Fidelity Prepares to Tokenize Its US Treasury Fund on Ethereum

Fidelity Investments filed with the SEC to list an on-chain class of its Treasury Digital Fund, becoming the latest financial institution to wade into the growing real-world assets, or RWA, market.

Submitted on Friday, Fidelity’s preliminary registration statement reveals that the on-chain fund will use the Ethereum blockchain, although it may in the future use other public layer-one networks, “subject to eligibility and other requirements that the fund may impose.”

The firm’s Treasury Digital Fund trades under the FYHXX ticker on the New York Stock Exchange, with Fidelity having originally filed the fund with the SEC in September of last year.

As a money market fund, it invests in short-term U.S. Treasuries and cash, with Friday’s filing stating that it normally invests at least 80% of its assets specifically in treasuries.

The filing for the on-chain class of shares also declares that, “in the future, OnChain class shares may be available for purchase, sale or transfer from one investor to another investor (or potential investor) (“peer-to-peer”) on the blockchain or in a secondary trading market.”

However, the statement adds that there is currently no agreement to make the fund’s on-chain shares available for trading on secondary markets, and that there may never be.

As a blockchain-based share class, the new on-chain shares will record ownership on the Ethereum network, yet Fidelity will also be maintaining the official record of share ownership “in book-entry form,” while reconciling both records.

This may beg the question of why list a blockchain-based class of shares for the fund, but Fidelity’s Head of Digital Asset Management, Cynthia Lo Bessette, told Decrypt that tokenization will help “improve customer experiences” and results.

“We see promise in tokenization and its ability to be transformative to the financial services industry by driving transactional efficiencies with access, and allocation, of capital across markets,” she said. “In looking at use-cases, posting a tokenized asset as non-cash collateral to satisfy margin requirements could improve operational infrastructures and enhance capital efficiency.”

Similarly, a source familiar with the new product has told Decrypt that, in the longer term, the tokenization of real-world assets has the potential to dramatically transform financial markets.

According to the source, there’s an expectation that RWAs could reduce trading costs and market risks, thereby expanding investor access to markets and increasing liquidity.

Perhaps more interestingly, the source also suggested that the tokenization of assets may end up creating new use cases for traditional assets, given that it will open them up to 24-7 trading and instant settlement.

Figures working in the tokenization sub-sector are largely in agreement with Fidelity’s optimism, with Timo Lehes, the co-founder of Germany-based crypto- and RWA-trading platform Swarm, telling Decrypt that tokenized assets can offer enhanced liquidity, greater efficiency and wider accessibility.

“By digitizing assets on a blockchain, fractional ownership also becomes possible,” he said, “allowing smaller investors to buy into high-value assets for much lesser capital outlays.”

In contrast, Lehes argues that traditional assets can have a tendency to lock investors in due to illiquidity and lengthier sales processes, with “opaque custody practices” and middlemen among other negatives.

“Unlike with the simple underlying asset, tokenized versions also add programmability,” he added, explaining that smart contracts can automate dividends while also putting compliance functions on-chain.

It seems that other financial institutions beyond Fidelity have picked up on the potential of tokenized RWAs, with real-world asset protocols passing $10 billion in total value locked only a few days ago.

This includes BlackRock’s BUIDL fund, which launched in March of last year and now accounts for some $1.2 billion in TVL.

The category also includes Franklin Templeton’s OnChain U.S. Government Money Fund, which in April of last year enabled peer-to-peer transfers of its shares.

Edited by Stacy Elliott.