Colin Butler, Polygon’s Global Head of Institutional Capital, explained the benefits of fund tokenization.
He noted that blockchain technology has the potential to simplify and reduce the cost of financial transactions while also expanding the availability of private equity investments.
Tokenization Reduces Costs in Traditional Finance
Butler described tokenization as a means of constructing the Internet of value, as seen from an industry perspective. He elucidated that blockchain technology facilitates and reduces the costs of financial transactions by converting traditional assets into digital tokens.
Butler, who spent nearly two decades on Wall Street, stated that the financial infrastructure of the entire globe is currently being rewired on digital rail.
According to his assessment, this transformation would result in substantial expenditure savings and efficiencies, typically between 30 and 50%. It would also consolidate multiple ledgers into a single entity.
Large financial institutions are particularly well-served by tokenization’s cost savings and efficiency. These institutions can enhance their operational productivity and profitability by decreasing administrative and transfer costs, which are currently marginal.
Settlements, Private Equities, and Funds
Butler provided examples of fund tokenization presently being implemented, including Franklin Templeton’s Benji money market fund on Polygon. As this real-world application demonstrates, blockchain has already enhanced financial products.
Alternative assets, including hedge funds and private equity, are also being tokenized. Previously, individuals with lower net worth could not satisfy the high minimum investment requirements; however, the simplified administration would provide them access to these investments.
He emphasized that tokenization will disrupt all aspects of the financial system, including settlements.
Butler stated, “Blockchain has the potential to reduce settlement times significantly.” He illustrated the reduction of settlement time from seven days to one day by Siemens issuing a bond on Polygon.
This decrease in settlement time can potentially reduce the risk associated with the issuance process and the necessity for intermediaries.
An Examination of the Future of Tokenization
Butler thinks blockchain technology will eventually be incorporated into daily financial transactions without the user’s awareness. He proposed that international corporations such as Visa and MasterCard could implement blockchain technology to reduce expenses, benefiting consumers and businesses indirectly.
In the future, he anticipated the development of thousands of utility chains, with Polygon responsible for developing an aggregation layer that would unify liquidity across these chains.
“Polygon’s objective is to establish an aggregation layer that enables the integration of all these chains using zero-knowledge technology,” he clarified.
Butler stated, “It reaches a point where you are unaware that you are crossing the chain.” “Therefore, it is no longer necessary to inquire whether the tokenization was conducted using the x or y chains.” In a future state, that is of little consequence.
Tokenization may also pose obstacles, particularly for non-digital assets like real estate.
“People are enthusiastic about the concept of real estate tokenization; however, how would you claim the value of a fractional ownership of my house, say, if you own 10% of it?”
Butler stated. Other non-digital examples include vacation rentals, vehicles, and portraits, all of which are challenging to ascertain in partial ownership.
