S Corporation Views the Adoption of Tokenized Funds as an Indicator of Unexplored Market Potential
Moody’s Exposes Surge in Blockchain-Based Tokenized Funds, Cautions on Technological Risks
Moody’s, the global financial services powerhouse, recently released a report shedding light on the growing market of blockchain-based tokenized funds. The report emphasizes the efficiency gains that can be achieved by investing in assets like government bonds through tokenized funds, highlighting the untapped potential in this space. However, Moody’s also warns about the risks associated with technology, stressing the importance for fund managers to possess a broader understanding of technological expertise.
The surge in fixed-income tokenized funds can be largely attributed to investments in government securities, which has been further accelerated by recent interest rate hikes by the U.S. Federal Reserve. Notably, the issuance of tokenized funds backed by such securities has increased from $100 million to over $800 million on public blockchains by the end of 2023.
Moody’s report highlights Franklin Templeton’s significant issuance in this area, referring to their U.S. Government Money Fund registered on the Stellar (XLM) and Polygon (MATIC) blockchains. Other financial institutions, such as Swiss-based Backed Finance and UBS, are also exploring opportunities in this space. Moody’s suggests that in the absence of stablecoins or central bank digital currencies, tokenized money market funds could serve as alternative collateral options in decentralized finance (defi) markets.
Moody’s also mentions the launch of SC Ventures’ tokenization platform Libeara and Nomura’s Laser Digital’s unveiling of the Libre protocol for Brevan Howard and Hamilton Lane funds. These developments further contribute to the growth and adoption of tokenized funds.
While tokenized funds share similarities with traditional bond funds in terms of investment strategy, their digital format sets them apart. These digital tokens on distributed ledgers offer enhanced liquidity, reduced costs, and the ability to be fractionalized. However, they also introduce complexities and risks, such as technological failures and exposure to stablecoin volatility.
In conclusion, Moody’s report acknowledges the technology-driven efficiencies presented by tokenized funds but recognizes the need for further development and standardization of the supporting framework.
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