Fidelity Investments, one of the largest asset managers globally, filed to register a tokenized money market fund based on Ethereum. This new initiative aims to enhance transparency and verify investor share transactions.
OnChain Share Class
The OnChain share class is an Ethereum blockchain-based share class for Fidelity’s money market fund. The purpose is to provide greater transparency and verifiable share transactions. Although blockchain will play a significant role in transaction recording, Fidelity will maintain traditional book-entry records as the official ownership ledger. The OnChain class will use the Ethereum network for secondary recording, while Fidelity’s transfer agent will reconcile blockchain transactions daily. Investors will be required to hold their shares in a blockchain wallet.
Tokenization and Asset Security
While blockchain technology will be used for share recording, it's essential to note that 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 investors. The fund will hold 99.5% of its assets in U.S. Treasury securities and cash. Fidelity's decision to keep traditional assets in their current form aligns with the fund’s goal of providing income while maintaining the high level of security expected from a money market fund.
Utilization of Blockchain Technology
Fidelity’s foray into blockchain-based financial products highlights a growing trend among asset managers and global banks. Blockchain technology offers the potential for around-the-clock settlements and improved transparency. The fund’s tokenization will also provide operational benefits such as streamlined share transfer processes. In the long run, Fidelity hopes blockchain-based funds will become more prevalent, offering the financial industry a faster, more efficient way to manage transactions. Fidelity's move places it alongside other major players, such as BlackRock, which have already seen success with tokenized Treasury bonds.
Fidelity's actions in the realm of tokenized financial products indicate significant interest from institutional investors in new technologies. The use of blockchain technologies promotes improved transparency and efficiency, potentially laying the groundwork for the future development of the financial industry.
