Fidelity International has selected JPMorgan’s Onyx Digital Assets blockchain to token a money market fund.
This move means improved efficiency in meeting margin requirements and a reduction in transaction costs and operational risk, Fidelity International said.
Fidelity International, a London-based fund management company, has tokenized shares in a money market fund (MMF) using JPMorgan’s Ethereum-based private blockchain network, Onyx Digital Assets.
Tokenization occurred almost immediately via connectivity between the fund’s transfer agent (JPMorgan’s transfer agent business) and Tokenized Collateral Network, an application that resides between a collateral recipient and a collateral provider on the bank’s Onyx blockchain, according to Fidelity International, a separate entity for US-based Fidelity Management and Research.
Tokenization of traditional financial assets has become a household name priority for banks, and it is an area that JPMorgan has been working on for several years. The essence of tokenization is to create a virtual investment vehicle on a blockchain that represents real-world assets such as real estate, precious metals and collectibles. Stocks and bonds also work.
Fidelity International also has a long history with digital assets, working on a tokenization project with Swiss bank Sygnum in 2019.
In October last year, JPMorgan executed its first live blockchain-based collateral transaction involving tokenized shares in a BlackRock money market fund. The shares were transferred to Barclays as collateral in an over-the-counter derivatives trade. BlackRock has further embraced tokenization through its public approach BUIDL project, with tokenization services company Securitize.
“Tokenizing our money market fund shares to use as collateral is an important and natural first step in scaling our adoption of this technology,” Stephen Whyman, head of Fidelity International’s debt capital markets practice, said in an email interview. “The benefits for our customers and the wider financial system are clear; in particular the improved efficiency in meeting margin requirements and the reduction of transaction costs and operational risk.”
JPMorgan’s TCN began the tokenization of money market stocks, a type of mutual fund that invests in high-quality, short-term debt instruments and cash equivalents. The plan is to expand into equities, fixed income and a range of asset classes, the bank said.
“Fidelity’s participation in TCN brings its MMF units to our network via tokenization, adding a new asset that is otherwise prohibitively complex to deploy in the current collateral landscape,” said Keerthi Moudgal, head of product at Onyx Digital Assets, JP Morgan, via email.