The Technology Working Group of the UK's Treasury has released a report expanding on the potential applications of fund tokenization.
The Technology Working Group of the UK's Treasury has released a report expanding on the potential applications of fund tokenization.
Tokenization involves issuing units recorded on a distributed ledger, offering increased efficiency, transparency, and competitiveness compared to traditional record-keeping systems.
This report is the second publication from the Technology Working Group, which was established in April 2023 as part of the government’s Asset Management Taskforce and Investment Association.
More specifically, the report examines the use of tokens as collateral for money market funds and the role of tokenized funds in the onchain investment market.
One area of exploration is the tokenization of fund units, while some asset managers are interested in investing funds in tokenized securities. This could lead to the creation of composable funds and greater customization.
The report delves into two specific use cases and invites interested participants to contact the Investment Association by April 26.
The first use case explores the tokenization of money market funds (MMFs) for use as collateral, particularly in non-centrally cleared derivatives. This measure aims to mitigate settlement delays and reduce pressure on the market during crises.
The second use case involves incorporating digital or tokenized securities within a tokenized fund, similar to the ongoing experiment by Schroders. This use case aligns with the UK's Digital Securities Sandbox (DSS), which aims to explore necessary regulatory changes for such investments.
The Economic Secretary to the Treasury, Bim Afolami MP, said:
“As we work to grow the economy, the UK is ideally placed to seize on the transformative capabilities of technology in this industry, combining our expertise in innovation and investment management. This report demonstrates – once again – that the UK is on the side of the pioneers.”
Furthermore, the working group expresses its desire to see the UK government issue a digital bond (a gilt) and confirms that HM Treasury will investigate this possibility within the next six to 12 months.
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