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Tokenization Boom Incoming – TradFi to Save 50% with Efficiency Gains, Says Polygon’s Growth Head

Last Updated June 19, 2024 10:01 AM
Teuta Franjkovic
Last Updated June 19, 2024 10:01 AM

Key Takeaways

  • Bitcoin Suisse’s secure tokenized bond shows progress in bringing real-world assets to crypto.
  • TradFi institutions hesitate to adopt blockchain due to legacy systems, desire for control, and scaling concerns.
  • Zero-knowledge (ZK) technology is seen as a solution for scaling while maintaining security.
  • Tokenization is expected to become widespread for TradFi institutions due to efficiency gains.

Bitcoin Suisse has recently issued a tokenized bond on the Polygon-based protocol Obligate, signifying yet another big step toward mass adoption of real-world asset (RWA) tokenization.

The bond issued by Bitcoin Suisse is classified as investment-grade quality and is overcollateralized, meaning the value of the assets securing the bond surpasses the value of the bond itself. The transactions are facilitated using USDC, which ranks as the second-largest stablecoin by market capitalization.
About tokenizing RWA and the general onboarding of TradFi institutions to Web3, CCN spoke with Colin Butler , the Global Head of Polygon Labs, a software development company building and developing an aggregated blockchain network.

Banks Balk at Blockchain: Legacy, Control, & Scaling Woes

There are many challenges when onboarding traditional financial institutions onto the blockchain. According to Butler, one issue is that many of these institutions are using dozens of unique ledgers, which are managed by many different jobs. 

He elaborated:

“Bringing all of these under a single ledger is a major operational shift and a complex transition that stands to cut quite a few jobs. These obvious hurdles make many in the industry uncomfortable with making a change.”

Additionally, says Butler, most traditional banks don’t want to work with public blockchains. They want permissioned chains that only they can control. 

He explained:

“This is understandable but undermines many of the benefits of public chains. Getting these institutions to understand the power of public chains, and explaining how it is still possible for them to retain control and autonomy of their sensitive information has been tricky, but essential to truly overhaul the financial system.”

When talking about the overall security and integrity of the network while scaling up to accommodate the needs of major financial players, Butler mentions zero-knowledge (ZK) technology that, in his opinion, will provide the ability to scale while maintaining security. 

He asserted that ZK tech takes and reduces complex calculations into a verifiable cryptographic hash that can then be transmitted to the network and be as reliable as any traditional blockchain transaction. 

“This technology massively reduces the computation demanded on-chain but leverages the same security that L1 blockchains already offer,” he said. 

What is the future of real-world asset tokenization?

Tokenization of real-world assets (RWA) leverages blockchain technology to bridge the gap between traditional finance and cryptocurrencies. By converting ownership rights of tangible assets into digital tokens on a blockchain, users can tokenize and own portions of real-world assets.

Tokenizing real-world assets involves converting the ownership or value of physical assets, such as real estate, art, or commodities, into digital tokens on a blockchain. This transformation offers significant benefits.

The tokenization process allows these assets to be traded quickly and owned in fractional shares, increasing accessibility and liquidity. Each token represents a specific share or stake in the real-world asset, facilitating more fluid and accessible transactions.

This method leverages the security, transparency, and efficiency of blockchain technology, making traditionally illiquid assets more accessible to a broader range of investors. It also simplifies the processes of buying, selling, and transferring ownership.

Butler says that more and more institutions will begin tokenizing their assets, including RWAs. This is because of the base benefits of tokenization, most notably efficiency in trading and massive reductions in overhead. 

He stated:

“I believe savings could be as high as 30-50% in many cases. The potential for profits from this alone is too tempting to ignore, and I feel that in the coming years, we will see a huge shift to tokenization from all major financial firms. More than likely, much of this will be in the background for the average consumer, but I suspect before long it will be an industry standard.”

The Next Hot Thing in Crypto – Aggregation of Chains

Butler also said that he believes tokenization, for the above mentioned reasons, will be a major part of how blockchain evolves over the next five years. 

He asserted:

“I think we will still see speculative assets, memecoins, collectible NFTs, and the like, but tokenizing more practical products will continue to eat up a larger and larger part of how the industry engages with this technology. In fact, I think we’ll see a lot of liquidity coming into tokenization much sooner than five years.”

Butler said the aggregation of chains is anticipated to become a significant aspect of the crypto space soon. The current state of fragmented, siloed liquidity cannot continue indefinitely.

According to him, creating a single, chain-agnostic layer that can connect all chains will be a major revolution. This development will enable the Web3 space to function much like the internet does today, where end-users do not need to understand every protocol they interact with; it all just works seamlessly.

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