February 2022

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The tokenization of repo is a good idea, but current product designs are likely to inhibit cash provider adoption where it matters most: at money market funds and central counterparties (CCPs). Making the leap from concept to reality for these firms means engaging with the legal and settlement mechanisms that have made repo into the successful US$13.4 trillion marketplace it is today. Without it, tokenization may offer elegant solutions for dealers but may stall there.

The legal and operational constraints of cash providers should be closely considered by tokenized repo platforms. This may be cumbersome compared to building out the technology, but a successful conclusion could open up tokenized repo to a broad new liquidity pool and drive adoption.

This report looks at some of the most pressing issues for cash providers in the model, including: custody models, insolvency risk, the value of tokenization vs. triparty, and the need for after hours liquidity. The report concludes with ideas for product development that could solve cash provider concerns and facilitate the growth of repo tokenization platforms.

This report should be read by any repo market participant or regulator interested in how cash providers will participate in the tokenization of repo.

Table of Contents

  • Executive Summary
  • A Good Idea So Far
    • – The Mechanics of Settling Tokenized Repo
  • Token Settlement, Held-in-Custody Settlement and Insolvency Risk
    • – Tokenized Repo Settlement vs. Triparty
  • Cash Providers and After Hours Liquidity
  • Solutions for Product Development
  • About the Author
  • About Finadium LLC

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