Mathew McDermott, global head of digital assets at Goldman Sachs, said collateral mobility is one of the most powerful use cases for tokenization. Tokenized assets are digital tokens on a chain that represent physical or traditional financial assets which are programmable and so can allow atomic settlement, instantaneous delivery versus payment.
“There are a lot of efficiencies you gain from derisking and being more efficient with capital and liquidity,” said McDermott, cited by MarketsMedia. “You can then redeploy that capital for more interesting revenue opportunities and that is an area that really excites me.”
For example, collateral can be allocated with more precision if it is on-chain and also posted intra-day. He continued that over the last six to 12 months, more adventurous project initiatives have been launched that are “starting to show the embers of where you can really see scale.” In addition, the market has been galvanised by institutional investments.
For example, BlackRock led a $47 million funding round in Securitize, which tokenizes real-world assets in May 2024. BlackRock has launched its USD institutional digital liquidity fund (BUIDL) on the ethereum public blockchain and provides qualified investors with the opportunity to earn US dollar yields by subscribing through Securitize Markets.
Franklin Templeton also introduced the first US-registered mutual fund to process transactions and record share ownership on a public blockchain in 2021 and in April 2024 allowed shareholders to complete peer-to-peer transfers on chain. Each share of the Franklin OnChain U.S. Government Money Fund is represented by a BENJI token and the fund’s transfer agent maintains the ledger of share ownership using blockchain technology to record transaction activity.
Robert Crossley, vice president of industry advisory services for EMEA/APAC at Franklin Templeton, said on the panel cited by MarketsMedia that over the last 12 months traditional financial (TradFi) and decentralized finance (DeFI) have been coming together and established players are starting to take the technology and its benefits seriously.
“We’ve seen a number of tokenized money market funds starting to come to the market because it’s solving for a problem,” Crossley said, adding that regulatory clarity is increasing a critical mass of infrastructure is being built, especially in custody.
David Mercer, chief executive of LMAX Group, said on the panel that “if you haven’t got a tokenization strategy, you will not have a future”, also noting that efficient use of collateral will be the great accelerant of capital markets.