State Street Advances Tokenization Projects, Rules Out Stablecoin for Now

Original story published by Coindesk.

State Street, the Boston-based banking and asset management giant, is moving forward with plans to tokenize bonds and money market funds as part of its digital asset strategy. However, the company has no immediate plans to issue a stablecoin or develop tokenized deposits, according to Donna Milrod, State Street’s Chief Product Officer.

“We don’t have a current plan to issue a stablecoin or tokenize a deposit,” Milrod shared in an interview with Financial News. “That doesn’t mean we won’t at some point, but we don’t feel the need to do that right now.” This statement follows a July report from Bloomberg that had indicated the bank was considering stablecoin development and tokenized deposit options.

State Street’s focus for now is on two tokenization projects, which involve tokenizing a bond and a money market fund. These projects are expected to carry through into next year and aim to build tokenized collateral, which could be used by traders as margin without the need to liquidate assets.

Tokenization: A Growing Trend in Traditional Finance

Tokenization, which involves placing traditional financial instruments such as bonds, funds, and commodities on blockchain rails, is gaining traction among major financial institutions. The process promises a range of benefits, including faster and continuous settlement times, reduced administrative overhead, and improved operational efficiency.

Milrod, however, emphasized that efficiency alone is not enough to drive the adoption of tokenization. “Operational efficiency alone, that’s not enough. It needs to be something commercial,” she said, noting that the financial industry is still determining where the real commercial value in tokenization lies.

State Street’s bond and money market fund tokenization efforts reflect this careful approach. The bank is working to establish tokenized collateral systems that traders can use to meet margin requirements without having to sell their holdings. Milrod highlighted that such a system could have helped mitigate the “liability-driven” crisis of 2022, where pension funds were forced to liquidate assets to meet margin calls.

Expanding Into Digital Assets

State Street is no stranger to the digital asset space, having selected Switzerland-based Taurus as its tokenization partner earlier this year. In August, CoinDesk reported that the bank was preparing to offer custody services for digital assets, a service contingent on an improved regulatory environment in the U.S.

While the company has held off on stablecoin issuance for now, its continued involvement in tokenization underscores its commitment to advancing digital asset infrastructure. With ongoing projects and strategic partnerships, State Street is positioning itself at the forefront of the rapidly evolving financial landscape.

As more global banks and financial institutions explore tokenization, the market is expected to expand significantly. A report by McKinsey predicts that the tokenization of real-world assets could grow into a $4 trillion market by 2030, underscoring the long-term potential of the sector.

For now, State Street’s measured approach highlights the bank’s focus on exploring innovative ways to bring blockchain technology to traditional finance, without rushing into areas like stablecoins or tokenized deposits.

Read the original article from Coindesk here.

Image by Yassine Khalfalli from Unsplash

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