Goldman and BNY Team Up to Tokenize Money-Market Funds — WSJ

By Vicky Ge Huang

Goldman Sachs and Bank of New York Mellon are bringing the technology that underpins crypto to an investing stalwart: the humble money-market fund.

The two banking giants said Wednesday they are partnering to launch digital tokens that confer ownership of money-market funds managed by many of the biggest investment firms, including BlackRock, Fidelity Investments and Federated Hermes, as well as their own asset-management arms.

BNY, the world's largest provider of administrative services to money managers, will offer the tokenized funds to its investment-firm and corporate clients over its LiquidityDirect cash-management platform. Goldman will in turn record and track the ownership of the tokens on its private blockchain, with BNY keeping the funds' books.

"It's a big deal because they are all major players," said Peter Crane, president of Crane Data, a firm that tracks money-market funds. "This is a substantial slice of the whole money-fund marketplace. There's no turning back from tokenization from here."

The Genius Act, the landmark measure that creates a regulatory framework for tokenized dollars known as stablecoins and signed into law by President Trump last week, is unleashing a wave of efforts to tokenize everything from individual stocks to funds and real assets.

Money-market funds, an investing staple popular with both institutions and individual investors, hold baskets of relatively safe short-term debt securities and typically offer a higher yield than bank deposits. Tokenization can help the managers of these funds cut costs and reduce the time it takes to settle transactions. And proponents say the tokens may make it easier for investors to pledge their fund holdings as collateral, or buy fractional shares of the fund.

Skeptics argue that it could bring crypto's volatility and cybersecurity risks to the traditional financial world.

The total assets in U.S. money-market funds stood at approximately $7.1 trillion as of mid-July, compared with about $6.9 trillion at the start of the year, according to the Investment Company Institute. Tokenized money funds have been a hit with crypto traders, who have been in search of higher-yielding places to store their cash. Stablecoins don't pass on interest income to its holders.

JPMorgan was the first global bank to build a blockchain-based platform that can tokenize and transact assets. Goldman launched a tokenization platform in late 2022 to help clients issue bonds. And some money managers, including BlackRock and Franklin Templeton, have launched tokenized money funds on public blockchains.

Proponents of tokenization say it could transform financial markets by enabling cheaper, faster and more efficient transactions, while also introducing new uses for traditional assets.

The regulatory clarity surrounding stablecoins, which are effectively tokenized dollars, could drive more activity in the tokenization space. Many companies, including Robinhood and Kraken, recently launched tokenized stocks for non-U. S. customers.

The Genius Act is expected to drive greater adoption for stablecoins and pave the way for companies to offer tokenized products without fear of unexpected regulatory crackdowns, said Michael Sonnenshein, president of Securitize, a tokenization startup.

"We now have a framework that has been written into law," said Sonnenshein. "For any of the asset issuers that have perhaps been on the sidelines or have been hesitant to go full force into the world of tokenized securities, this now offers them a little bit of additional air cover to pursue participating and standing up their own projects in this ecosystem."

Write to Vicky Ge Huang at vicky.huang@wsj.com