S&P Global Urges Asset Managers to Adopt Tokenization to Increase Efficiency and Liquidity

S&P Global Ratings, a well-known rating agency, has called on asset managers to embrace tokenization, highlighting its potential to revolutionize the asset management industry. In a report published on May 14, S&P Global Ratings detailed the numerous benefits of using public blockchains to tokenize assets, arguing that it offers significant efficiency advantages over traditional financial systems.
The Rise of Tokenized Treasury Bonds
According to Andrew O'Neill, managing director of digital assets at S&P Global Ratings, tokenized Treasury bonds - digital tokens backed by a portfolio of U.S. government obligations - can improve liquidity management for money market funds and their investors. He emphasized that tokenization can bring new efficiencies to the asset management sector in the long term.
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The report cites the recent launch of BlackRock's USD Institutional Digital Liquidity Fund (BUIDL) as a key gas pedal of this trend. Since BUIDL began accepting investments in mid-March, the market for tokenized U.S. Treasuries has grown 83.6 percent, rising from $695 million to more than $1.27 billion, according to Rwa.xyz data. BUIDL quickly became the largest tokenized Treasury product with $381 million in assets, followed by Franklin Templeton's OnChain U.S. Government Money Fund (FOBXX) with $359.6 million.
Efficiency and Liquidity
The report highlights a number of advantages of tokenized funds over their traditional analog counterparts. One significant advantage is the reduction of banking risks, as investors have 24/7 blockchain liquidity access. For example, BUIDL allows investors to redeem their shares for stable USDC coins anytime via smart contracts, eliminating the need for intermediaries.
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Additionally, tokenized shares can serve as liquid collateral, allowing shareholders to access their value without redeeming their assets. Franklin Templeton has further expanded the use of FOBXX shares by making peer-to-peer transfers possible, opening up new uses for these tokens.
Public and Private Blockchains
While many financial institutions have experimented with tokenization on private blockchains, the report argues that public networks offer more liquidity benefits. O'Neil noted that private blockchains with permission have helped improve operational efficiency but have not helped create a liquid market for tokenized products. In contrast, public blockchains such as Ethereum, which accounts for two-thirds of the sector's capitalization, provide more robust liquidity opportunities.
Tokenized treasuries also provide increased efficiency and faster settlement for businesses moving assets across borders, benefiting both multinationals and businesses on the blockchain. O'Neil explained that tokenized real-world assets (RWAs) allow cryptocurrency companies to access high-quality liquid assets without moving their funds off-chain, thus avoiding costly and inefficient off-chain transfer processes.
Regulatory and Interoperability Challenges
Despite the promising outlook, the report recognizes that the tokenized RWA sector has a number of challenges to overcome. Regulatory frameworks in key jurisdictions are still emerging, which could affect investor confidence in stablecoins and related functions. In addition, institutions face the challenge of integrating their legacy systems with blockchain technology, and interoperability issues are likely to restrain the growth of tokenization in the short term.