A key trend has emerged on Wall Street where nearly every asset manager wants to reproduce digital tokens of popular funds. The process is called tokenization, which involves using blockchain
A key trend has emerged on Wall Street where nearly every asset manager wants to reproduce digital tokens of popular funds.
The process is called tokenization, which involves using blockchain technology to tokenize real-world assets (RWAs) such as property, financial instruments, music, art, etc. A digital token represents the ownership of the underlying asset.
Related: What is tokenization? Explained
For instance, BlackRock's USD Institutional Digital Liquidity Fund (BUIDL) is a tokenized money market fund that invests in cash, U.S. Treasury bills, and repurchase agreements. The fund holds $2.35 billion in total asset value, as per rwa.xyz.
Franklin Templeton's OnChain U.S. Government Money Fund (BENJI) invests at least 99.5% of its total assets in U.S. government securities, cash, and repurchase agreements. The fund holds $831.78 million in total asset value.
Other Wall Street giants also offer tokenized funds.
But a 242-year-old bank thinks the trend is less about fundamentals and more about a "fear of missing out" (FOMO).
The Bank of New York Mellon Corporation (NYSE: BNY) is an American international financial services company.
Through the lineage of the Bank of New York, which was founded in 1784, BNY is a 242-year-old bank and is considered one of the three oldest banks in the United States.
BNY's global head of exchange-traded funds (ETFs), Ben Slavin, recently told CoinDesk in an interview that they have numerous projects in flight "to effectively tokenize ETFs."
According to Slavin, Wall Street is currently tokenizing money market funds but its interest lies far beyond. Institutions think there is an opportunity to raise assets via tokenization, he added.
"A lot of them really have a 'FOMO' effect, where they want to get in early."
Tokenization allows funds to be traded 24/7, which potentially reduces settlement periods and expands access to investors globally.
That is why asset managers continue to tokenize funds even though questions around regulatory frameworks regarding the products remain unresolved, Slavin argued.
There is another concern about tokenized versions of popular funds circulating in "unregulated" secondary markets without the approval of the issuers themselves, he reminded.
"It's opaque," the BNY executive warned. "It effectively creates a reputation risk, even though it's not at all affiliated, frankly, with the asset manager."
But asset managers think winning the tokenization race matters more than waiting for perfect clarity, Slavin concluded.
