State Street enters tokenized bonds and digital money funds

American financial giant State Street is exploring blockchain technology to tokenize bonds and money market funds for improved collateral management.

State Street, the world’s largest custodial bank, is leveraging blockchain to explore the tokenization of bonds and money market funds, joining a growing number of firms adopting distributed ledger technology in traditional finance.

State Street chief product officer Donna Milrod told Financial News in an Oct. 8 interview that the firm has two ongoing projects focused on tokenizing collateral linked to money market funds and bonds, adding that the pilot “will take us sometime next year.” ”

He explained that the Boston-based banking institution aims to develop tokenized collateral that can be used as variation or initial margin for trading.

State Street does not rule out stablecoin launch

Currently, trading firms are required to liquidate their holdings in money market funds to record cash as margin on transactions. However, Milrod explained that with digitized funds, tokens can act as collateral, completely eliminating the need for repayment.

State Street is not the first institution to experiment with the tokenization of money market funds. BlackRock, for example, launched a blockchain-based fund in early March. JPMorgan is also exploring the use of tokenized money market funds as collateral and has already tokenized real-world money through stablecoins.

Although Milrod noted that State Street’s current focus is not on launching a stablecoin, he acknowledged the potential for future developments, saying: “That doesn’t mean we won’t do it. [launch a stablecoin] at some point, but we don’t feel the need to do that right now.