The Forgotten Specialists: Why Purpose-Built Chains Lost RWAs

Tokenization isn’t a buzzword anymore. It’s one of the most critical sectors of the cryptocurrency space, seeing rapid growth and attracting significant institutional interest and capital. But these institutions aren’t using specialist platforms like Polymesh, MANTRA, and more – each built specifically for this purpose.

Polymesh (POLYX -0.99%), for example, was launched back in 2021 as the compliance-first blockchain for security tokens, years before tokenization was on anyone’s radar. Despite building a solid foundation for regulated securities that was done too early, it isn’t being adopted by the likes of BlackRock (BLK -1.09%), Citi, and JPMorgan, who are rushing to tokenize trillions in real-world assets on general-purpose networks.

Why is that so? Let’s find out!

The Original Vision: Solving Structural Problems in Security Tokenization

Close to a decade ago, before Polymath became Polymesh, the cryptocurrency market was swept up in unregulated token mania. During the “wild west” of Ethereum‘s (ETH +2.15%)  ICO era between 2017 and 2019, as countless new tokens flooded the space, Polymath was focused on solving structural problems of regulated security tokens. These were the problems that public chains simply couldn’t address at the time.

Polymath introduced security tokens as a way to create and manage compliant digital assets representing ownership in securities. It allowed the issuance of tradable tokens that were specifically designed to comply with securities laws and made available to strictly “know-your-customer” (KYC) compliant investors.

Securities are tradable financial instruments that represent ownership, debt, and other rights and are used by companies and governments to raise capital. They can be equity-like stocks, debt-like bonds, or hybrid instruments. To enable this, Polymath developed the “ST-20” standard with specified transfer restrictions, which later influenced the ERC-1400 standard for rule-based transfers on Ethereum.

While Polymath was built on the Ethereum blockchain itself, the digital asset landscape lacked the innovation and regulation required for institutional-grade tokenization. Ethereum’s pseudonymity, probabilistic settlement, and fork-based governance did not match the needs of regulated securities. Investors, issuers, and banks simply weren’t ready in the ICO era, neither from a regulatory perspective nor a technological one.

In 2021, Polymath launched Polymesh, an institutional-grade permissioned blockchain built specifically for regulated assets. It went live with 14 financially regulated entities running nodes. The blockchain incorporated identity, compliance, confidentiality, governance, and deterministic finality right into its core to solve the issues of pseudonymity, censorship resistance, and transparency with public blockchains.

Unlike Ethereum’s pseudonymous ICO environment, where anyone could participate without verification, Polymesh requires all participants interacting with tokenized assets to complete identity verification, delivering on-chain KYC and identity.

And while anyone can run a regular Polymesh node, node operators can only be licensed financial entities who vote on block finalists and author new blocks, aligning governance with regulated actors, a stark departure from Ethereum’s fork-based governance that regulators and institutions couldn’t accept.

For the first time, there was a chain built from the ground up to be compatible with traditional capital market needs, combining on-chain identity, rule-based transfers, governance designed for institutions, and deterministic settlement. Yet, institutions aren’t rushing to adopt it.

Why It Was Too Early: The Immature Market for RWA Tokenization

It all began in 2009 when Bitcoin (BTC +1.91%)  came into existence. But for the longest time, the largest cryptocurrency remained a fringe asset. It took more than a decade for the trillion-dollar market cap cryptocurrency to become institutional-friendly with the approval of spot ETFs.

Alternative cryptocurrencies or altcoins, however, appeared soon after Bitcoin’s launch. But it was Ethereum that pioneered smart contracts and marked the emergence of ICOs.

The ICO boom in the late 2010s saw projects raising capital through the sale of new cryptocurrencies, but most of them were unregulated and risky, leading to a large number of investor losses. This resulted in regulatory pushback with the US Securities and Exchange Commission (SEC) taking action against projects they deemed to be offering unregistered securities.

In response to regulatory crackdowns on ICOs, security tokens and Security Token Offerings (STO) emerged as a more compliant alternative. These offerings, unlike ICOs, provided a compliant way for projects to raise capital by issuing tokens that represent ownership in real-world assets while requiring measures like KYC and Anti-Money Laundering (AML) checks.

However, interest in security tokens was extremely limited, despite their potential. The focus of retail crypto participants was largely on meme coins, non-fungible tokens (NFTs), and decentralised finance (DeFi), and the broader crypto ecosystem evolved around those trends. Tokenization was simply not a narrative the market cared about.

Meanwhile, the institutional side faced an entirely different set of obstacles. The crypto space lacked regulatory clarity, especially with no global frameworks like MiCA or standardized token classification. Institutions had no clear rules for what counted as a security token or how it should be treated.

That regulatory ambiguity, combined with institutional conservatism and strict compliance requirements, kept banks and issuers on the sidelines. Internal risk teams, legal departments, and compliance desks would not approve exposure to pseudonymous public chains.

Infrastructure issues compounded this. There were limited qualified custody solutions for regulated assets, no major banks or transfer agents supporting tokenized securities, and no standardized reporting or investor protections. Liquidity for real-world assets was almost non-existent, and tokenized assets faced the additional challenge that both retail and institutions were uninterested in trading them.

So, while the crypto ecosystem was busy pursuing speculation and struggling with regulation, networks like Polymesh were building the framework for tokenization. But at that time, the market lacked regulation, liquidity, custodians, and institutional readiness. Polymesh basically built a compliance engine before the market even had the drivers and the infrastructure to use it.

The thing is, every innovation needs timing. In the beginning, they get ignored for years, and when the same breakthrough is leveraged at the right time, we see overnight successes. Similarly, in crypto, how early one has been able to catch a narrative doesn’t matter until the crowd believes in it, as that’s when one gets rewarded. And the market only became ready for tokenization recently.

Fast-Forward to 2025: The RWA Tokenization Gold Rush

There is a clear gold rush happening in the tokenization space. Some of the biggest names on Wall Street are capitalizing on tokenization.

Asset manager BlackRock launched its tokenized money market fund (MMF) last year. The BlackRock USD Institutional Digital Liquidity Fund (BUIDL) invests in short-term US Treasury bills and cash equivalents and is currently holding $2.53 billion in TVL. BlackRock CEO Larry Fink actually believes that the financial industry is at “the beginning of the tokenization of all assets” and that everything from stocks to bonds to real estate will eventually be tokenized.

Franklin Templeton launched the world’s first U.S.-registered blockchain-integrated mutual fund in 2021 and has since rolled out several other tokenized products across regions. BNY Mellon, Goldman Sachs, and UBS have joined in on the race to launch tokenized money market funds, while Citi’s focus has been on digital bonds. The global investment bank is also a tokenization agent and custodian on Switzerland’s SDX exchange.

The RWA market has now exceeded $10 billion and is growing at triple-digit rates year-over-year. The value of real-world assets on-chain has surged from $5.2 billion at the beginning of 2023 to over $36 billion today. But this is just the beginning still. According to McKinsey’s estimates, tokenized market capitalization could reach around $2 trillion by 2030, excluding stablecoins.

By creating a digital representation of real-world assets such as private credit, US Treasury debt, public equity, private equity, commodities, actively managed strategies, corporate bonds, and stocks, tokenization offers the benefits of operational efficiency, faster settlement, verifiable transparency, and broader accessibility.

Yet the infrastructure chosen for this rush to tokenize trillions in real-world assets are Ethereum (ETH +2.15%), Avalanche (AVAX +3.64%) , Polygon (MATIC +3.51%), Solana (SOL +3.1%).  Curiously, not Polymesh or other similar networks.

Close to $12 billion worth of tokenized value is being hosted by Ethereum, which also has the highest RWA count at 473. Other chains being utilized for tokenizing assets include Polygon, Avalanche, Solana, and Arbitrum.

Despite specialty chains being explicitly designed to support tokenization with governance and compliance functionality built into their core, these purpose-built blockchains haven’t attracted meaningful traction or institutional interest relative to Ethereum. It enables the most complex of compliance requirements to be automated efficiently while a council of stakeholders guides the evolution of the chain.

This begs the question, why has the purpose-built chain been left behind while the “general-purpose” ones are dominating tokenization?

Why TradFi Chooses Generic Networks Over Specialized Systems 

The focus of TradFi institutions is pretty clear; they aren’t looking for technical superiority or the right compliance architecture, but who can provide them with actual value. They are choosing based on distribution, liquidity reach, ecosystem stability, and vendor optionality, basically the same as how they choose market infrastructure in the off-chain world.

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Let’s take a look at the factors that are playing a key role in their decisions more deeply:

Liquidity Gravity

Generic chains already have wallets, liquidity pools, and developer ecosystems. Take Ethereum, for instance, it can be used to launch tokenization funds, NFTs, DAOs, DeFi, or other exciting applications.

It’s simply up to the user how they want to leverage this chain to their advantage. As a result, Ethereum has a vast and mature ecosystem of developers, users, liquidity pools, and wallets that support its growth, and the more it grows, the bigger its ecosystem, which creates a feedback loop.

If exchanges, market makers, and institutional desks already operate on a chain, it allows issuers to gain distribution and price discovery just by being there. Higher liquidity also eases the onboarding process while lowering operational friction.

Not to mention, liquidity begets liquidity. So, Ethereum may not be a specialist chain, but as we noted above, it is hosting almost $12 billion worth of tokenized value, and that’s why institutions like BlackRock have launched their fund on it.

In contrast, a chain built for a specific purpose has a limited support system, as one can only do so much with it. If an institution chooses to go with this option, they have to spend its own resources to first build all the infrastructure itself from scratch, or be content with limited support.

Interoperability

TradFi is simply going where they can instantly reach users, as the more users, the more activity, and the more liquidity.

Being the most popular and used chain in the crypto space, most exchanges, custody solutions, and DeFi rails have integrated Ethereum, further expanding the addressable market and allowing institutions to connect to existing rails instantly. This interoperability allows institutions to reach users and liquidity where they already are.

For instance, Franklin Templeton originally launched their tokenized money market fund on Stellar but quickly added support for Ethereum for more distribution channels, more wallet compatibility, and greater interoperability.

Regulatory Catch-up

As tokenization gains wider adoption, it has led to a rise of middleware vendors and issuance platforms that have replicated what Polymesh built natively, on top of Ethereum and other chains.

Several years ago, Polymesh was among the handful of chains offering robust features like on-chain KYC, identity-based permissions, and rule-based transfers. But today, there are over 100 different platforms such as Securitize, Tokeny, Maple, Ondo, Centrifuge, and Superstate that issue tokens using blockchain as a distributed layer, enabling on-chain investors to subscribe, hold, and manage assets through their own wallets or custodians.

These platforms are recreating the compliance primitives like KYC, transfer restrictions, and institutional workflows on top of general chains, so issuers get access to liquidity and a thriving ecosystem while being compliant, which reduces the value proposition of a chain that natively had those primitives from day one, but not the wider support.

Institutional Risk Management

To big names, specialized chains can be a riskier option as they have fewer node operators, custodians, and smaller communities. And institutions optimize for risk reduction, in terms of financial, operational, and reputational issues, hence their preference for bigger ecosystems.

Their focus is also on reliability, auditability, and operational continuity.

Vast and established ecosystems where custody providers, legal teams, and risk processes already have precedent offer the advantages of clear regulatory frameworks, proven risk controls, and institution-ready operational models.

Smaller and niche names are usually acquired by large institutions to strengthen their competitive position. Meanwhile, even governments experiment on larger ones. For instance, in 2021, the European Investment Bank (EIB) issued a €100 million two-year digital bond on Ethereum.

Flexibility and Control

Using modular, general-purpose chains gives TradFi the flexibility to move on to completely new ecosystems or its own chain. They also gain the ability to switch custodians, add new marketplaces, support multiple jurisdictions, and integrate new partners more easily later.

For instance, tokenized funds on Ethereum can migrate to its L2s like Arbitrum (ARB +3.98%)  without completely rewriting the core compliance logic. And this strategic flexibility is why institutions prefer general rails over a specialist chain that may be a far more perfect fit for them. Because for them, it’s not about chain ideology, which is more pure, but what can give them the ability to adapt and control.

Hence, why Franklin Templeton, a global investment firm with $1.6T in AUM, has extended the availability of its on-chain money market fund (FOBXX) to Ethereum, Solana (SOL +3.1%), Base, Aptos (APT +3.53%), Avalanche (AVAX +3.64%), Stellar (XLM +2.39%), Polygon (MATIC +3.51%), Arbitrum, and BNB Chain to bring tokenized financial products to both retail and institutional-focused ecosystems.

The Specialist’s Dilemma: No Victory for the First Mover

Eight years ago, Polymath simplified digital investments by providing a single platform to create, issue, and manage blockchain-based security tokens. Then, it launched Polymesh as a specific chain to solve the problems that institutions are only now realizing they have: compliance, KYC, and on-chain settlement.

Yet, by the time the RWA market matured, the gravitational pull of Ethereum and other mainstream general-purpose chains had made these specialist chains nothing more than an afterthought.

This isn’t exactly anything new or even strange. In tech, being first often means being forgotten. And we have seen this happen again and again.

For instance, MySpace pioneered the social networking model, but Facebook, with its cleaner UX, real-identity mode, and better content controls, took over, leaving MySpace nothing more than a footnote in the history of social media innovation.

Apple (AAPL -0.2%) did the same to the smartphone market, and Google did the same to the search engine market. They weren’t first movers, but they modernized the idea and then commercialized it properly.

There’s a clear and consistent pattern here: being early and technically ideal simply does not guarantee a victory; rather, it usually means losing to later implementations, which have arrived at the right time, when the market is ready.

And that’s exactly what networks like Polymesh appear to be experiencing. It is a case of premature innovation that has lost to ‘good enough’ options, which captured the market once demand materialized.

Even though such networks may have anticipated regulatory and functional needs well before most, they created an excellent product before the broader customer base and ecosystem were ready to commit, which means the industry has chosen to go with common but more connected ecosystems. Yet again, network effects have favored the generalists.

Where Polymesh Still Fits in RWA Tokenization

With the tokenization market projected to be worth trillions of dollars in the coming years, Polymesh, given its native compliance, verified identity, deterministic settlement, and on-chain governance, has the potential to capture a niche by securing interest from private markets, regulated fund administration, and Asia/Europe pilots.

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In fact, as lawmakers around the world increasingly develop frameworks to manage crypto, networks like Polymesh may experience a resurgence as regulators demand stricter on-chain identity controls. It has already taken meaningful steps in the right direction through strategic partnerships with crypto infrastructure provider BitGo and crypto custodian Digivault.

While not the currently preferred choice, that could change quickly, as networks like Polymesh retain a strategic place in the fast-growing world of tokenization. If the next phase of tokenization is about who can prove regulatory integrity rather than who can aggregate liquidity, their design may finally have its moment, just a few years later than expected.