In this week’s episode of Retire in Texas, Darryl Lyons, CEO and Co-Founder of PAX Financial Group, dives into a cutting-edge topic that could reshape the future of finance: tokenization. While the conversation touches on familiar ground like Bitcoin and blockchain, the real focus is on how tokenization may democratize access to investments and redefine ownership in a digital age.
Drawing comparisons to past investment evolutions – from mutual funds to ETFs – Darryl explains why tokenization could be the next major shift, offering both new opportunities and new risks.
In this episode, you’ll learn:
• What tokenization means and how it works.
• How blockchain technology supports this financial evolution.
• Real-world examples, including Nas and Taylor Swift royalties.
• What this could mean for individual investors – and the hurdles that still exist.
• Why regulation and infrastructure are key to mainstream adoption.
Darryl also shares personal stories from his early days as an ETF adopter, highlights the costs saved through innovation, and reflects on how tokenization might bridge the gap between consumers and ownership.
For more insights or to connect with a PAX Financial Group advisor, visit http://www.PAXFinancialGroup.com.
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Transcript:
Hey, this is Darryl Lyons, CEO and Co-Founder of PAX Financial Group. And you’re listening to Retire in Texas. This information is general in nature only. It’s not intended to provide specific investment, tax, or legal advice. Visit PAXFinancialGroup.com for more information. Okay, so, you know, you’ve heard a lot about bitcoin.
I’ve done plenty of podcasts on bitcoin and the blockchain arena and I have pretty strong opinions on those. I’ve heard much stronger frankly. And some people are just like adamant on that they’re evil. And the opinions do change to a certain degree, I guess. I want to be open minded about it, but I’m still not sold on the fact that it makes the world better.
And as I think part of the reason that I struggle with it is because what I was told Bitcoin would do has not materialized, and the reason for owning it has changed. Now, the reason for owning it is just to own it. You know, so anyways, this is not a podcast about bitcoin.
That was just some commentary that was top of my head. But it is a podcast about tokenization. And if you want me to dive into Bitcoin again I’ll do it again and kind of give you a refresh point of view. But tokenization is similar to the reason I mentioned cryptocurrency as a whole is because tokenization has the same attributes.
It uses blockchain technology. So, I want to talk about tokenization today. And I know that’s kind of a weird thing, but this is the future y’all. This is in so many different ways. It’s going to completely change the way we do finance and commerce in general. And if you think about it, some of you guys know I went to law school, you know, during Covid and it was a program that was through A&M.
So, I am an Aggie, and it was specifically focused on the wealth management side of law. And so, it’s called a Master of Jurisprudence. And so, we spent a lot of time talking about, as you would imagine, the Commerce Clause and Securitization and kind of this next iteration of commerce and this new technology. And it’s a road not traveled before by our forefathers.
So, it’s going to be a very, very tricky one for us to figure out. But it’s here and it’s coming and it’s now. I mean, I was listening to a podcast the other day and it was a young group of people. They were probably in their early 20s, and they were talking about the time that people used cash and went to ATMs like, there’s a group of people that just cash is not something they’re used to using.
So here we are and we’re moving fast. And you guys need to absolutely know what’s going on. And despite the weirdness of it, you need to be open to adopting it at a cadence that you’re comfortable with. And you already are. You don’t know it yet. And so, I’ll give you a reason why I believe that to be true.
But we need to stay on top of that, and I’ll do my best to help you stay on top of it. But I do want to talk about tokenization. I mentioned it three times now, and you’re still like, what is tokenization? So, tokenization means, taking this real physical thing like a building or painting or piece of land and turning the ownership of that into digital pieces.
They’re called tokens. And those tokens can be bought and sold and traded often on a blockchain. Part of the reason it’s interesting because it reminds me of the next iteration of investing, because 30 or 40 years ago, actually, when I first got in the business, in 1999, the way that all of us invested was pretty much through mutual funds and I don’t know if you remember, but a long time ago, American Funds was kind of the big gorilla.
They, they did a lot of the business in the industry. Fidelity did too. But American Funds did and so mutual funds. So, which was a great tool to accumulate wealth, to be able to diversify over 100 different stocks into one fund. So that way if you own Enron, you wouldn’t lose all your money. So, it was an awesome way for people to accumulate wealth.
Well, I don’t know, it seems like 20 years ago, there was a new iteration of investing that came out called exchange traded funds. The same last name funds, but exchange traded funds used computer technology and kind of cut out that portfolio manager in New York that drove the limo. They got cut out and they started using computers and, we started tracking that collectively, the industry started tracking performance of these computers, exchange traded funds.
And I’m oversimplifying it. And they were outperforming the manager. So now the industry has completely shifted, and you’ve seen the trends. More people are owning exchange traded funds than mutual funds now. And so, this iteration of investing is absolutely transformed the way we invest. And you as a consumer, you don’t know this, but you’ve saved probably 1% on your money annually because of this technological shift.
1% a year is a lot of money. And that’s not kidding. I mean, because I would get frustrated with some of these funds. Some of them were almost 2%. And then they would have these nebulous trading fees that were on page 57 of these big prospectus books that I couldn’t even get a handle of, they’re, like in addition to those 2% in fees.
And so, I couldn’t get a handle on mutual funds to save my life of the total fees, despite, you know, me trying to nerd out on it. Exchange traded funds came along, and I was so happy because it saved clients’ money. I was so, so happy. In fact, I was so happy we were early adopters in it, and I had a client yell at me.
It was actually I mean, it was, he was young, about my age. And I guess this was 15 years ago, maybe, maybe 12, whatever. But he yelled at me over the phone. It was so frustrating because I was using exchange traded funds on his parents’ portfolio, and he wasn’t used to them. He was used to mutual funds.
So why wouldn’t I own mutual funds? Why are you putting as like, they’re lower costs? I can buy and sell it easier. I was a fiduciary, so it didn’t matter to me. It’s not like I was getting paid to do one or the other, but he was yelling at me for using exchange traded funds, which is the price to pay for kind of being in the front end of a trend.
And we were, not at the very beginning, but we were thinking deeply about how we can save our clients’ money. And so, we’re using exchange traded funds very early. In fact, another little story. We were up at Dave Ramsay’s office. I was on his advisory council. And, you know, Dave, he loves mutual funds. And so, I flew up there and I was meeting, it was me and like 6 or 7 other advisors.
And Dave was, when we were on these meetings in Nashville, Dave would come in and out. He wouldn’t sit in all the meetings, usually had his team. But every now and then he’d come in and kind of wrestle with stuff. And Dave’s an awesome guy. Love the guy. But we were talking about exchange traded funds, and you know how we advisors were starting to adopt it.
And, you know, he really wasn’t going to have that. That really wasn’t his thing. He’s going to stick with this for mutual funds. I would suggest to you, if you listen to his show, he’s backed off a little bit about it, he’s less dogmatic, he sees that there’s a place for exchange traded funds. But in his initial iteration, he wasn’t fond of him either.
And he wasn’t fond of them because they were new. But I think today you’re going to find that we all use exchange traded funds to access the stock market, and it saves us considerable amounts of money. And there’s no drop in performance, in previous iterations of the podcast, I have talked about some areas where mutual funds are better than exchange traded funds.
So, it’s our responsibility as advisors to find out when to use mutual funds. When to use exchange traded funds, that is a very long-winded way of saying that the financial marketplace changed right before all of our eyes for mutual funds, exchange traded funds, and it might be doing the same again. It just might be doing the same again.
And by the way, it’s not a big deal to you, but it is a big deal to you. And it might be changing into tokenization. And this is something I want to make sure that you’re aware of. And I’ll try to pay attention to this industry as it starts to materialize. But there are just some investments today, and I wish this wasn’t true, that billionaires can access, that a lot of people can’t.
And that’s changing, too. Like, right now, you’ve heard me talk a lot about being able to own private credit, which offers a higher yield, generally speaking, or private equity, which is something that a lot of people could know. Now you’re able to own or hedging. There’s a lot of stuff that’s happening now because of technology that you and I and all of our clients can own, that just were really reserved for these, like uber wealthy.
And tokenization is going to take that one step further, one step further, where again, it’s taking a real physical thing, like a building or painting or piece of land, or in my instance where I like to collect sports memorabilia, maybe even it’s that. But taking that and that ownership and breaking it up into digital pieces called tokens that can be bought, sold and traded on the blockchain.
Let me give you an example. Let’s say that there’s an apartment in Austin worth $1 million. In the traditional world, only somebody with a million bucks could buy that apartment, or maybe somebody that put $250,000 down and could finance the rest. But with tokenization, with tokenization, the apartment can be split into a bunch of tokens. So, a bunch of people with tokens can go chip in a thousand bucks each.
And a thousand people that chip in that buy a thousand tokens have $1 million. And so now these tokens represent a fractional ownership that can be sold, bought, and sold, depending on your conviction on that apartment in Austin. And, you know, it could be somebody in Russia that owns one of those tokens, it could be somebody in Austin.
And, you know, the infrastructure still needs to be built. I’ll talk about that in a second. But let me give you another example. This one actually happened. This was 2022. The rapper Nas. Y’all know Nas, right? I’m just kidding. I don’t even know who Nas is. I mean, I’ve heard of Nas, just rap’s not my thing.
But he tokenized his royalty rights for two of his songs, one called Ultra Black and another one called Rare through a platform called Royal, and so fans could buy the tokens for these songs and earn streaming royalties alongside them. So, the more popular the song, the more money everyone makes. And so this whole thing’s on this something called blockchain.
So, ownerships transferable and transparent and Nas, he gets the money up front. But he’s certainly selling some of his future earnings. But he gets the cash up front. And these listeners are now investors. They’re not just passive. The tokens are liquid. So, you can buy it and sell it and you kind of bypass all these, what you would consider investment banks along the way that would, you know, construct these transactions only.
And, you know, if there was enough zeros on it, would they work on it. And so pretty interesting, Taylor Swift, like this is another example. You buy a royalty token for a Taylor Swift song, some deep cut, and it blows up on TikTok two years later. And then all of a sudden, the streams go crazy and your little royalty token goes up and you can sell it if you want.
And people will buy it, and fans become engaged. I couldn’t help scratching my head and go, what happens? Like, I’ve had clients say, hey, can I get ownership in PAX? And we don’t offer ownership in PAX, but we have employees that own PAX. But what if, like, what does it look like if, my clients could own tokens of PAX?
And so you start thinking about this and it actually becomes pretty interesting. So, there’s all different types of ways to tokenize the world and just create some like synergies between the consumer of products and also providing them an opportunity to participate in the ownership. The challenges that exists here are real, and these hurdles are going to take a little while to figure out, you know, the regulations is a big one.
So, imagine you bought a token for that property in Austin. How do you actually know you have that property? Like we have got to have some legitimization of this thing, or how do you know it’s worth $1 million? Like that whole system of trust that’s been built in the stock market for, you know, over 100 years. That just doesn’t happen overnight.
And there’s institutions that are making attempts there, but it’s still a long way from mainstream. And what we would call the Wall Street plumbing isn’t there, like the ability to do audits, to custody tokens, to transfer tokens. That’s just not here today. And then there are some nuances, like if you, in that Austin thing, if you buy it with cash, that’s one thing.
But if somebody’s purchased it with leverage and they default, do the token holders have any liability to pay back debt? So, there’s things to work around. And I’m sure there’s a lot of nerds in Silicon Valley that have thought more deeply about this than I have. But generally speaking, I do know that these systems have not been established well enough.
And I know some people would make a case that they’ve made a lot of progress, but it’s still not good enough for me nor anybody else. But things are moving so fast that it could happen soon. And once that stuff happens, then, when I say the stuff the, you know, the infrastructure, then, you know, trust starts to develop over time.
People start to talk about it. Larry Fink, CEO, Blackrock. He said, the next year, this is 2022. The next generation for markets, the next generation for securities will be the tokenization of securities. Cathie Wood, she’s a successful investor here, CEO of Ark. She said tokenized assets and decentralized finance are going to transform traditional financial services, unlock trillions of dollars in value and change the world.
And CZ, the founder of Binance. You may or may not have heard of them. He said tokenization allows any asset in the world to be owned by anyone, anywhere with just a smartphone. Huge, huge, huge potential. But right now, we’re just in the dial up internet phase. Promising, yes, but a little clunky. And it’ll take some time to take off.
But when it does, someone in Tokyo, could buy a little token and own a little piece of a South Texas ranch. And somebody in South Texas could own a little piece of a Tokyo high rise and this iteration of finance will change, absolutely change the world. So, I’ll keep you abreast of how that plays out. In the meantime. You think different when you think long term. Have a great day.
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