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State Street Explores Blockchain for Tokenizing Bonds and Money Market Funds
State Street, the world’s largest custodian bank, is leveraging blockchain technology to explore the tokenization of bonds and money market funds. This move aligns with a growing trend among financial institutions adopting distributed ledger technology in traditional finance.
In an interview on October 8, State Street’s Chief Product Officer, Donna Milrod, revealed that the bank has initiated two projects focused on tokenizing collateral linked to money market funds and bonds. These pilots are expected to extend into the next year. Milrod emphasized that the Boston-based institution aims to develop tokenized collateral for use as variation or initial margin for trading.
Innovative Collateral Management
Currently, trading firms must liquidate their holdings in money market funds to post cash as margin for trades. With the advent of digitalized funds, tokens could serve as collateral, eliminating the need for redemption. Milrod explained that this innovative approach could streamline collateral management and enhance trading efficiency.
State Street’s Position on Stablecoins
While State Street is actively exploring the tokenization of assets, the firm has not ruled out the possibility of launching a stablecoin in the future. However, Milrod noted that there are no immediate plans to do so. “That does not mean we will not [launch a stablecoin] at some point, but we do not feel the need to do that right now,” she stated.
Industry Trends and Developments
State Street is not alone in exploring the potential of tokenized assets. Earlier this year, BlackRock launched a blockchain-based fund, and JPMorgan is also investigating the use of tokenized money market funds as collateral. JPMorgan has already taken steps to tokenize real-world money through its stablecoin initiatives.
These developments indicate a broader industry shift towards integrating blockchain technology into traditional financial systems, offering new efficiencies and opportunities for innovation.
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