JPMorgan Chase Says Tokenization Could Boost Utility of Money Market Funds

The tokenization of shares of money market funds could help keep money market funds competitive with stablecoins while also creating new uses for them, according to JPMorgan Chase & Co. strategists.

The strategists said this in a note to clients, commenting on a partnership between Goldman Sachs and the BNY to collaborate on that tokenization, Bloomberg reported Friday (July 25).

“The true takeaway from this is beyond the typical way we see money funds being used as a cash management asset class — they can now use it as collateral,” said Teresa Ho at JPMorgan, per the report. “Instead of posting cash or posting Treasuries, you can post money market shares and not lose interest along the way. It speaks to the versatility of money funds.”

Goldman Sachs and BNY announced their collaboration Wednesday (July 23), saying their tokenization project will see BNY use Goldman Sachs’ blockchain technology to maintain a record of customers’ ownership of select money market funds.

The companies said in a Wednesday press release that the project is “a significant step towards enhancing the utility and transferability of existing [money market fund] shares.”

Laide Majiyagbe, global head of liquidity, financing and collateral at BNY, said in the release that the companies’ planned “mirrored tokenization of [money market fund] shares” is a first step in the financial system’s transition toward “a more digital, real-time architecture.”

Mathew McDermott, global head of digital assets at Goldman Sachs, said in the release that the project “would enable us to unlock their utility as a form of collateral and open up more seamless transferability in the future.”

PYMNTS reported Wednesday that the BNY-Goldman Sachs deal could be a watershed moment for enterprise back-office leaders as it highlights changes that, for corporate treasurers managing billions of dollars in liquidity across multinational corporations, could amount to a redesign of the capital stack.

Tokenized money market funds can be exchanged instantly, enabling treasurers to manage liquidity in real time; unlock use cases like real-time collateral swaps or intraday repo; and be paired with tokenized cash, Treasuries and commercial paper, allowing treasurers to compose portfolios that settle in seconds, automate allocations via smart contracts and rebalance exposure with unprecedented agility.