This post was originally published on this site.
The BIS has published a bulletin on tokenized money market funds (MMFs) that continues an approach seen in its stablecoin paper earlier this year: a comprehensive list of risks with limited discussion of mitigation strategies. While identifying risks is essential, a complete picture would also examine how market participants and technology providers are addressing these challenges. This article explores some of those strategies.
The first risk highlighted in the paper is the liquidity mismatch. Tokenized money market funds can be redeemed daily, but the underlying assets are subject to conventional settlement cycles: T+1 in the US. Under normal circumstances, this is not an issue, but during periods of stress, mass redemption requests highlight the mismatch.
However, the market is still nascent and solutions are emerging. For example, Broadridge operates Distributed Ledger Repo (DLR), an intraday repo solution. This allows for the intraday transfer of tokenized Treasuries. The DLR solution can also be used to simply tokenize and transfer Treasuries without the repurchase component. Hence, where an MMF involves Treasuries, the asset manager could potentially liquidate Treasuries intraday rather than needing to wait for T+1. So despite this liquidity mismatch risk existing today, it can be addressed with technology that is already in production.
Article continues …
Want the full story? Pro subscribers get complete articles, exclusive industry analysis, and early access to legislative updates that keep you ahead of the competition. Join the professionals who are choosing deeper insights over surface level news.