Fidelity Submits Tokenized Money Market Fund to SEC

Fidelity Investments, a prominent asset management company, has taken a significant step towards embracing blockchain technology by submitting a tokenized version of its U.S. dollar money market fund, fidelity Treasury Digital Fund (FYHXX), to the Securities and Exchange Commission (SEC). This move positions Fidelity among a growing number of financial institutions exploring the potential of tokenized assets.

The SEC filing indicates that Fidelity aims to create an on-chain share class of its funds, FYHXX, utilizing the Ethereum network. However, the company plans to develop an independent blockchain for this purpose. The tokenized fund will focus on investing in cash and U.S. securities, currently holding 80% of its assets in securities. This initiative follows a previous SEC filing by Fidelity, which sought to introduce staking for an Ethereum ETF, aligning with the broader trend of asset management firms investing in blockchain technology.

Tokenized money funds offer several advantages, including quicker settlement times, direct transactions, 24/7 trading, and enhanced liquidity. By tokenizing real-world assets such as bonds, funds, and credit on the Ethereum blockchain, Fidelity can provide better access to these assets. The tokenized version of FYHXX will enable shareholders to verify transactions on the blockchain, tracking shares owned, while maintaining a traditional method of record-keeping as a backup. The blockchain will not serve as the official record of shares traded but will be updated daily to reflect the off-chain official record. Notably, the U.S. Treasury bills will not be tokenized directly.

This dual record model, with the primary record being off-chain and the secondary record on the Ethereum blockchain, is crucial for transitioning to an on-chain primary record. Fidelity, managing $5.8 trillion in assets, has been relatively slow in adopting blockchain technology compared to other companies. Blackrock, for instance, runs the money market BUIDL, which holds $1.5 billion in assets and has been a leader in asset management. Franklin Templeton has also developed a money market using tokenized funds, with $689 million in assets.

Ask Aime: What benefits does Fidelity's tokenized money market fund offer investors?

The phenomenon of debanking, where banks refuse to finance crypto businesses, has posed challenges for the adoption of tokenized assets. Banks often categorize cryptocurrencies and tokenized assets together, despite the latter following the same regulatory framework as traditional assets. However, the creation of BUIDL by Blackrock marked a shift in attitude, with many banks now preferring AI companies over blockchain-based companies, despite the varying degrees of risk associated with different business models.

Robbie Mitchnick, Blackrock’s head of crypto, emphasized the advantages of Ethereum for tokenization, stating, “There was no question that the blockchain we would start our tokenization on would be Ethereum, and that’s not just a BlackRock thing, that’s the natural default answer. Clients clearly are making choices that they do value the decentralization, they do value the credibility, and the security and that’s a great advantage that Ethereum continues to have.”