Wall Street Embarks on Tokenization Trend, Integrating Real-World Assets with Blockchain

Wall Street is currently focused on integrating real-world assets (RWA) into its core financial operations through tokenization, with a particular emphasis on three key areas: customized money market funds for stablecoins, blockchain-based intraday repurchase agreements, and fully digital commercial paper issuance. This trend signifies a structural shift where traditional finance is merging with digital assets, rather than being a distant vision.

One of the notable developments is the creation of money market funds tailored for stablecoins. Traditional financial institutions are embracing the stablecoin market, viewing it as a crucial bridge between the digital and real worlds. For instance, a money market fund focused on stablecoin reserves is being prepared by New York Mellon Bank. This fund, named "BNY Dreyfus Stablecoin Reserves Fund," is designed for stablecoin issuers to use as reserve assets for their circulating stablecoins. The fund is categorized as a government money market fund, with investments strictly limited to U.S. Treasury securities, Treasury repurchase agreements, and cash. The bank acknowledges that the fund's yield may be lower than other money market funds that have a broader investment scope and longer maturities.

Another significant innovation is the use of blockchain technology in intraday repurchase agreements. This technology aims to meet liquidity demands outside of traditional market trading hours. A standard repurchase agreement was completed on a Saturday through the Canton Network, a public blockchain, using the Tradeweb platform. This transaction involved tokenizing U.S. Treasury securities held by a subsidiary of DTCC and using them as collateral to borrow Circle's stablecoin USDC. The entire process was completed on-chain instantly, without the need for a broker as an intermediary, achieving immediate settlement that traditional markets cannot match. Institutions such as Bank of America and Citadel participated in this transaction, highlighting the technology's potential for cross-institutional collaboration.

Additionally, a collaborative effort between JPMorgan, HQLAx, and Ownera has resulted in a cross-ledger repurchase solution. This solution allows traders to exchange between JPMorgan's cash ledger and HQLAx's collateral ledger, with settlement and maturity times precise to the minute. This provides institutions with a new, highly efficient tool for optimizing intraday liquidity, far surpassing the settlement efficiency of traditional repurchase agreements.

The application of blockchain technology has also extended to commercial paper issuance. JPMorgan's digital debt services were used by Oversea-Chinese Banking Corporation to issue 100 million U.S. commercial paper, marking the first instance of a commercial paper issued using blockchain technology throughout its entire lifecycle, from issuance to settlement, servicing, and record-keeping. State Street Bank purchased all the paper and became the first third-party custodian to go live on the digital debt service. By leveraging blockchain, these processes become more efficient and transparent, offering additional benefits such as faster settlement times.

While the integration of digital assets with traditional finance is just beginning, the development of regulatory frameworks will take time. The CLARITY Act, currently in progress, aims to establish a comprehensive regulatory framework for all digital assets in the market, addressing the ambiguous market structure and jurisdiction issues between the U.S. Securities and Exchange Commission and the Chicago Mercantile Exchange. Although the act has passed the House of Representatives, it has not yet been approved by the Senate and is expected to take more time. It is anticipated that the act will be sent to the U.S. President's office by early 2026.