Decrypting DeFi is Decrypt’s DeFi email newsletter. (Art: Grant Kempster).
For some reason, tokenization, one of the crypto industry’s original promises, is making headlines again.
“It’s so funny because the people that have been around since 2018 have all these scars from spreading this stuff and believing it and nothing happened,” Colin Butler, head of tokenization at Polygon, told Decrypt.
Tokenization is essentially the transfer of more traditional financial assets, such as stocks and bonds, onto a blockchain. The transition promises lower overheads and greater efficiencies. And these days, everyone’s pretty excited.
Avalanche, for example, just launched a $50M initiative to support builders in this space (if they do it on Avalanche). Late last year, Blackrock CEO Larry Fink called it the “next generation of markets.”
But why the sudden change of heart?
“I think the short answer for me is culture,” Butler said. “Now there are actually hardcore blockchain adherents in all these big trad-fi firms. It basically took so many years for them to come out on it, for that to leak out to the top and for the top to even think about it.”
DeFi also found a foothold during this time: decentralized lending took off, Uniswap was introduced and of course yield farming in 2020.
Alongside these developments, Lucas Vogelsang, CEO of Centrifuge, told Decrypt, “TradFi started to understand what DeFi actually means: the idea of having trusted smart contracts handling these transactions can lead to efficiencies.” It is indeed one better back-end infrastructure for what they do.”
Centrifuges, like Polygon, have been at the center of the tokenization, or alternatively real world, wealth trend for some time. The project allows companies of all kinds to deposit their real-world collateral to mint the decentralized stablecoin DAI. Today, the company manages over $235 million in assets.
Franklin Templeton, a wealth manager with more than $1.4 trillion in assets under management, also launched one of its funds on Polygon earlier this year.
Today, more than $345 million in tokenized assets are on-chain via Polygon, Ethereum, and Gnosis Chain.
Tokenized assets on Polygon, Ethereum, Gnosis. Source: Dune.
There is a clear dynamic.
However, this will not be enough for the tokenization trend to really go mainstream.
“It will require that everyone who works in this industry today is willing to take some risk,” said Vogelsang. “And it’s going to be a few more years before it becomes apparent that there’s not really a risk of regulation catching up.”
This risk is very different from yesterday’s grocery coins.
Plugging in the entire financial system, a giant worth hundreds of trillions of dollars, is a bit more complicated than deploying a smart contract over the weekend.
“If you rewire your rails, you’re doing something wrong and you’re jeopardizing an $8.5 trillion business as BlackRock,” Butler said. “And everyone has the same challenge.”
But obviously the money is there.
And it could be more aggressive than AI employment concerns.
“I had a digital leader and a major infrastructure provider to propose a 20,000 job cut to Strathclyde,” the Polygon executive said. “If the tokenization actually worked, right, then it’s about a quarter of their employees.”
With so much money knocking on the door, regulators are certainly feeling the pressure.
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