Wall Street embraces tokenized money-market funds amid stablecoin competition

Wall Street is witnessing a growing interest in tokenized money-market funds as traders increasingly seek alternatives to traditional stablecoins.

These digital assets, which are investments in short-term debt securities, are seen as potential solutions in the current situation with the crypto market volatility. Thus attracting the interest of both financial institutions and traders.

Tokenized money-market funds vs. stablecoins

According to Bloomberg, several firms are planning to enter the market of stablecoins. Though stablecoins are mainly used for trading, tokenized money-market funds offer unique advantages. These tokens can be used to represent investments in money-market funds and equities, among others.

Unlike stablecoins that do not earn interest, tokenized funds can earn interest as the assets they are linked to appreciate. The largest stablecoin, Tether USDT, does not pay interest but keeps the money in low-risk assets, such as US Treasury bills.

In the first half of 2023, Tether generated revenues of about $5.2 billion. While yield-paying stablecoins are available, they are mainly from smaller companies and have not attracted much demand in the market.

Increased adoption on Wall Street

The increasing use of tokenized money-market funds in Wall Street, especially by BlackRock and WisdomTree, offers a more attractive solution to stablecoins. These tokens are known to provide interest rates of between 4% and 5%, which is quite ideal for investors who want a stable income. Furthermore, these tokens can be used to secure the collateral for the derivatives transactions which are very popular nowadays.

BlackRock is already in talks with cryptocurrency exchanges to enable the use of money-market tokens as collateral. Likewise, WisdomTree is exploring partnerships with prime brokers and trading desks to extend the capabilities of the tokenized money-market funds. This strategic focus may also get more institutional attention, especially given the expectations of lower interest rates.

The appeal of the tokenized money-market funds investment is that it provides stability with an opportunity for asset appreciation in an environment where interest rates remain high. Experts argue that this need will only grow when interest rates start to fall, making it one of the main priorities for financial organizations in the coming years.

The recent announcement by Visa of its Tokenized Asset Platform with plans of further development by 2025 shows the increasing institutional interest in this area. According to a new study by Boston Consulting Group and the World Economic Forum, this market could grow to $16 trillion by 2030. Another study estimated that the market could be worth around $3.5 trillion if the outlook is negative and as much as $10 trillion if the outlook is positive.