Polygon, a blockchain platform, is a significant contender in the $16 trillion asset tokenization business. Increasing client demand and regulatory clarity have pushed banks to test out alternative assets such as U.S Treasury bonds, equities, and private debt on public blockchains. Over the next six months, Colin Butler, the Head of Institutional Financing in Polygon, predicts that this trend will take off, quoting, “People are still trying to figure out what’s compliant. Once certain things get accepted as collateral in big places, I think everybody else gets to do it. And that’s when I think you see the L curve for adoption.” Through tokenization, the time for asset transfers can be significantly reduced, prices can be lower, and the traditional financial system can be modernized.
The Boston Consulting Group, one of the ‘Big Three,’ has projected that the asset tokenization model can grow as big as the $16 trillion market by the end of 2030. Consulting firm Bain and Company says tokenization can create revenue for asset managers of approximately $400 billion. For blockchain companies that offer the infrastructure for asset tokenization, the following months could be crucial. However, according to Coin Butler, getting financial institutions like BlackRock and Vanguard on board is different from the degen-focused partners that the blockchain platform prefers.
According to Butler, getting banks or financial institutions onboard is challenging. Despite the advantages that blockchain brings, it is not perfect and can occasionally prove to be highly unreliable. For instance, on March 22nd, Polygon’s blockchain faced a network outage for 14 hours, making it challenging for financial institutions to depend on such networks. However, Polygon is said to be well-positioned to handle challenges regarding asset tokenization and currently supports 22 tokenized assets from asset managers like Franklin Templeton.
While Butler spoke highly of Polygon, he agreed that Ethereum is the ‘best-in-class security,’ which supports about $3 billion worth of tokenized assets, while Polygon only holds $38 million. He quoted, “If you’re not settling for Ethereum, then you’re taking a security risk, and I wouldn’t recommend a firm like BlackRock taking at scale.” Despite Ethereum’s top-class security measures, the blockchain is more expensive than other chains, with many asset managers preferring Solana, Stellar, Avalanche, and Polygon.
