Top US Asset Manager State Street Explores Blockchain Solutions for Bonds and Funds

Key Takeaways

• State Street is developing tokenized bonds and money market funds on the blockchain.
• JP Morgan’s stablecoin sees $1 billion in daily trading volumes from institutional investors.
• Tokenization in traditional finance (TradFi) could be worth more than $2 trillion by 2030.

One of the largest financial service firms in the U.S., State Street, has revealed that it is now exploring blockchain technology to create tokenized bonds and money market funds.

Tokenized Finance

Speaking with  Financial News , State Street Chief Product Officer Donna Milrod explained that the firm is actively researching money market funds and tokenized bonds . Both projects are still in their early phases and, as Milrod notes, will continue into 2025. Adding:

“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,”

In order to generate money on their trade margins, firms have to liquidate money market fund holdings. By digitizing funds, tokens can be used as collateral, removing the need for redemption, and streamlining the whole process.

Milrod adds that tokenized funds could be highly effective during a financial strife.

Citing the liability-driven investment (LDI) crisis of 2022 as one that could have benefited. She explains that tokenized collateral would have given pension funds a more flexible and disruptive route to liquidate assets.

The news comes some months after BlackRock launched its blockchain-based money-market fund, BUIDL, which attracted over $500 million within six months of launching.

No Stablecoins, For Now

Unlike other U.S. financial behemoths such as JPMorgan, State Street doesn’t have any plans to issue a stablecoin, nor tokenize deposits.

“That doesn’t mean we won’t at some point, but we don’t feel the need to do that right now. But that doesn’t mean we won’t at some point,”

Seemingly, the focus will be getting tokenized bonds and money market funds off the ground and building out from the education, success, or failure of this new venture.

Milrod explains that the financial industry is looking at the potential viability of blockchain solutions with a less skeptical eye.

However, whilst the boost to operational efficiency is great, Milrod notes that it’s “not enough” and that “the industry is figuring out where the commercial value is.”

TradFi Exploration Grows

In 2020, JPMorgan launched its very own digital-dollar stablecoin, JPM Coin , backed 1:1 with U.S. dollars. However, the banking giant had been experimenting with use cases for more than five years prior to that.

It’s not a typical token that you can buy on the market.

It’s a settlement layer between the bank and its clients. It allows institutional investors to make instantaneous transactions using the blockchain, with significant cost-saving advantages.

Reportedly, more than $1 billion in JPM Coin is transacted every day. Though it is barely a fraction of its $10 trillion in daily payment processing, its consistent use is a testament to its growing popularity amongst TradFi investors.

According to McKinsey , tokenization in traditional finance could be worth $2 trillion by 2030, this is excluding the cryptos such as Bitcoin and stablecoins like Tether (USDT).

The McKinsey report says this tokenization overhaul could “double to around $4 trillion.” This would largely be driven by mutual fund adoption, alternative funds, exchange-traded notes (ETNs), loans, and securitization.