Polygon’s Colin Butler Envisions the Future of Finance Through Tokenization

Tokenization is bringing changes to the financial sector by offering solutions to streamline processes, reduce costs, and enhance access to private equity. By converting traditional assets into digital tokens, blockchain technology aims to create more efficient, transparent, and secure financial systems.

In an interview with CryptoNews.com, Polygon‘s Global Head of Institutional Capital Colin Butler explained the advantages of fund tokenization. He highlighted how blockchain technology can make financial transactions more straightforward and cost-effective while broadening access to private equity investments.

Tokenization Reduces Costs in Traditional Finance

Butler discussed tokenization from an industry perspective, describing it as to build the internet of value. He explained that blockchain technology simplifies and reduces the costs of financial transactions by converting traditional assets into digital tokens.

Butler, who spent nearly 20 years on Wall Street, said that the financial infrastructure for the entire world is being rewired right now on digital rail.

Based on his estimation, this transformation would lead to efficiencies and significant spending savings “usually to the tune of 30-50%,” while essentially consolidating multiple ledgers into one.

The efficiency and cost savings brought by tokenization are particularly beneficial for large financial institutions. By reducing administrative and transfer costs, these institutions can increase their currently marginal profitability and operational productivity.

Funds, Private Equities, and Settlements

Butler provided examples of fund tokenization currently being adopted, such as Franklin Templeton’s Benji money market fund on Polygon. This real-world application showcased how blockchain has already been utilized to improve financial products.

Tokenization is also extending to alternative assets like private equity and hedge funds. The simplified administration would open access to these investments for individuals with lower net worth, who previously could not meet the high minimum investment requirements.

“For example, private equity funds can now be accessed by investors with a net worth of one to 30 million dollars, really for the first time. Prior to this, because their costs were so high, they had to have a minimum of around five million dollars.”

He continued to emphasize that tokenization will disrupt all aspects of the financial system, including settlements.

“Blockchain can significantly reduce settlement times,” stated Butler. He provided an example of Siemens issuing a bond on Polygon, which reduced settlement time from seven days to one day. This reduction in settlement time could de-risk the issuance process and minimize the need for intermediaries.

A Look Into Future of Tokenization

Butler believes that blockchain will eventually be integrated into everyday financial transactions without users even realizing it. He suggested that international giants like Visa and MasterCard might adopt blockchain to save costs, which would indirectly benefit consumers and businesses.

He envisioned thousands of utility chains in the future, with Polygon working on creating an aggregation layer to unify liquidity across these chains. “Polygon’s plan is to create an aggregation layer that allows us to combine all of these chains through zero-knowledge technology,” he explained.

“It gets to the point where you actually don’t know you’re going cross chain,” said Butler. “So it’s no longer like ‘Oh, did you use x chain or y chain for your tokenization?’ That doesn’t really matter in a future state.”

Tokenization could also present challenges, particularly when it comes to non-digital assets like real estate.

“People love the idea of real estate tokenization, but if you buy a fractional ownership of my house, say you own 10 percent of my house, how would you actually claim that value?” said Butler. Other non-digital examples vary from portraits, cars, and vacation rentals, all difficult to determine regarding partial ownership.