From Digital Bonds to Pokemon Cards, Tokenization Hype is Real and It’s Happening on Polygon

Polygon Labs

October 11, 2023

tl;dr:

The Polygon protocols are becoming a destination for institutional tokenization
Tokenized assets unlock operational efficiencies by reducing costs, tapping new distribution channels, and enabling 24/7 access to liquidity
But this takes a secure technical environment that can scale to the size of traditional finance
A unified ecosystem, unlocked by Polygon CDK, gives flexibility to institutional players and access to deep liquidity, without sacrificing security

Almost every major financial institution is looking to tokenize. This is not an exaggeration.

A Citi report projects $4+ trillion of tokenized securities by 2030. Boston Consulting Group put the possible figure of illiquid assets tokenized even higher, at $16 trillion. With so much interest flooding the space, the Federal Reserve has released a working paper exploring the pros and cons of tokenization, and many countries, especially across Asia, are looking to create regulatory clarity for institutions.

In short, tokenization is all the buzz (once again) in the financial world and beyond, and for good reason.

Minting a digital representation of an asset on a blockchain is the process known as tokenization. It’s bringing the next wave of innovation to financial markets by unlocking unique value propositions that would be impossible without the underlying tech. These include:

better capital efficiency;
reduced intermediary costs;
new channels of distribution;
wider asset exposure to bigger pools of investors; and
24/7 access to liquidity.

Not confined to financial markets and institutions, the underlying technology can work for any real world objects that can be traded in some market. Enter: Pikachu.

During the pandemic, Pokemon cards experienced a renaissance of sorts, with secondary markets that showed huge demand for especially rare collectibles. But for many collectors, the physical card itself, holographic or not, wasn’t really the point–the point was owning it, with the possibility of finding higher demand for it on the market.

That’s where tokenization comes in. All offchain collectibles have two functions, as a physical object, but also as an asset that can be bought or sold.

Digitizing Pokemon cards–or government bonds–leads to a neat trick: a trustless way to buy or trade in-demand assets, opening up the possibilities for DeFi primitives (take a loan against your Charizard!) that would otherwise be impossible.

Tokenization is Here, Now

Tokenization is already happening on the Polygon protocols. Right now.

But is the underlying infrastructure mature enough to help realize these ambitions? Can blockchains deliver to the fullest on the promise of tokenized assets–deep liquidity pools, fast finality, and democratized access?

Polygon 2.0 is here to make sure the answer is yes. It envisions a web of interconnected Layer 2 chains on Ethereum, with a shared zero-knowledge (ZK) bridge and an interoperable environment that provides access to unified liqudity that can make institutional tokenization thrive.

It’s the only way Web3 can scale to the size of traditional finance.

Below, get to know all the major players already building out tokenized programs on the Polygon protocols. Then this post will look to the future: an interconnected web of L2s that make tokenization even more exciting.

Who is tokenizing on the Polygon protocols?

With so much interest in tokenization, it can be difficult to keep track of all the major moves by institutions being made on the Polygon proof-of-stake (PoS) network. From money market funds to Pokemon cards, there has been an influx of projects bringing tokenized assets onchain.

Here’s a rundown of who’s doing what, and why it matters.

Franklin Templeton

Franklin Templeton, a global investment management organization, launched its tokenized money market fund on Polygon PoS, the Franklin OnChain U.S. Government Money Fund. Investors tap opportunities to access previously inaccessible, highly-regarded investment strategies, even as the fund reaches a larger possible pool of liquidity. With blockchain infra, final settlement happens at the speed of the internet, 24/7, rather than the speed of Wall Street.

Hamilton Lane + Securitize

Hamilton Lane, among the largest private markets investment firms globally, opened its flagship $2.1B fund to a wider pool of investors by tokenizing through Securitize, a registered digital assets and securities firm. The tokenized feeder fund offers a way for individuals to access a historically high-performing private equity asset class, with minimum investments reduced from an average of $5 million to just $20,000. That’s in line with Securtize’s missions to democratize access to financial products, all while widening the pool of liquidity.

Sygnum Bank

Sygnum Bank, a pioneering digital asset bank, has three years of significant presence in the tokenization sector. Sygnum's primary focus is private markets, collaborating with key financial industry leaders to facilitate the transition of private debt and equity products onto blockchain. This initiative is empowered by a banking license and Switzerland's progressive legal framework. Beyond private markets, Sygnum made headlines after tokenizing a $5M Picasso painting in July, 2021.

Mirae Asset Securities

Mirae Asset Securities, South Korea's largest financial group with over $500 billion in assets under management, is leading The Mirae Asset Security Token Working Group, with Polygon Labs as a technical consultant. The group is working to create Web 3 infrastructure to issue, exchange, and distribute tokenized securities, helping establish interoperability between South Korea’s domestic financial systems and foreign counterparts.

Siemens

Siemens, a technology company based out of Germany, has issued a tokenized, euro-denominated bond on Polygon PoS, in accordance with Germany’s Electronic Securities Act and a one-year maturity rate. As one of the first digital bond issuers in Europe, Siemens is tapping the efficiencies of blockchain rails to increase access to a broader swath of customers.

ABN AMRO

Dutch bank ABN AMRO has issued a €5M digital green bond offering as an ERC-3643 token through Tokeny, an infrastructure platform that uses Polygon PoS to allow financial institutions to issue and manage securities and financial instruments. With this digital green bond offering, ABN AMRO became the first Dutch bank to register a digital green bond on blockchain rails.

Ondo Finance

Ondo Finance, an Ethereum-based asset manager, launched a treasury-backed Government Bond Fund on Polygon PoS as a native token, which has been used in the decentralized Flux Finance platform, a novel on-chain lending marketplace. This offers the frictionless composability of DeFi with real world assets. To date, Ondo has tokenized $160 million in treasuries across Ethereum and Polygon.

CoFund

For real estate, Co-Fund, an Ethereum-based real estate tokenization marketplace, partnered with Tokeny to issue ERC-3643 regulatorily compliant tokens for a $10 million hotel in Bail on Polygon. Tokenized and fractionalized real estate expands and democratizes access to illiquid and highly coveted assets.

Taurus

Tarus, a European digital asset infrastructure company, integrated with Polygon, streamlining a process for over 25 banks, including Credit Suisse and Deutsche Bank, to unlike access to private assets turned digital.

Obligate

Obligate, a protocol for regulated debt securities and financial intermediary in Switzerland, issued its first bond as ERC-20 tokens on Polygon. A Swiss commodities boutique, Muff Trading AG, sold the tokenized corporate bonds on Obligate’s decentralized platform. The move opens new pools of liquidity to Obligate users.

Courtyard.io

A marketplace and tokenization service for collectibles with a Brinks vault, Courtyard.io has issued tokenized Pokemon cards on Polygon, among other digital collectibles. By seamlessly streamlining the process of tokenization, Courtyard.io unlocks a new, wider pool of liquidity for the physical collectibles by digitizing them.

FraXion & Tassets

FraXion has partnered with Tassets, a Silicon Valley-based leader in Asset Tokenization as a Service (ATaaS), to mint FraXion tokens on Polygon PoS. Tassets holds the promise of transforming real estate investing through Tokenized Asset Lifecycle Management (TALM) and ATaaS. Since its February launch, FraXion has sold over 335,000 tokens offering 10% per annum with a five-year maturity.

Institutional adoption, meet scale

Polygon 2.0 imagines a unified ecosystem of ZK-powered L2 chains that will make interoperability and cross-chain transactions easy and seamless. A lot of work is being done to create a unified ecosystem that will help give tokenized projects access to deeper liquidity. The first step toward this will be a shared ZK bridge to Ethereum. Keep tuned for more announcements in this regard, coming soon.

Interested in tokenization on Polygon? Reach out to cbutler@polygon.technology.

Tune into the blog and our social channels to keep up with updates about the Polygon ecosystem.

Together, we can build an equitable future for all through the mass adoption of Web3!