New Moody’s report has grown to $5.7 billion in digital financial instruments, a new class of digital financial instruments that bridge traditional and decentralized finance.
We believe credit rating services are gaining interest from traditional asset managers, insurance companies and brokerage companies. “The tokenized short-term liquidity fund is a small but rapidly growing product,” said a June 3rd report shared with Cointelegraph.
These funds are usually supported by US treasury or other low-risk assets and operate similarly to traditional money market funds, but use blockchain to issue and manage fractional shares, allowing real-time payments. Federal Reserve data shows that US money market funds held approximately $7 trillion in total assets as of December 2024.
New use cases for tokenized funds may include yield optimization for institutional investors, stable, liquidity management for insurance companies, and use as collateral for trading and lending operations, Moody’s said.
“AUM of this space is hoping for growth in this space as most major asset securities, private banks and asset management platforms that provide digital assets use cash sweep-type products, such as tokenized short-term liquidity funds, to move uninvested cash into yield-earning products.”
A small number of players are leading the sector’s growth. BlackRock’s USD Institutional Digital Liquidity Fund leads the pack with $2.5 billion in managed assets, with Franklin Templeton’s Onchain US Government Money Fund leading by $700 million. Other key players include Superstate, Ondo Finance and Circle.
Companies are also looking at tokenization as a tool to reach a wider market. German Protocol MIDAS recently released a tokenized certificate backed by the US Treasury bill for European investors.
In May, brokerage company Robinhood made a similar move to provide investors with European exposure to the US market. Additionally, the company recently submitted a proposal to the US Securities and Exchange Commission (SEC) on a domestic symbolization regulation framework. According to Robinhood CEO Vlad Tenev, “Tokenization represents a new paradigm of facility asset allocation.”
Beyond the credit and liquidity risk typical of money market products, tokenized funds also face vulnerabilities related to blockchain technology, the report notes. These include smart contract flaws, cyber threats, network availability and regulatory uncertainty.
“The risk of (…) asset representation can arise from a discrepancy between the blockchain registry and other shareholder records regarding legal ownership of the stock,” the report states.
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