With the proliferation of Blockchain technology among major financial institutions around the globe, token financial products may mark the return of the vintage financial scene. This trend may disrupt and pose a challenge to the long-standing dominance of stablecoins in this domain.
According to Colin Butler, the head of institutional capital at Polygon Labs, the increasing prevalence of on-chain funds could potentially mitigate the future significance of stablecoins.
Franklin Templeton was a pioneer in applying a new approach in 2021 when he launched the On-chain US Government Money Fund. This fund applied the Polygon and Stellar Blockchains to facilitate transactions and keep records of share ownership.
Likewise, BlackRock also started its own tokenized product, the USD Institutional Digital Liquidity Fund, on the Ethereum Network earlier this year. As of the end of April, these two funds have already handled $375 million and $368 million worth of assets, respectively.
Butler stated that the popularity and value of these assets will determine their future. Regulators have already permitted Franklin Templeton to enable institutional investors to transfer funds using Blockchain technology, opening up new uses for digital assets.
Butler suggested that a venture capital firm transmit profitable digital assets to one of its cryptocurrency-only portfolio companies, which lack regular banking connections. However, implementation and majority acceptance must be clarified.
The stablecoin industry currently has a valuation of approximately $160 billion. Stablecoins, unlike tokenized funds such as those offered by Franklin Templeton, typically do not provide any returns to their owners. Butler sees this as an opportunity for tokenized funds to enter the market and possibly expand it in the future by making them more accessible and suitable for specific purposes.
Butler told Blockworks that Wall Street’s financial transactions depend on trust and integrity. Blockchain networks need this because transaction failures would be catastrophic. He also advised big corporations to get into the Blockchain industry and future-proof their solutions to avoid creating isolated systems with restricted functions.
BlackRock’s tokenized fund participation may inspire other major asset management firms to join. Butler claims that this move by BlackRock is both innovative and instructive, providing a model for other businesses to emulate while also showcasing their individuality.
Tokenized funds are also becoming popular among private market investment firms and hedge funds, and some of the big names, such as Hamilton Lane and Brevan Howard, have already launched funds on Polygon. Butler anticipates that the trend toward such services will continue; the goal is for everyone, from banks to large RIAs, to disseminate these tokenized assets that are not available in traditional forms.
Recently, the joint projects of top financial institutions like Visa, Mastercard, JPMorgan, and Citigroup using shared ledger technology to settle tokenized assets have shown severe dedication and progress in this field. Butler said, “These big companies have been preparing for this change inside for years, and the recent developments are a massive step towards production use cases.
Financial giants are still investigating and expanding their Blockchain capabilities. Thus, the potential for tokenized funds to disrupt traditional markets, including the stablecoin sector, is becoming increasingly evident. This movement is a significant turning point in the development of financial technology, with Blockchain being the main driving force behind the changes.
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