American financial giant State Street is exploring blockchain technology to tokenize bonds and money market funds for enhanced collateral management.
State Street, the largest custodian bank in the world, is leveraging blockchain to explore the tokenization of bonds and money market funds, joining a growing number of firms adopting distributed ledger technology in traditional finance.
In an Oct. 8 interview with Financial News, State Street chief product officer Donna Milrod said the firm has two ongoing projects focused on tokenizing collateral linked to money market funds and bonds, adding that the pilot “will take us through part of next year.”
She explained that the Boston-headquartered banking institution aims to develop tokenized collateral that can be used as variation or initial margin for trading.
State Street does not rule out stablecoin launch
Currently, trading firms are required to liquidate their holdings in money market funds to post cash as margin for trades. However, with digitalized funds, tokens could serve as collateral, eliminating the need for redemption altogether, Milrod explained.
State Street is not the first institution experimenting with the tokenization of money market funds. BlackRock, for example, launched a blockchain-based fund earlier in March. JPMorgan is also exploring the use of tokenized money market funds as collateral and has already tokenized real-world money through its stablecoin.
Although Milrod noted State Street’s current focus does not include launching a stablecoin, she acknowledged the potential for future developments, saying, “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.”
