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Traditional financial institutions (TradFi) are increasingly more likely to tokenize their assets on public blockchains than private ones, marking a dramatic change in the financial environment.
Leaders in businesses like BlackRock are driving this dramatic shift in narrative, which will completely redefine how the financial sector views blockchain technology.
According to Celisa Morin, a former Vice President of Platform Distribution at Grayscale, the preference for public blockchains over private ones has become increasingly evident among TradFi firms.
Morin, who now heads the crypto department at the international law firm Reed Smith, believes that this shift directly results from the growing influence and success of BlackRock’s recent move to launch a $100 million tokenized ‘BUIDL’ fund on the Ethereum network.
The Rise of Public Blockchain Adoption
The narrative surrounding public blockchains versus private ones has significantly transformed in recent years. Morin notes that while the preference for private chains, such as JPMorgan’s Onyx, was the dominant narrative in the past, the tide has now turned in favor of public blockchains.
“I think we prefer private chains with JPMorgan’s Onyx. But I do think that this was the narrative a few years back. Now, I think it’s very much the public blockchains,” Morin said.
This shift is exemplified by BlackRock’s decision to launch its ‘BUIDL’ fund on the Ethereum network. The fund, which now holds $288 million in assets, has catalyzed other TradFi institutions to reconsider their approach to asset tokenization.
Embracing the Ethereum Ecosystem
The move by BlackRock to utilize the Ethereum network for its tokenized fund has not been without controversy, as the asset manager’s on-chain wallet has become the target of various spoofs from crypto enthusiasts.
However, Morin believes that this bold step by BlackRock will inspire other TradFi firms to follow suit.
“If BlackRock has made these choices, I don’t know why the rest of the crew would be held back,” Morin said.
This sentiment is echoed by Franklin Templeton, another prominent financial institution, which has already launched its tokenized money market fund on the Ethereum layer-2 network Polygon.
The Franklin OnChain U.S. Government Money Fund (FOBXX) now boasts a total of $360.2 million in U.S. Treasurys, and it is just one of the 17 products that have collectively tokenized $1.08 billion in U.S. Treasurys.
Challenges and Opportunities
Transitioning to public blockchains offers TradFi firms promising opportunities, yet it also introduces challenges. Morin highlights potential legal issues from tokenizing assets on public blockchains, which may lack robust KYC and AML protocols compared to private networks.
The article underscores Morin’s belief that despite these challenges, many firms will follow BlackRock’s lead due to the allure of the public blockchain space, particularly Ethereum. However, as firms navigate this landscape, they must prioritize regulatory compliance while leveraging blockchain technology to improve their services.
Conclusion
There has been a noticeable change in the banking sector as traditional financial institutions are becoming more interested in adopting public blockchains for asset tokenization.
Influential people like Franklin Templeton and BlackRock are driving this shift, which has the potential to ultimately alter how banks and other organizations view blockchain technology.
The advantages of using public blockchains, like increased accessibility, efficiency, and openness, outweigh the drawbacks for conventional businesses.
Watching how the business changes to meet the demands of a more digital and decentralized financial world will be fascinating as more companies use public blockchains.
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
