Editor's note: This article has been corrected. The OnChain U.S. Government Money Fund launched in 2021 on the Stellar blockchain.
It might be a cliche, but the future of finance and investing is here. In the past year, more progress has been made to blend processes of traditional finance and the capabilities inherent to decentralized finance (DeFi) and its blockchain technology. And just this past week, another advancement was made.
On April 26, Franklin Templeton (BEN +1.60%), the 15th largest investment firm in the U.S., said that it would tokenize its OnChain U.S. Government Money Fund on the Polygon (MATIC +0.00%) blockchain. The fund was launched in 2021 on the Stellar blockchain and is now also supported on the Polygon blockchain.
Let's break this down to understand the relevance of this decision.
The blending of blockchain and traditional finance
First, tokenization: This is the process of converting real-world assets or rights into digital tokens that can be traded on a blockchain. Essentially, tokenization creates a digital representation of an asset that can be easily exchanged by using a blockchain.
This process is gaining a lot of attention in the financial industry because it can potentially make asset trading more efficient and accessible. For example, real estate, art, and even commodities such as gold can be tokenized, allowing fractional ownership and trading.
Tokenization enables easier access to investments that might have been out of reach for some investors, as the minimum investment requirement for some assets is often quite high. Tokenization can also potentially reduce the time and cost associated with traditional asset-trading processes, such as the use of intermediaries like brokers and banks.
Likely due to a combination of these reasons, Franklin Templeton decided to tokenize the fund (a first here in the U.S.) so that it could extend its reach and enable the fund "to be further compatible with the rest of the digital ecosystem," it said.
Polygon becomes a crowd favorite
Although the move to tokenize the OnChain Money Fund is groundbreaking, the real news here is that Franklin Templeton selected Polygon.
This is now the second time in the last year that a major financial institution has used Polygon's blockchain for traditional financial operations. The first was in November 2022 when JPMorgan Chase conducted an experiment to see if it could tokenize Japanese yen, Singapore dollars, and bonds from those countries to do cross-currency trades. It ended up being a resounding success and a world first.
Now Polygon is once again at the forefront of the convergence of traditional financial processes and blockchain technology. The reason these companies are selecting Polygon is relatively simple: It makes Ethereum faster and cheaper to use without sacrificing decentralization and security.
CRYPTO: MATIC
Key Data Points
The perfect sidekick
Over the years, Ethereum's popularity has exploded, and as such, the crypto has essentially become the primary choice for companies looking to build new blockchain-based business models. But due to this popularity, Ethereum's speeds have slowed and fees on the network often soar during heavy use.
Polygon remedies this. It is known as a Layer-2 blockchain because it processes transactions on its own blockchain and then settles them on Ethereum. With this approach, users effectively get the best of both worlds.
Because of this, Polygon has gained as the favorite not only for traditional financial institutions looking to embrace tokenization but also for retail and consumer brands wanting to build new blockchain products as trends revolving around what is known as Web3 continue to grow.
Companies such as Starbucks, Nike, and Coca-Cola, to name a few, have all used Polygon's blockchain to create new products like non-fungible tokens (NFTs) as a way to tap more tech-savvy consumers and digital-based commerce.
For investors looking to capitalize on the rapidly expanding sectors of Web3 and the merge of traditional finance and blockchains, Polygon is the one clear front-runner worthy of your money.
