Institutional Heavyweights Throw Full Support Behind Public Blockchains for Tokenized RWAs

Blockchain has been a valuable technology for the biggest financial institutions in the world for a long time now. Historically, for the most part these were private and permissioned blockchains, relied on for their operational efficiency. Recently, public blockchain platforms have matured significantly, passing critical milestones in security and scalability. Now, because of the massive liquidity potential and the diversity of investment options on public blockchains, they are becoming the new playground for investors of all sizes.

When major institutions, including BlackRock and JPMorgan, began to adopt blockchain for tokenizing assets, this not only validated the technology's readiness to transact at scale but also altered the market dynamics – it demonstrated a level of trust that can only encourage wider demand from other major players. 

Tokenized funds are and will continue to be a game-changer in democratizing access to investment opportunities. By breaking down large assets into smaller, more accessible units, blockchain has opened up markets that were previously out of reach for the average investor. Even more, the scope of tokenization is expanding beyond traditional financial instruments. A wide array of assets, including real estate, art, and even collectibles, are being tokenized, making them more liquid and accessible. The level of engagement from various stakeholders that a public blockchain is capable of has profound implications.

BlackRock's recent venture into tokenizing a money market fund on Ethereum is a strong endorsement of the viability of public blockchains in supporting new payment rails for traditional financial instruments. As recently as June 2023, BlackRock declared institutional DeFi as being “many years away,” now, with the launch of the BlackRock USD Institutional Digital Liquidity (BUIDL) Fund, we’re seeing firsthand a case study in how to integrate the stability of traditional financial assets with the efficiency and transparency of blockchain.

Institutions Bring Innovation, Not Only Capital

While offering a degree of security and control, permissioned and private blockchains inherently come with limitations that can stifle broader innovation and integration. These systems often operate within confined networks, which, although secure, also hinder interoperability with other systems, limiting the scope of asset tokenization and the exchange of value across platforms. 

Public permissionless blockchains tap into tremendous liquidity potential by allowing anyone to participate, innovate, and transact within a transparent and secure framework. This openness has fostered a rich ecosystem of applications and services, driving competition, innovation, and efficiency. However, until recently, this ecosystem suffered from fragmentation between different blockchain scaling solutions.

Now that zero-knowledge proofs have given us the ability to aggregate securely between ecosystems, public blockchains are increasingly capable of supporting instant settlement of transactions. This, coupled with the diversity of token utility and a global reach, offers unprecedented freedom and versatility to investors. Plain and simple, when aggregated, public blockchains provide more efficient and resilient financial services.

It’s not only the blockchain protocols bringing innovation to the network but also institutions themselves. Libre’s tokenized version of a BlackRock money market fund allows investors to earn yield while parking their capital. The recent launch of the Nomura-backed Laser Digital Polygon Adoption Fund on Polygon points to a growing institutional interest in bringing new utility to public blockchains because this fund offers traditional investors a familiar interface while providing security for the network through the act of staking, which allows participants to earn yield from regulating and validating cryptocurrency transactions. Beyond this, it gives institutional investors a gateway to the wider opportunities within the blockchain space.

Regulatory Clarity Will Help, But It’s Not Everything

It has not been rapid, but the regulatory landscape has gradually moved in a positive direction, with authorities beginning to provide clearer guidelines for digital assets. Such clarity is undeniably crucial for the continued integration of blockchain within institutional frameworks. However, it's only one piece of a larger puzzle. The ultimate factor for the viability of public blockchain lies in its liquidity potential.

The journey of public blockchains towards institutional acceptance has been marked by evolving perspectives from some of the most prominent figures in the financial world. Jamie Dimon's shift from a skeptic of Bitcoin to leading JPMorgan's development of the Onyx blockchain platform and even potentially speculating a $1 million bitcoin valuation shows a significant change in attitude towards public blockchain technology. Similarly, BlackRock's Larry Fink's comment on the tokenization of all financial assets as the next frontier in financial technology innovation further affirms the value of aggregated public chains.

We’re seeing the growing acceptance of public blockchain technology from institutions based on the unique advantages that this ecosystem offers in terms of utility, liquidity, and transparency. In the years ahead, highly scalable infrastructure will continue to unlock massive capital efficiencies and onboard more major industry heavyweights.

Author

Colin Butler is the Global Head of Institutional Capital at Polygon Labs, driving education and awareness within the institutional investment community. Prior to Polygon, he spent 18 years in financial markets. He has worked as Head of Business Development at a global L/S equity hedge fund, the Global Revenue Officer in a company that used AI to quantify human decision-making, and a variety of other leadership roles that spanned institutional equity sales and trading, private wealth management, and alternatives marketing. Colin has the ability to describe both the novel technology and institutional opportunity of Web3, to connect with institutions across industries. He is eager to educate investors about Web3 in general and Polygon in particular, a new technology that promises to disrupt many facets of traditional industry, from brokers and banks to global logistics and supply chains. He lives in New York City.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.