Money funds allow investors to earn returns on cash-like instruments. While stablecoins are popular in crypto, tokenized money funds may offer superior returns.
Stablecoins are one of crypto's biggest success stories, but they're facing increasing competition from another type of digital asset: tokenized money market funds.
According to Roger Bayston, head of digital assets at investment giant Franklin Templeton, which offers a tokenized money fund, the key difference between the two products can be traced to how investors take advantage of federal interest rates.
“The money fund provides a yield to users, rather than that yield going to the stablecoin issuer,” Bayston said. News.
Stablecoins vs. Money funds
Stablecoins are cryptocurrencies designed to be equivalent to government-issued currencies such as the US dollar. And with the stablecoin market right now there is considerable demand for them the value Over $171 billion.
Tokens issued by dominant stablecoin institutions such as Tether and Circle are backed by dollar reserves. For example, any client who wants to redeem 100 tokens will receive $100 in return.
But these institutions don't just keep their reserves in cash. Instead, they invest them in short-term US Treasury bonds and profit from the yield.
Tether, for example, announced in July that it raised $5.2 billion from $97.6 billion in US debt holdings in the first half of 2024.
Tokenized money market funds differ in that they allow crypto investors to gain exposure to a range of low-risk, short-term debt securities. Like stablecoins, money fund shares have a $1 valuation, but they yield above that.
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FOBXX and Benjy
Franklin Templeton's Onchain US Government Money Fund — abbreviated FOBXX — offers holders a yield of 5.12%, which it earns through investments in various US Treasury bills and federal home loan banks.
The fund is valued at $420 million, and its shares are represented onchain by Benzy tokens. Each token is worth one share and each share is worth $1.
Although FOBXX is available on several different networks – Arbitrum, Avalanche, Stellar, Polygon – investors can only gain exposure to it through Franklin Templeton's web portal and dedicated apps.
In other words, while the fund uses public blockchains, it is not permissionless like DeFi protocols.
“The fund is available to US-based investors who meet the same know-your-customer, anti-money laundering standards that we have for investors who put money in our mutual funds,” Bayston said.
$6.4 trillion market
Money funds may be new to crypto, but they are ubiquitous in the wider economy.
The first money fund launched in 1971. Since then this sector Accumulated There are more than $6.4 trillion in assets in the US alone. This is more than three times the value of the entire cryptocurrency market sits At $2.1 trillion.
“We see a broad and expanding opportunity to bring these plain, vanilla money fund features to these networks,” Bayston said.
The long-term goal is that money funds are spread throughout the ecosystem and used in a similar way to stablecoins.
“If you predict that stablecoins will grow everywhere, money funds are likely to achieve the same type of opportunity,” Bayston said.
Tom Carreras writes about markets for DL News. Have a tip about tokenized money funds? arrive at [email protected].
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