Fidelity International Tokenizes Money Market Fund on JPMorgan’s Onyx Blockchain

Key Takeaway

• Fidelity International tokenized shares in a money market fund using JPMorgan’s Ethereum-based Onyx Digital Assets blockchain.
• Tokenization aims to improve efficiency, reduce transaction costs, and lower operational risk for clients and the financial system.
• JPMorgan plans to expand tokenization across various asset classes, starting with money market shares.

Fidelity International's Tokenization Move

Fidelity International, a prominent London-based funds management firm, has taken a significant step in the digital asset space by tokenizing shares in a money market fund (MMF) using JPMorgan’s Ethereum-based private blockchain network, Onyx Digital Assets. This tokenization process was executed almost instantaneously, facilitated by the connectivity between the fund’s transfer agent, JPMorgan’s transfer agency business, and the Tokenized Collateral Network (TCN). The TCN acts as an intermediary between a collateral receiver and a collateral provider on JPMorgan's Onyx blockchain.

The Growing Trend of Tokenization

Tokenization of traditional financial assets has become a focal point for banks, with JPMorgan leading the charge in this area for several years. The concept of tokenization involves creating a virtual investment vehicle on a blockchain that represents real-world assets such as real estate, precious metals, collectibles, stocks, and bonds. Fidelity International has a history of engaging with digital assets, having collaborated on a tokenization project with Swiss bank Sygnum back in 2019.

In a notable precedent, JPMorgan conducted its first live blockchain-based collateral settlement transaction in October last year, involving tokenized shares in a BlackRock money-market fund. These shares were transferred to Barclays as collateral in an over-the-counter derivatives trade. BlackRock has since continued to explore tokenization through its public-facing BUIDL project, in partnership with tokenization services firm Securitize.

Benefits and Future Plans

Stephen Whyman, Fidelity International's head of debt capital markets, emphasized the strategic importance of this move. “Tokenizing our money market fund shares to use as collateral is an important and natural first step in scaling our adoption of this technology,” Whyman stated in an email interview. He highlighted the clear benefits to clients and the broader financial system, particularly in terms of improved efficiency in meeting margin requirements, reduced transaction costs, and lower operational risk.

JPMorgan’s TCN initially focused on the tokenization of money market shares, which are mutual funds investing in high-quality, short-term debt instruments and cash equivalents. The bank plans to expand this initiative to include equities, fixed income, and a variety of other asset classes. Keerthi Moudgal, head of product at Onyx Digital Assets, JP Morgan, noted, “Fidelity's participation in TCN brings its MMF units onto our network through tokenization, adding a new asset that is otherwise prohibitively complex to use across today's collateral landscape.”

Street Views

• Stephen Whyman, Fidelity International (Bullish on tokenization technology):

  "Tokenizing our money market fund shares to use as collateral is an important and natural first step in scaling our adoption of this technology. The benefits to our clients and the wider financial system are clear; in particular, the improved efficiency in delivering margin requirements and reduction in transaction costs and operational risk."

• Keerthi Moudgal, JP Morgan's Onyx Digital Assets (Bullish on tokenization through TCN):

  "Fidelity's participation in TCN brings its MMF units onto our network through tokenization, adding a new asset that is otherwise prohibitively complex to use across today's collateral landscape."