Fidelity Investments, one of the world's largest asset managers, has introduced an initiative to launch a tokenized money market fund on the Ethereum network. The new project, named 'OnChain', aims to enhance transaction transparency for investors.
What is the OnChain Share Class?
The OnChain share class is an Ethereum-based blockchain share class for Fidelity's Treasury money market fund. Its purpose is to provide greater transparency and a verifiable transaction history for investors. According to the filing with the U.S. Securities and Exchange Commission, while the blockchain will play a significant role in recording transactions, traditional book-entry records will still be maintained as the official record of ownership. Blockchain entries will be used for secondary recording, with Fidelity's transfer agent reconciling these transactions daily, allowing investors to have a clear view of share ownership on the blockchain while Fidelity maintains traditional financial processes.
No Tokenization of Underlying Treasuries
While blockchain technology will be used at the share-recording level, the underlying U.S. Treasury securities in the fund will not be tokenized. The fund will primarily invest in cash and U.S. Treasury securities, ensuring capital preservation and liquidity for its investors. The use of blockchain is strictly limited to the recording of shares, with the fund's assets remaining in their traditional form. 99.5% of assets will be held in U.S. Treasury securities and cash.
Blockchain Technology and Operational Efficiency
Fidelity’s use of blockchain technology in its financial products highlights a growing trend among asset managers and global banks to improve operational efficiency. Blockchain offers the potential for 24/7 settlements and enhanced transparency, which can benefit both investors and asset managers. Additionally, the tokenization of the fund will streamline share transfer processes. Fidelity hopes that blockchain-based funds will become more prevalent in the future, offering the financial industry a faster and more efficient way to manage and record transactions.
Fidelity’s move into asset tokenization places it alongside major players like BlackRock, who have already seen success with tokenized Treasury securities. This reflects the favorable conditions for the increasing interest in tokenization from institutional investors.
