The U.K.-based Institutional Money Market Funds Association, or IMMFA, published a paper titled, "The Tokenisation of Money Market Funds Part 2: 'What has been achieved so far?'" It explains, "Recent strides in the technology of tokenisation and its application to funds have created opportunities to enhance the attractiveness of Money Market Funds (MMFs) for investors. As noted in our previous white paper 'The Tokenisation of MMFs,' tokenisation brings a number of potentially transformative benefits including increased portability and reduced operational friction, making it much easier to transfer ownership of MMFs and facilitate new usages, such as their use as margin collateral, and thereby attract a wider investor base." (Note: For those of you attending our European Money Fund Symposium Sept. 22-23, welcome to Dublin! Watch for our Tokenized Money Funds & Tech Issues session on Monday morning and watch for IMMFA's Veronica Iommi to speak on Tuesday.)
IMMFA writes, "The speed of innovation has attracted a high level of press coverage. This, along with the prospect of significant benefits, has generated momentum as market participants seek to capitalise on technological advances. The speed of change has, however, led to a disparate range of information on the topic and a plethora of terms which can be confusing. This short paper seeks to build on our earlier one in clarifying some of the concepts being used and how they are currently being applied. We start by looking at where tokenised MMFs fit within the current regulatory framework and then define some of the terms."
They tell us, "There is an a priori distinction between regulated and non-regulated MMFs which is also a primary consideration when looking at tokenised MMFs. IMMFA MMFs are regulated under EU Regulation 2017/1131 (MMFR). EU MMFR was retained in UK regulation after the UK's departure from the EU. All IMMFA MMFs are domiciled in either the EU (primarily Ireland or Luxembourg) or the UK and therefore come under MMFR. Additionally, all IMMFA MMFs have at least one AAA money market fund rating from an authorised credit rating agency. You can see more detail on fund types on the IMMFA website https://www.immfa.org. In the case of tokenised MMFs ... it is essential that an investor consider whether the fund falls under existing regulation and in addition, the form of the unit which they hold."
The paper continues, "In the following sections we consider the differences between two commonly used terms which describe the form in which TMMFs may be created, namely 'native' and 'non-native'. These processes are in varying stages of implementation. We have taken 'non-native' first as it is an extension of the existing mode of creation and recording as opposed to the more radical change towards something which exists only in the digital space. The term 'non-native' tokenisation refers to a model in which an existing MMF share is tokenised, a process often noted as the creation of a 'digital twin' or 'mirror recorded tokenisation'.... [T]he shareholder interest in a pre-existing MMF unit remains the same but is recorded via Distributed Ledger Technology (DLT) in addition to the traditional centralised shareholder register held by a transfer agent."
It states, "In this instance, the underlying MMF remains the same in all other respects, so in the case of a pre-existing IMMFA MMF unit being tokenised, that MMF unit would continue to be governed by the constraints of the regulation. Tokenisation of the fund allows for a much more efficient transfer (portability) of the units. Third party tokenisation refers to the role of tokenising agents. The manager of an MMF may open an account with a tokenising agent and put in place a distribution agreement which allows that agent to tokenise MMF units.... There is also significant activity in this sphere and there are a number of tokenisation agents operating in the field."
The piece comments, "IMMFA members are keen to support the move of the TradFi (traditional finance) market to one which is on-chain. Such a move has the ability to unlock greater opportunities including the use of TMMFs as collateral, something which we have strongly advocated. The ability to leverage existing franchises, whilst retaining the regulatory framework that traditional investors seek, is key."
It also says, "A 'native' tokenised MMF is one where ownership of the shareholder units has been represented digitally ab ovo, i.e. from the initial point when the fund came into existence. This is distinct from non-native fund where a pre-existing fund created in traditional format has some4 share classes subsequently tokenised. A number of digitally native funds have been established, and some have attracted significant inflows. To date, these have mostly been private funds that have cash-style investment guidelines and are initially intended for a DeFi (decentralised finance) investor base. This means they will settle on-chain using digital money."
IMMFA adds, "Whilst some of these native tokenised funds are domiciled in EU jurisdictions where regulated MMFs are equally present, this does not mean that they are necessarily subject to the same MMF regulation, nor that they are IMMFA MMFs (since all IMMFA MMFs fall under MMFR). In the case of Luxembourg, specific legislation to support tokenised assets has been introduced and at least one native TMMF domiciled in Luxembourg has been approved as a regulated TMMF. Other jurisdictions have, as yet, not gone that far."
Finally, they tell us, "Other native tokenised funds have, for example, used the British Virgin Islands [like BlackRock's BUIDL]. To conclude, in time we are likely to see IMMFA members evolving in one of the following directions: Tokenisation of existing share classes; Tokenisation of a new, digitally focused set of share classes; [or] Native tokenisation as outlined above. The readiness and approach of the relevant EU jurisdictions where most MMFs are domiciled currently varies but we expect to see national competent authorities and regulators gradually enhance the frameworks to support tokenisation.... We close by noting that the product cycle is evolving very rapidly and we can certainly expect further changes to come."
In related news, Reuters writes that, "Tether plans to launch new US stablecoin, CEO says," explaining, "Crypto company Tether, the creator of the world's largest stablecoin, plans to launch a U.S.-based stablecoin designed for U.S. residents, called USAT, the company's CEO Paolo Ardoino said."
The press release, "Tether Unveils USAT, its Planned U.S.-Regulated Dollar-Backed Stablecoin, and Will Appoint Bo Hines as CEO of Tether USAT," says, "Tether, the largest company in the digital asset ecosystem, today unveiled USAT, its planned U.S.-regulated, dollar-backed stablecoin, along with the announcement and appointment of Bo Hines as Tether USAT's future Chief Executive Officer. The simultaneous introduction of both the token and CEO reflects Tether's commitment to delivering a U.S.-regulated dollar-backed stablecoin backed by transparent reserves, strong governance, and American leadership from day one."
Another news piece from Cryptotimes, "Fidelity's Ethereum-Based Treasury Fund Attracts $200M in Assets," comments, "Leading asset manager, Fidelity, quietly launched Fidelity Digital Interest Token (FDIT) on Ethereum last month. This blockchain-based version of its treasury fund has already attracted more than $200 million in assets without any public announcements. The FDIT token stands for one share of Fidelity's Treasury Digital Fund (FYOXX), giving users direct access to the firm's portfolio that is made up entirely of U.S. Treasury securities and cash. According to data on rwa.xyz, the fund was started in August, with Bank of New York Mellon as its custodian."
It adds, "The tokenized treasury market is now worth about $7 billion, with BlackRock's BUIDL fund having more than $2 billion in assets. Franklin Templeton and WisdomTree are two other big asset managers that have released similar blockchain-based treasury products. These funds allow users to get treasury exposure without having to go through traditional fund intermediaries. This method appeals to investors in digital assets who want regulated, yield-bearing options to stablecoins or other cryptocurrencies."
