Moody’s Investor Services on Tech Risks in Tokenized Funds
Moody’s Investor Services, a credit ratings and research provider, raised concerns about the technological risks associated with growing tokenized funds. The report by Moody’s DeFi and Digital Assets expert team highlighted the need for additional expertise in managing tokenized funds. It pointed out that the technology providers for tokenized investment funds often have a limited track record, which increases the associated risks. The report emphasized the potential exposure of fund collateral to the volatility of other digital assets like stablecoins.
Challenges and Recommendations
The report noted that entities involved in the technology side of tokenized funds often have limited track records, which raises the risk of disrupted payments in the case of bankruptcy or technological failure. It also highlighted the exposure of public blockchains, used by some tokenized funds, to technological risks, cyberattacks, and governance issues. The experts proposed that a robust contract audit process would be beneficial to overcome potential technological and cyberattack issues. Additionally, the report stressed the need for expertise in fields such as token issuance and redemption, maintaining on-chain investors’ registers, and whitelisting wallets in compliance with KYC and AML checks.
Tokenized Funds: Market Potential and Applications
Analysts at the credit-rating agency observed a rapid increase in the adoption of tokenized funds, indicating untapped market potential. The growth of these funds is attributed to investments in government securities. According to the Dune Analytics Tokenization Report 2023, the total value of tokenized funds invested in government securities and issued on public blockchains exceeded $800 million, marking a triple growth from 2023.
The experts emphasized that tokenized funds have various potential applications beyond enhancing asset liquidity, including serving as collateral. This development has seen leading financial institutions and blockchain firms venturing into fund tokenization to manage client portfolios and debut tokenized money market funds on public blockchains.
Ian is a cryptocurrency enthusiast blending humor with professionalism. With an engineering background and a storyteller's heart, he simplifies the blockchain world with sharp analysis and a touch of wit. At Cryptowire, he brings his unique perspective to make digital financial innovation accessible to all.
