Tokenized Funds Surge in Value, Driven by US Treasury Tokenization: Moody’s
The value of tokenized funds has skyrocketed from $100 million to approximately $800 million, according to a recent report by Moody’s. This surge in value is attributed to the rising tokenization of U.S. treasuries. Both public and private blockchains are now including various assets, with examples such as Franklin Templeton’s U.S. Government Money Fund expanding to Polygon and Backed Finance launching a tokenized short-term U.S. treasury bond exchange-traded fund (ETF). The report highlights the potential of tokenized money market funds (MMFs) to combine stability with the technological advantages of stablecoins. Tokenized assets also offer significant efficiency benefits, including enhanced liquidity, accessibility, cost reduction, fractionalization, automation through smart contracts, and transparency.
Crypto Investors Shift to Stable On-Chain Yields
The increased interest in tokenized treasury bills and bonds reflects the growing demand from crypto investors seeking stable on-chain yields, according to Moody’s report. While web3 lending markets offered higher returns in 2021 compared to traditional short-term securities, the trend has reversed in the current higher-yield environment. As a result, crypto investors have moved their funds from stablecoins to traditional investments like U.S. T-bills that offer comparable or higher yields with lower risks. Moody’s acknowledges the bullish outlook on tokenization but also warns about unique risks associated with this emerging sector, such as technological malfunctions and regulatory challenges.
Managing Risks in Tokenized Funds
Moody’s report highlights several risks associated with tokenized funds, including technological malfunctions and navigating diverse regulatory landscapes. Managing a tokenized fund requires expertise in areas such as token issuance and redemption, maintaining an on-chain investors’ register, and complying with KYC and AML checks. The report also emphasizes the technological risks of asset tokenization on public blockchains, such as cybersecurity attacks and governance issues. To mitigate these risks, Moody’s recommends the adoption of off-chain investor registers and the independence and replaceability of relevant stakeholders involved in tokenized funds. Additionally, programming tokens to restrict asset transfers between whitelisted wallets controlled by accredited investors can reduce the risk of cyberattacks and fraudulent activities.
Hot Take: Tokenized Funds Reach $800M Value
The value of tokenized funds has experienced a significant surge, reaching approximately $800 million due to the increasing tokenization of U.S. treasuries. This trend has attracted attention from legacy financial institutions, who recognize the potential benefits of tokenizing traditional assets. Moody’s report highlights the efficiency advantages of tokenized assets, including enhanced market liquidity, accessibility, cost reduction, fractionalization, automation through smart contracts, and transparency. However, the report also cautions about the unique risks associated with this emerging sector, such as technological malfunctions and regulatory challenges. To manage these risks effectively, stakeholders must possess expertise in various areas and implement measures like off-chain investor registers and restricted asset transfers to safeguard against cyberattacks and fraudulent activities.
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