Blockchain could unlock $400B in global financial innovation.
Blockchain technology is poised to unlock a $400 billion revenue opportunity for asset managers by tokenizing and segmenting private assets, said Colin Butler, Polygon's head of institutional capital.
Speaking exclusively to Cointelegraph, Butler describes how the broader financial sector is on the cusp of launching products and services built on blockchain protocols that could fundamentally disrupt the landscape of global finance.
Butler, who joined Polygon after two decades on Wall Street, highlights the narrative of a shift in institutional adoption as major investment firms such as KKR begin to book large sums of money using fledgling blockchain platforms.
“KKR securitize their healthcare fund through Avalanche and that really opened the floodgates for tokenization and institutional adoption, using blockchain as a software platform,” Butler explains.
“It has nothing to do with crypto and speculation. This was the beginning, in my mind, of re-integrating the world's financial system on the blockchain.
Butler added that the technology itself is driving the change, with the solution being “orders better” and in some cases providing a service or service that wasn't there, pushing mass adoption from institutions to 2024.
Blockchain's real impact on finance
Butler highlights three prime examples of major institutions using blockchain technology in ways that have significantly improved business operations or significantly impacted certain sectors.
Butler points to German tech company Siemens' token bond issuance against Polygon in February 2023, which reduced the settlement period from seven days to one. The result would be to reduce costs by a percentage equivalent to trillions of dollars per year.
“This doesn't seem very exciting to many people, but from their perspective, it jeopardizes their entire extraction process. It changes the dynamics of entire industries because they don't have to tie up capital for a period of time,” explains Butler.
Related: Polygon Develops Open Source Prover, Enables Ethereum Chains to Become ZK Layer 2s
Another example is global asset manager Franklin Templeton's money market fund at Polygon in April 2023. When the firm announced the currency's transition to Ethereum's Layer-2 scaling protocol, it touted greater security, faster transaction processing and reduced costs.
Butler said the move would allow investors to trade seamlessly within the blockchain system instead of constantly switching between cryptocurrency and fiat by fixing a settlement token based on money market funds.
“In my view, when you're connected in a blockchain ecosystem, the thing that allows you to do that is avoid blowing it up. Now you are getting 5% rates. You can use that settlement token to make further transactions only on the blockchain. I think this is very important for the industry,” added Butler.
400 billion dollars of income opportunity in private assets
Polygon's head of institutional capital is surprised by what he describes to asset managers and banks in the private wealth sector with a $400 billion revenue opportunity. Butler cites investment manager Hamilton Lane, which has begun offering targeted funds to individuals with net worths of $1 million to $30 million to broaden the distribution of personal assets.
The token pledge of private equity and hedge funds is aimed at individuals whose net worth is less than the above threshold for the relative diversification of these products.
Investors face many hurdles, including years of locking up capital, million dollar investment requirements, capital calls and manual administrative processes. Butler estimates that $150 trillion in funds are not exposed to this asset class.
“By tokenizing and fractionalizing, you can lower the minimum investment from $5 million to $20,000 or $10,000. If you're a private asset manager, you can expand your spread.”
According to Bain & Company's 2023 Private Equity Report, the $400 billion revenue opportunity represents a “massive addressable market” that is slated to be targeted by all players in the financial system.
“Suddenly, you have a traditional financial system that is very incentivized to create a parallel version of private assets on the blockchain and incorporate it into the traditional system. “So for the first time in history, you have a huge financial incentive for the biggest players in the world to move to blockchain,” Butler said.
The polygon integration layer aims to centralize fluidity.
Cointelegraph has consistently reported on Polygon's progress through 2023, which has seen several significant protocol updates and releases.
Related: Polygon 2.0: 2024 to see integrated ZK-powered L2 chains
For end users, Polygon Labs says the user experience will be “internet-like,” and users won't need to make “difficult and repetitive bridges” to use other chains.
Polygon released open source version 1 in February 2024, enabling ZK-proof generation for any Ethereum Virtual Machine (EVM) chain. The solution enables protocols and services as optimisers to unlock ZK-proofs layer-2 functionality.
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