In a recent analysis, Moody’s, a leading financial services corporation, has identified a significant rise in blockchain-based tokenized funds. This growth, particularly in fixed-income tokenized funds investing in government securities, is seen as an indication of untapped market potential. The surge, partly driven by U.S. Federal Reserve interest rate hikes, has seen tokenized fund issuance grow remarkably, reaching over $800 million on public blockchains by the end of 2023.
Franklin Templeton leads the pack with the largest issuance of a U.S. Government Money Fund registered on the Stellar and Polygon blockchains. Swiss-based Backed Finance and UBS, among others, are actively exploring this novel investment avenue. Moody’s notes that in the absence of stablecoins or central bank digital currencies, these tokenized money market funds could emerge as viable alternatives for stablecoin collateral in decentralized finance markets.
The report also highlights significant developments like SC Ventures’ launch of the Libeara tokenization platform and Nomura’s Laser Digital unveiling the Libre protocol. These platforms are designed to support funds from Brevan Howard and Hamilton Lane, showcasing the growing interest and investment in tokenized fund infrastructures.
The Blend of Traditional Strategy and Digital Innovation
Tokenized funds mirror traditional bond funds in terms of investment strategy but stand apart due to their digital format. These funds, represented as digital tokens on distributed ledgers, offer increased liquidity, reduced costs, and the possibility of fractionalization. However, they also bring new complexities and risks, including technological failures and exposure to stablecoin volatility.
Moody’s report concludes that while tokenized funds offer technology-driven efficiencies, they demand a more developed and standardized supporting framework.