Next-generation securities and asset tokenization is hampered by a lack of infrastructure and regulatory standards around the world, according to BlackRock's Larry Fink. However, according to sources recently interviewed by Cointelegraph, the merger between decentralized finance (DeFi) and traditional assets has been hindered by a lack of infrastructure and regulatory standards around the world.
“There simply isn’t a good institutional-grade system for these companies to participate. Obviously, they’re not going to just use regular blockchain wallets and centralized exchanges to run the whole system,” said Colin Butler, global head of institutional capital at Polygon.
Tokenization is a path to fragmentation, allowing multiple people to own parts of assets that previously had to be sold as a whole for a higher value. The Big Four accounting firm PricewaterhouseCoopers predicts that by 2025, the global assets under management will reach 145.4 trillion US dollars, which is a huge market and is expected to attract more investors, thereby improving the liquidity of assets through tokenization. Institutional investors those who manage this capital globally are looking for “services that complement what they’re already doing, that are easy to implement, flexible and scalable,” Butler said.
Polygon says it has been working with many of these global players. In January, investment firm Hamilton Lane announced the first of three tokenized funds backed by Polygon, bringing some of its $824 billion in assets under on-chain management. By tokenizing its flagship Equity Opportunities Fund, Hamilton Lane was able to reduce the minimum investment requirement from an average of $5 million to $20,000. Another example is JPMorgan Chase. In November, the American giant executed the first cross-border DeFi transaction on a public blockchain. The initiative is part of a pilot program exploring the potential of DeFi in wholesale funding markets. Transactions are also conducted on the Polygon network.
Despite recent progress in integrating DeFi into traditional markets, regulatory uncertainty continues to prevent many from embracing emerging technologies. A major question on the subject is: What are securities? The SEC has been asserting through its enforcement actions that the definition may apply to a wider range of assets and services than many crypto companies expect. Jez Mohideen, co-founder and CEO of Laser Digital, the crypto arm of Japanese banking giant Nomura, believes that a lack of regulation is affecting digital asset risk management because it prevents companies from effectively separating divisions and business models.
“There are parts of business in particular that require increased regulation for example, ensuring that capital is held by individuals with a fiduciary duty. As more regulatory enforcement of this nature comes into play, there will be more and more institutional interests.
