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S&P Global Rankings Urges Asset Managers To Embrace Tokenization

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The esteemed credit rating agency argued that using public blockchains for tokenization offers significant efficiency benefits over legacy financial architecture.

S&P Global Rankings, a leading credit rating agency, is bullish on tokenized real-world assets.

In a May 14 report, S&P Global Ratings argues that asset tokenization offers numerous efficiency and operational benefits to asset managers and investors alike.

“Tokenized Treasuries are digital tokens created on a blockchain that are backed by a portfolio of U.S. government obligations,” said Andrew O’Neill, digital assets managing director at S&P Global Ratings. “Tokenized Treasuries can help money market funds and their investors to manage liquidity… Longer term, tokenization may bring new efficiencies to the asset management industry.”

The report argues that the launch of the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), the tokenized U.S. treasuries fund from the world’s largest asset manager, in mid-March accelerated the trend of real-world asset (RWA) tokenization.

Indeed, the tokenized U.S. treasury market has grown 83.6% to more than $1.27 billion from $695 million on March 19 — the day before BUIDL began accepting investments, according to Rwa.xyz.

BUIDL’s rapid rise pushed the value of the sector above $1B one week after launching, with the fund currently ranking as the largest tokenized treasuries product with $381 million. Franklin Templeton’s ’s OnChain U.S. Government Money Fund (FOBXX) ranks second with $359.6 million.

the-defiant
Capitalization of tokenized treasuries funds. Source: Rwa.xyz

Ethereum hosts two-thirds of the sector’s capitalization, followed by Stellar with 28.5%, and Solana with 3.66%.

Opportunities for TradFi

O’Neil asserts that tokenized funds offer significant benefits addressing shortcomings of their analogue counterparts.

The report says that the risk of funds suffering bank runs are mitigated by investors having “round-the-clock” access to on-chain liquidity. It noted that BUIDL allows investors to redeem their shares for USDC stablecoins at any time via smart contract execution — bypassing the need for intermediaries.

Shares representing as tokens can also be used as liquid collateral, meaning shareholders do not need to redeem their assets to access their value to use as collateral. Franklin Templeton recently enabled peer-to-peer transfers of FOBXX shares, enabling new use cases for the tokens.

The report acknowledged that many financial institutions have previously explored tokenization through private chains, but said public networks offer significant liquidity advantages over permissioned networks. “Banks’ tokenization efforts have mainly used private permissioned blockchains, supporting operational efficiencies but not a liquid market in tokenized products,” O’Neil said.

On-chain treasuries also provide efficiency advantages and accelerated settlement for businesses moving assets across borders, such as multinational corporations.

O’Neil added that tokenized RWAs benefit on-chain businesses by enabling them to access legacy assets and real-world yields without having to move their assets off-chain.

“Previously, crypto-related businesses that earn revenues and pay expenses on-chain have had to choose between investing their cash in riskier on-chain assets or moving it off-chain to invest in traditional cash-equivalent products,” O-Neil said. “This ‘off and on-ramping’ process is costly and inefficient. Tokenized Treasuries provide an on-chain solution backed by assets with high liquidity and credit quality.”

Challenges ahead

Despite O’Neil’s optimism for the tokenized RWA sector, the report acknowledges that on-chain funds still face significant challenges in the form of regulation and interoperability.

“Emerging regulatory frameworks in key jurisdictions will enhance investors’ appetite to engage with stablecoins and the features they enable,” he said. “Institutions need to connect their legacy systems to those blockchains… In the short term, interoperability challenges will limit the growth of tokenization.”


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