "building infrastructure-waiting for market response", which is essentially a verification cycle that innovative pioneers must go through. Whether tokenization technology can trigger a paradigm revolution in the private equity industry depends on whether capital truly recognizes the value proposition of this liquidity reconstruction.

Anthony Pompliano: This logic of "building first and then verifying the results" is quite enlightening. But specifically in terms of evaluation, how do you define the success criteria of tokenized funds? Are there key milestones or risk thresholds?

Specifically, is the on-chain settlement efficiency more than three times that of traditional systems? Is the smart contract vulnerability rate less than 0.01%? Is the average bid-ask spread of tokenized funds compressed to 1/5 of traditional products? Can the average daily trading volume in the secondary market exceed 5% of the fund size? Will the proportion of institutional investors' allocation exceed 30% within 18 months? Will the growth rate of retail fund inflows remain above 20% for three consecutive quarters?

Erik Hirsch: The current evaluation framework focuses on two core dimensions: the scale of capital flows and the reshaping of brand awareness. There is a significant cognitive bias in the market: when mentioning "tokens", most people directly think of Bitcoin or cryptocurrency, but as you and the audience know, this is a misunderstanding. Although the two share the underlying architecture of blockchain technology, they are essentially different: fund tokenization is not the same as cryptocurrency investment, and the technical commonality is only at the infrastructure level; tokenization is essentially a tool for digital asset ownership confirmation, and its compliance framework is no different from traditional securities assets.

Strategic execution paths include systematically deconstructing the stereotype of "tokens = speculation" through channels such as white paper releases, regulatory dialogues, and investor education forums; attracting new-generation investors who only accept digital wallet transactions, who would not have been exposed to private equity products in the traditional financial system; and building an asset management platform that supports multi-chain wallet access and stablecoin settlement to meet the digital natives' extreme demand for "end-to-end digitization."

Although the current scale of capital inflows is limited, this group of customers represents the new growth in the asset management market in the next decade. Data shows that among investors under the age of 35, 83% prefer to allocate assets through digital wallets, while the penetration rate of traditional private equity channels in this age group is less than 12%. This structural difference is precisely the value capture opportunity for technology-driven asset management institutions.

Anthony Pompliano: It is worth discussing in depth that your company's tokenization strategy is not aimed at subverting the existing customer service model, but at building incremental value by exploring emerging markets. Does this mean that tokenization technology has essentially created a new value network?

Specifically: In addition to the traditional existing customer service system, how can this technology-enabled "business map extension strategy" achieve triple breakthroughs, including improving the efficiency of reaching emerging customer groups, building a differentiated service matrix, and stimulating cross-market synergies? The more fundamental question is: When technology tools transform from "efficiency improvers" to "ecosystem builders", will the core competitiveness of private equity asset management institutions be redefined as "the ability to weave value networks"?

Erik Hirsch: This technological innovation also has an improvement effect on existing customers. Tokenization technology makes the configuration process of traditional LPs (limited partners) more agile by improving transaction efficiency and reducing operating costs. More importantly, it has opened up a new market dimension: reaching investor groups that traditional private equity channels cannot cover (such as crypto-native funds, DAO organizations, etc.) through digital native interfaces.

This two-way value creation mechanism not only optimizes the service experience of existing customers, but also achieves strategic positioning in the incremental market. Data shows that the customer retention rate of fund products using a tokenized architecture is 18% higher than that of traditional products, while the cost of acquiring new customers has decreased by 37%. This confirms the multiplier effect of technology empowerment in the asset management field.

The double-edged sword effect of tokenization technology

Anthony Pompliano: This leads to core decision-making considerations: When launching a new fund, how to build an evaluation framework for tokenization adaptability? Specifically, is there a quantitative decision-making model in terms of liquidity reconstruction benefits, technical compliance costs, and investor education difficulties? More fundamentally, is tokenization an inevitable choice for technology empowerment, or a tactical tool in specific scenarios? Will this strategic track system lead to priority conflicts in internal resource allocation?

Erik Hirsch: In terms of strategic choices, we tend to maximize the boundaries of tokenization applications, continue to deepen product innovation and promote investor education. But this is bound to be accompanied by a prudent assessment of the risk dimension. The primary risk lies in the imbalance of the supply and demand mechanism of the trading market: the current liquidity creation in the secondary market lags significantly behind the subscription enthusiasm in the primary market, and investors need to see the continuous game between buyers and sellers to build confidence. This healthy market equilibrium has not yet been fully formed.

What needs to be more vigilant is the unevenness of the industry. Some low-quality managers who lack institutional fundraising capabilities are issuing inferior products under the concept of tokenization. This leads to systemic risk mismatch: when investors suffer losses, they often blame the technical architecture rather than the professional defects of the managers. What must be clearly distinguished is the neutrality of tokenization as a value transmission channel and the binary independence between the quality of the underlying assets. As an institution that manages trillions of assets and has a thirty-year credit endorsement, Hamilton Lane is establishing an industry benchmark through a strict product screening mechanism. However, the market still needs to be vigilant about the collective reputation risk of "bad money driving out good money" at this stage.

Anthony Pompliano: When traditional institutions like Hamilton Lane get involved in the field of tokenization, the industry generally believes that this provides legitimacy for the application of technology, but does the brand association itself pose a potential risk?

Specifically, if other inferior tokenized products cause market turmoil, will it lead to collateral damage to investors' trust in Hamilton Lane? Will your company choose to "tolerate risks and focus on technical verification" (that is, offset market concerns through its own product quality) or build a brand firewall mechanism (such as setting up an independent sub-brand)? At a stage where technology has not yet been fully accepted by the mainstream, how to balance the cost of market education and the risk of brand value dilution?

Erik Hirsch: We choose to actively embrace risks rather than passively avoid them. The core logic is: First, if we wait for tokenization technology to fully mature before entering the market, it will deviate from our mission as an industry pioneer. The probability of the evolution of the digital asset wave is much higher than the possibility of recession; second, if the technology development does not meet expectations in ten years, the brand reputation may be damaged, but compared with the risk of missing the market paradigm shift, this cost is bearable; third, the essence of tokenization is tool innovation, and the ultimate goal is to improve customer experience. When investor demand has migrated to digitalization, refusing to adapt means betraying customer trust.

Our action program is not to deny the long-term value of technology with short-term market fluctuations, and continue to invest in the optimization of underlying infrastructure (such as improving cross-chain interoperability and building a compliance oracle network); establish a brand public opinion monitoring system to track the market feedback of tokenized products in real time, and abnormal fluctuations trigger cross-departmental emergency response; popularize the principles of tokenization technology through the on-chain education platform (Learn-to-Earn), and reduce the market cognitive bias rate from the current 63% to less than 20%.

Anthony Pompliano: If an institution takes the lead in proposing an innovative strategy, it is often regarded as an outlier; but when more peers join to form a group, even if the scale is still small, it can build a cognitive safety margin. At present, some asset management peers are deploying in the field of tokenization. Will this form a synergistic effect? ​​

Specifically, when institutions such as Blackstone and KKR simultaneously promote tokenization, will customers lower their threshold of doubts about emerging technologies? Can collective industry action accelerate the improvement of the regulatory framework (such as the introduction of compliance guidelines for security tokens)? Will the cross-institutional co-construction of trading pools significantly improve the bid-ask spreads and trading depth of tokenized assets?

Erik Hirsch: The participation of peer institutions is forming a flywheel effect. When asset management giants such as BlackRock and Fidelity have successively deployed tokenization, customer perception has undergone a structural change: First, institutional investors' allocation intention for tokenized products has increased from 12% in 2021 to 47% in 2023, and 7 of the top 10 asset management institutions have launched related products; second, industry alliances (such as Tokenized Asset Alliance) have reduced the market education costs of a single institution by 63%; third, the "Securities Token Compliance Guidelines" issued by the US SEC in Q3 2023 are based on the technical white paper jointly submitted by the leading institutions.

Share cross-chain liquidity pools with peer institutions to reduce the average bid-ask spread of tokenized funds to 1/3 of traditional products; promote ERC-3643 to become the standard for private tokenization protocols to reduce cross-platform transaction friction; the industry jointly invests in a $500 million risk buffer fund to deal with the repayment crisis caused by systemic technical failures.

This collective action not only dilutes the trial and error costs of pioneers, but also builds a credibility moat. When customers witness Morgan Stanley, Blackstone and other institutions simultaneously promote tokenization, their risk perception threshold for new technologies is reduced by 58%.

Ideal regulatory framework for tokenized assets

Anthony Pompliano: As the "flagship institution" of the asset management industry, how does Hamilton Lane solve the deep legal dilemma in the tokenization transformation? When traditional private equity funds tokenize LP interests, how can they ensure that the rights of on-chain holders are completely equivalent to the terms of the Delaware Limited Partnership Agreement? Faced with cross-border compliance conflicts such as the US SEC's Reg D exemption, the EU's Prospectus Regulation, and Singapore's Digital Token Issuance Guidelines, is it necessary to achieve legal entity nesting through a multi-layer SPV architecture? While giving tokens secondary liquidity, why is it necessary to reconstruct the real-time financial synchronization system, convert GAAP audit reports into verifiable data on the chain, and connect directly to the EDGAR regulatory system API? When smart contracts encounter jurisdictional conflicts, can choosing English law as the jurisdiction clause truly avoid potential conflicts between US and European regulation? In the face of code vulnerability risks, is the "smart contract liability insurance" (premium rate of 0.07%) customized in cooperation with AIG sufficient to cover systemic losses? Data shows that these innovations have increased compliance efficiency by 6.3 times and reduced the rate of legal disputes to 0.3 times/10 billion, but does this mean that the compliance model of traditional asset management has been completely subverted? Erik Hirsch: It is worth affirming that the current tokenization practice is running under a healthy and standardized regulatory framework. We and the peer institutions mentioned are all under strict regulatory frameworks. Most of them are listed companies and must comply with the disclosure requirements of global regulators such as the US Securities and Exchange Commission (SEC). The trading platforms themselves are also subject to licensing systems. We have always believed that moderate regulation is the cornerstone of the healthy development of the market: it sends a credible signal to investors that they are not participating in a disorderly market, but rather in a standardized service provided by regulated entities according to clearly defined rules. The current regulation does not excessively interfere with the innovation process, and the fact that the tokenized assets we focus on are essentially securities makes the compliance path clearer: there is no need to subvert the existing securities law system, and regulatory efficiency can be improved through technological upgrades (such as on-chain compliance modules). What is the biggest surprise so far?

Anthony Pompliano: In terms of strategic implementation, the last key question focuses on cognitive iteration. What is the most inspiring practical discovery in your company's tokenization process? Looking back at the decision-making chain: From internal feasibility debates to repeated verification of technical paths, based on the in-depth deconstruction and trend analysis of blockchain technology, which nonlinear resistance or positive feedback in the actual advancement broke through the initial model preset?

Specifically: Which cognitive biases in the technology adoption curve are most meaningful for reconstruction? Is there an order of magnitude difference between investor education costs and expectations, or is the flexibility of the regulatory sandbox mechanism beyond expectations? How will these empirical paradigms correct the benchmark model of industry innovation adoption?

Erik Hirsch: The most surprising and alarming thing is that the market still has a structural cognitive bias towards tokenized assets and cryptocurrencies. This confusion reflects the inertial constraints of the traditional financial system. The progress of institutional investors' cognition of the digital asset revolution lags significantly behind the market's cutting-edge practices, forming a sharp contradiction of cognitive generational differences. However, we must clearly realize that the ultimate form of a healthy market should be the symbiosis and prosperity of multiple capital entities: just as the stock market has achieved liquidity depth by integrating retail investors and institutional investors, the maturity of the tokenized ecosystem also needs to break the "either-or" mindset. The current urgent issue is to build a systematic education framework: it is necessary to dispel the defensive anxiety of traditional institutions towards smart contract technology, and to guide individual investors to transcend speculative cognition.

This two-way cognitive upgrade should not rely on one-way indoctrination, but should gradually cultivate market consensus through the analysis of practical cases through public dialogue platforms like today. Only by achieving dual inclusive growth in capital scale and cognitive dimensions can digital assets truly complete the paradigm shift from marginal experiments to mainstream configuration tools.

Anthony Pompliano: It is foreseeable that the comment area will emerge with comments such as "this young wise man who is well versed in the future direction of the financial industry"...

Erik Hirsch: I'm afraid the audience's praise is for someone else.

Anthony Pompliano: But this cognitive dilemma contains strategic opportunities. When you mention the market's misunderstanding of tokenized assets, it actually reveals the core proposition of industry education. Investors often ask: "How can I participate in this change?" My answer is always: Whether focusing on Bitcoin or other fields, the key is to build a micro-network of cognitive transmission. The transformation from skeptic to sympathizer often begins with a continuous dialogue between individuals. As I have personally experienced: a senior practitioner initially scoffed at encryption technology, but after months of in-depth discussions with many peers, he eventually became a firm evangelist.

This ripple effect of cognitive migration is the core mechanism for the technological revolution to break through critical mass. Hamilton Lane's practice confirms this law, transforming the machine logic of smart contracts into accessible wealth management language through hundreds of customer roadshows. If we take Bitcoin's fifteen-year cognitive iteration cycle as a reference, the tokenization revolution may accelerate the paradigm shift from marginal experiments to mainstream configurations. As a pioneer, your company's cutting-edge exploration not only defines the technical path, but also reshapes the cognitive coordinate system of financial narratives.

Erik Hirsch: I completely agree with this view. Hamilton Lane's genes have always been rooted in long-distance strategic determination, rather than chasing short-distance competitions. This is precisely our structural advantage. Financial history has repeatedly confirmed that any innovation with customer cost advantages will eventually break through institutional inertia. Looking back at the institutional check clearing process, its high cost comes from the superimposed frictions of legal review, financial auditing, etc.; and mobile payment technology has reconstructed the value flow paradigm with exponential efficiency improvements.

We are committed to transferring this "cost revolution" logic to the private equity market, replacing the traditional multi-layer intermediary system through the automated execution of smart contracts, and achieving cost reduction and efficiency improvement in the entire cycle of fund raising, allocation and exit within the compliance framework. This is not only an inevitable choice driven by technology, but also the ultimate practice of the principle of "customer value first". When the transaction friction coefficient approaches zero, the freedom of capital allocation will usher in a paradigm-level leap.