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Credit rating agency Moody’s Investor Services reported an increase in the adoption of tokenized investment funds. The report highlighted the limited history of technology providers in this field as a significant risk factor. It also addressed the risks surrounding this area.
Tokenized Fund Trend
Financial institutions around the world have entered the era of asset or fund tokenization in their efforts to increase market liquidity, efficiency, and transparency. Tokenized funds are investment funds where assets are digitally represented using Distributed Ledger Technology (DLT), which powers cryptocurrency.
According to the latest report by Moody’s Decentralized Finance (DeFi) and Digital Assets team, the increasing adoption of tokenized funds, particularly those investing in government securities like bonds, indicates untapped market potential. The report states, “The potential applications of tokenized funds extend beyond merely increasing asset liquidity. These funds have various other possible functions, including serving as collateral.”
Moody’s Team Lists Risks for Tokenization
The Moody’s team that prepared the report warned that tokenization requires additional technological expertise. According to the report, tokenized funds carry risks associated with DLT, as well as risks stemming from investment funds, underlying assets, and fund management.
The report mentions, “Organizations involved in the technology side generally have a limited history. This increases the risk of payment disruptions in the event of bankruptcy or technological failure.”
However, according to Moody’s team, this is not enough to hinder the adoption of tokenization. Indeed, the recent attempts by major players from Franklin Templeton to Goldman Sachs and the Hong Kong Monetary Authority to issue tokenized assets confirm this situation.
