A second U.S. money market mutual fund attempting to use blockchain technology launched recently, while the first European money fund to be "tokenized" has also gone live. The $5 million WisdomTree Government Money Market Digital Fund (WTGXX) joins the $333 million Franklin OnChain US Govt Money Fund, which launched in 2019, in what appears to be another experiment attempting to take advantage of the buzz surrounding digital assets and currencies. WisdomTree says on its website, "Why WTGXX? Provide investors a high level of current income consistent with the preservation of capital and liquidity and the maintenance of a stable net asset value through investments in short-term government securities. It has a 0.25% expense ratio and only a $1 minimum to invest. Shares will be secondarily recorded using on-chain recordkeeping on the Stellar or Ethereum blockchain. The Fund will not directly or indirectly invest in any assets that rely on blockchain technology, such as cryptocurrencies. The Fund uses blockchain technology to maintain a secondary record of its shares. The Fund will be available exclusively through the WisdomTree Prime financial app."
The website explains, "Digital funds, which we also refer to as blockchain-enabled funds, offer a way for investors to track traditional investment assets where the investor's ownership of digital fund shares is maintained on blockchain as a secondary record, which is truly a novel characteristic for registered investment funds. Digital funds provide access to a broad range of exposures, from equities to fixed income, and while they have a blockchain component, they do not invest in cryptocurrencies." (See our Crane Data News stories: "Franklin Files for Blockchain Enabled U.S. Govt Money Market Fund" (9/4/19), "Franklin Blockchain MF Picks Curv" (11/22/19) and "Concerns Over Stablecoin Reserves, Tether; Money Funds on Blockchain" (6/2/22).)
The WisdomTree Digital Trust Prospectus explains, "As described further below, through its transfer agent, the Fund uses blockchain technology to maintain a secondary record of its shares. The following 'Use of Blockchain' section describes what blockchain technology is and how the Fund uses it for the recording of its shares. Although WisdomTree Transfers, Inc., the Fund's transfer agent, will maintain the official record of share ownership in book-entry form, the ownership of the Fund's shares will also be recorded -- or digitized -- on the Stellar or Ethereum blockchains. The Transfer Agent will reconcile secondary blockchain transactions with the Fund's records on at least a daily basis."
It tells us, "A blockchain is an open, distributed ledger that digitally records transactions in a verifiable and immutable (i.e., permanent) way using cryptography. A distributed ledger is a database in which data is stored in a decentralized manner. Cryptography is a method of storing and transmitting data in a particular form so that only those for whom it is intended can read and process it. A blockchain stores transaction data in 'blocks' that are linked together to form a 'chain', and hence the name blockchain."
The filing continues, "In order to facilitate the use of blockchain technology, a potential shareholder must have a blockchain wallet. WisdomTree Digital Movement, Inc. provides a hosted Stellar-based wallet through a mobile application, WisdomTree Prime.... A blockchain wallet is a software application which stores a user's 'private key' and related digital assets and is used to facilitate sending digital assets on a particular blockchain."
It tells us, "In order to maintain the Secondary Record, WisdomTree Transfers registers blockchain wallet addresses and associates them with relevant personal identifying information at the control location resulting in a registry of addresses that can participate in transactions. The personal identifying information necessary to associate a given share with the record owner of that share will be maintained by the Transfer Agent in a separate database that is not available to the public. In this manner, WisdomTree Transfers prevents transactions between unknown persons or unknown blockchain wallets."
Finally, the filing warns about "Blockchain Technology Risk," writing, "Blockchain technology is a relatively new and untested technology which operates as a distributed ledger. The risks associated with blockchain technology may not emerge until the technology is widely used. Blockchain systems could be vulnerable to fraud, particularly if a significant minority of participants colluded to defraud the rest.... Any future regulatory developments could affect the viability and expansion of the use of blockchain technology. There are currently a number of competing blockchain platforms with competing intellectual property claims.... Lastly, technological developments may lead to technical or other flaws (including undiscovered flaws) in the underlying blockchain technology, including in the process by which transactions are recorded to a blockchain, or by which the validity of a copy of such blockchain can be proven, or the development of new or existing hardware or software tools or mechanisms that could negatively impact the functionality of the blockchain systems, all of which could negatively impact transactions in Fund shares."
The Prospectus adds, "WisdomTree Digital Management, Inc. serves as investment adviser to the Fund. Voya Investment Management Co. LLC serves as sub-adviser to the Fund.... Mr. David S. Yealy has served as portfolio manager of the Fund since its inception in October 2023."
In related news, a press release entitled, "tradias GmbH Tokenizes First Money Market Fund" tells us, "tradias GmbH, one of the leading European trading houses for cryptocurrencies and digital assets, has tokenized a money market fund that is now tradable 24/7. The money market fund in question is the Allianz Securicash SRI Fund (EUR). As the inaugural client, a Dutch trading platform is utilizing this token for its treasury management."
The release continues, "In a dynamic market environment, treasury units face the challenge of efficiently and swiftly managing their liquidity. The use of tokenized money market funds offers a product that enables dynamic liquidity control 24 hours a day, seven days a week.... The benefits of tokenizing money market funds lie in continuous tradability, an efficient cost structure, and tailored solutions for all liquidity requirements, all while maintaining full transparency. This allows access to innovative products that meet the ever-changing demands of the modern financial market. Through this product, platforms can now offer their customers a liquid interest-bearing investment, providing flexibility to respond to market events."
Michael Reinhard, CEO of tradias, comments, "We're offering a forward-thinking solution for managing liquidity with tokenized money market funds. Investors and individuals investing in cryptocurrencies and digital assets now have the opportunity to manage their liquid funds based on a token while achieving money market equivalent returns."
