Moody’s Investor Services reports an increase in the adoption of tokenized investment funds, which leverage Distributed Ledger Technology (DLT) to digitally represent assets. These funds are gaining traction, particularly in government securities like bonds, indicating untapped market potential. Tokenized funds go beyond enhancing asset liquidity, offering various functions including serving as collateral.
The Moody’s team cautions that tokenization requires additional technological expertise and carries risks associated with investment funds, underlying assets, and fund management. Risks linked to DLT include the possibility of payment disruptions due to the limited history of technology providers, which could result in insolvency or technological failure.
Despite these concerns, the report suggests that the risks are not significant enough to impede the adoption of tokenization. This is evidenced by major players like Franklin Templeton and Goldman Sachs, as well as the Hong Kong Monetary Authority, recently initiating the issuance of tokenized assets.