Summary

Moody’s warns of growing technical risks associated with digital investment vehicles, despite increased efficiency in investment in government bonds through blockchain-based tokenized funds.

Introduction

Moody’s, a renowned credit rating agency, has highlighted the advantages of investment in government bonds through blockchain-based tokenized funds. However, researchers at Moody’s have also cautioned about the growing technical hazards associated with these digital investment vehicles.

Main Points

The use of tokenized funds based on blockchain has increased, making investment in government bonds more efficient. Tokenized funds offer increased market liquidity, accessibility, reduced costs, and fractionalization compared to traditional investment vehicles.

The popularity of tokenized funds has risen with the recent interest rate hikes by the U.S. Fed, resulting in increased investments in government securities. The issuance of tokenized funds secured by government securities grew from $100 million to over $800 million in a year on public blockchains, driven by both conventional financial institutions and crypto firms.

Moody’s suggests that tokenized money market funds could serve as an alternative to stablecoin collateral in Decentralized Finance (DeFi) markets, despite potential liquidity issues. However, fund managers need to possess a wider breadth of technical knowledge to handle these digital assets, as service providers in this field may lack track records and be susceptible to payment interruptions caused by technology failures or insolvency. Public blockchains also pose technical risks, including hacks, governance problems, and potential exposure of fund collateral to stablecoins.

Conclusion

While investment in government bonds through blockchain-based tokenized funds offers efficiency and advantages, Moody’s warns about the growing technical risks associated with these digital investment vehicles. Fund managers need to be well-versed in technical knowledge to navigate potential payment interruptions, technological failures, and other risks in this evolving space.