Tokenized Money-Market Funds Are Now Gaining Steam on Wall Street

Key Points:

• Amid market volatility, crypto traders are converting their assets into stablecoins for stability and using them as collateral.
• Major fund issuers like BlackRock and WisdomTree are offering tokenized money-market funds with interest rates of 4% to 5%.

More traders are now converting their digital assets into stablecoins pegged to the US dollar or other traditional currencies.

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Crypto Traders Flock to Tokenized Money-Market Funds in Market Upheaval

According to Bloomberg, Wall Street has taken notice of the trend, and several firms want to create some competition in the stablecoin market.

Though fund issuers are hoping that the main use for the stablecoins is to pay for things, there is a developing interest in holding onto tokenized money-market funds representative of money-market funds, equities, and other investment vehicles. Unlike stablecoins, these fund tokens can accrue interest and appreciate in price as the underlying asset goes up.

The largest stablecoin, Tether’s USDT, pays no interest. Instead, the cash backing USDT is invested by Tether in safe assets such as Treasury securities. The company made roughly $5.2 billion in profit in the first half of this year. Over recent months, several yield-paying stablecoins have been established, but most of them have been from smaller firms and have failed to attract wider adoption.

More Uses Are Emerging for Tokenization to Gain Broader Access

Major issuers of tokenized money-market funds, such as BlackRock and WisdomTree, put forward an attractive option. Their money-market fund tokens promise interest rates in the range from 4% up to 5% and can function as collateral in derivatives transactions.

BlackRock is actively negotiating at different levels with cryptocurrency exchanges to enable the use of money-market tokens as collateral. WisdomTree is considering developing partnerships with prime brokerages and trading desks to further the functionality of its money-market fund tokens.

This demand might increase when interest rates likely decline. Various types of tokenized money-market funds are still going to be launched.