Real-world assets tokenization lacks infrastructure, not just regulation


The merger between decentralized finance (DeFi) and traditional assets, has been held back by a lack of infrastructure and regulatory standards globally, sources recently told Cointelegraph.

“There simply weren’t good institutional grade systems for these companies to participate in. Obviously, they’re not just going to run their entire system using a regular blockchain wallet and centralized exchanges,” said Colin Butler, global head of Institutional Capital. at Polygon.

Tokenization is a path to fractionalization, allowing more people to own part of an asset that would have to be sold as a whole before at a higher value. Estimates by Big Four firm PwC manage global assets to reach $145.4 trillion by 2025, a massive market. expected to welcome more investors and, thus, improve the liquidity of assets through tokenization.

Institutional investors — meaning players managing this capital around the world — are looking for “services that work well with what they’re already doing, that are easy to implement, flexible and upgradable,” noted Butler.

Polygon said it worked with many of those global players. In January, investment firm Hamilton Lane announced the first of three tokenized funds backed by the Polygon blockchain, bringing a portion of its $824 billion in assets under management on-chain. By symbolizing its flagship Equity Opportunities Fund, Hamilton Lane was able to lower the minimum required investment from an average of $5 million to $20,000.

Another example was JPMorgan. In November, the American giant executed its first cross-border DeFi transaction on a public blockchain. The initiative was part of a pilot program exploring DeFi potential for wholesale financial markets. The business was also conducted on the Polygon network.

Despite recent progress in integrating DeFi into traditional markets, the lack of clarity on regulations continues to hinder many emerging technologies. One of the main questions on this topic is: what are securities? The US Securities and Exchange Commission (SEC) has asserted through enforcement actions that this definition may apply to a wider range of assets and services than many crypto firms expected. As Butler stated:

“If you tokenize a security, does the digital token become a security itself, or just represent one?”

Jez Mohideen, co-founder and CEO of Laser Digital, the crypto arm of Japanese banking giant Nomura, believes that the lack of regulation affects digital asset risk management, as it prevents companies from effectively separating entities and business models.

“More regulation is particularly necessary in certain parts of businesses, for example, to ensure that capital is looked after by individuals with fiduciary responsibilities. As more and more regulatory enforcement of this nature comes into play, there will be an increasing amount of institutional interest,” . ” he told Cointelegraph.