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State Street will also consider the use of tokenised money market funds as collateral for trading, offering a more flexible and less disruptive alternative for users.
Key Notes
State Street is exploring tokenization as part of a broader push to modernize its financial services, focusing on bonds and money market funds to enhance operational efficiency.The funds are currently in its initial stages and may be completed next year.State Street, one of the leading financial services companies in the United States, is exploring using blockchain technology to tokenize bonds and money market funds. The move comes as traditional financial institutions increasingly recognize the potential of blockchain to transform outdated financial systems.
According to a Financial News report, citing an interview with the company’s chief product officer, Donna Milrod, both projects are still in their initial stages and are expected to run through part of next year as the firm continues its push toward digital innovation.
Building a Tokenized Collateral without Redemption
Milrod noted that financial trading firms often need to liquidate money market fund holdings to generate cash for trade margins. However, by tokenizing these funds, State Street seeks to streamline the process for users, allowing crypto tokens to be used as collateral without requiring redemption.
“We’re working towards building tokenized collateral that can serve as a variation or initial margin for trading. By using digitized funds, the process of posting collateral could become faster and less cumbersome,” Milrod said.
The State Street executive also emphasized that tokenization is not just about operational efficiency, it can potentially create commercial value. She pointed to the 2022 liability-driven investment (LDI) crisis as an example of how tokenized collateral could have alleviated financial stress.
In that situation, pension funds were forced to liquidate assets to cover margin requirements. She said tokenized money market funds could have offered a more flexible and less disruptive alternative.
Not the First
Milrod revealed that State Street’s move into tokenization is driven by the industry’s growing understanding of blockchain’s practical benefits. The firm sees tokenized collateral as an essential step forward in improving trading processes and reducing operational costs.
The financial services company is not alone in exploring blockchain’s benefits for traditional finance. Other major players, such as BlackRock and JPMorgan, have also been experimenting with tokenized assets.
Earlier this year, BlackRock launched a blockchain-based fund in March, which attracted approximately $240 million in investment within its first week.
In July, Coinspeaker reported that the fund, dubbed BUIDL, was inching closer to hitting $500 million in locked funds.
Similarly, JPMorgan has been using digitized money market funds as collateral and has even developed its own stablecoin, JPM Coin, to facilitate digital asset transactions.
No Immediate Stablecoin Plans
When asked about the prospect of launching a stablecoin, Milrod confirmed that State Street has no immediate plans to tokenize deposits or create a stablecoin. However, she did not dismiss the possibility for the future as the firm continues to assess blockchain’s broader applications.
“We don’t feel the need to do that right now. But that doesn’t mean we won’t at some point,” she said.
In addition to its tokenization efforts, State Street has expanded its involvement in the crypto ecosystem. The firm recently spun off its digital assets division, appointing Vanessa Fernandes as head of the new unit. Milrod explained that this decision was made to provide dedicated leadership in navigating the rapidly evolving digital landscape.
State Street has also been active in servicing US-based Bitcoin spot exchange-traded funds (ETFs) since their introduction in January.
Disclaimer: Coinspeaker is committed to providing unbiased and transparent reporting. This article aims to deliver accurate and timely information but should not be taken as financial or investment advice. Since market conditions can change rapidly, we encourage you to verify information on your own and consult with a professional before making any decisions based on this content.
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Chimamanda is a crypto enthusiast and experienced writer focusing on the dynamic world of cryptocurrencies. She joined the industry in 2019 and has since developed an interest in the emerging economy. She combines her passion for blockchain technology with her love for travel and food, bringing a fresh and engaging perspective to her work.
