Wall Street’s embrace of blockchain technology is moving beyond merely creating digital versions of stocks, bonds and money-market funds toward a bigger goal: changing how those assets move through the financial system.
BlackRock Inc., which helped bring cryptocurrencies into mainstream investment portfolios while putting traditional funds on blockchains, sees opportunities for tokenized assets to serve as collateral, move between investors around the clock and reduce the need to redeem holdings when transferring ownership.
Some of that is already happening. BlackRock’s tokenized funds are being used as collateral in the digital-asset market, according to Dan Maley, who oversees its cash business in Asia Pacific. Extending that use to traditional finance, though, is proving more complicated. It requires banks and other institutions to accept the instruments as collateral, existing market infrastructure to accommodate them and regulations to provide sufficient certainty. And while fund tokens can change hands around the clock, that doesn’t necessarily mean investors can redeem them for cash at any hour.
“The larger unlock becomes then when you can utilize that for the traditional financial ecosystem,” Maley said in an interview.
Conventional money-market funds already serve as collateral for trading positions, including initial and variation margin. Tokenization could make it easier to move those holdings without first redeeming them, potentially allowing institutions to keep assets invested for longer.