UBS Asset Management, the asset management division of Swiss banking giant UBS and one of the world’s largest fund houses, announced the launch of a live pilot program for a tokenized version of its Variable Capital Company (VCC) fund.
The program is part of Project Guardian, a collaborative investment initiative led by the Monetary Authority of Singapore (MAS) – the country’s central bank, and will use UBS’s in-house tokenization service, UBS Tokenize, to test out a smart contract-based money market fund that will be deployed on the Ethereum (ETH) blockchain.
UBS Deploys Tokenized Money Market Fund On Ethereum
According to a statement released by UBS Asset Management on Wednesday, the controlled pilot will include the testing of various VCC fund-related activities, such as the facilitation of on-chain subscriptions and redemptions. The company confirmed the fund is part of a wider “VCC umbrella” that will bring various real-world assets (RWA) onto the blockchain.
Tokenization of RWAs is the process of converting the ownership or rights to physical assets, including precious metals and real estate, into digital tokens stored on a blockchain or distributed ledger.
VCCs are alternative corporate structures to limited partnerships, trust structures, and others that are new legal entities for all types of investment funds in Singapore.
The pilot is also part of UBS Asset Management’s global distributed ledger technology strategy that is focused on utilizing private and public blockchain networks for issuance and distribution of various fund types.
Thomas Kaegi, Head of UBS Asset Management Singapore and Southeast Asia, said the project is a “key milestone” in understanding the tokenization of money market funds. Building on the company’s expertise in the tokenization of bonds and structured products, he said that both fintech and traditional financial institutions can collaborate within the initiative to gain better insights into how to leverage blockchain to improve market liquidity and provide better market access for clients.
The project can be considered an expansion of the UBS Tokenize’s services. In November 2022, UBS launched the world’s first digital bond that could be publicly traded and settled on both blockchain-based and traditional exchanges.
The $404 million Swiss franc-denominated (CHF) bond issued on the SIX Digital Exchange (SDX) – a digital exchange and central securities depository, was dually listed and traded on the SIX Swiss Exchange (SIX) and the SDX. The three-year digital bond with a 2.33% coupon holds the same instrument structure, legal status, and rating as a traditional Senior unsecured note by the bank.
In December 2022, UBS London issued a $50 million tokenized fixed-rate note carrying a tenor of six months, on Ethereum, to a series of high-net-worth and global family and institutional wealth investors in Hong Kong and Singapore.
Similarly, in June, UBS Tokenize successfully issued $27.3 million worth of fully digital structured notes in Chinese yuan for the Bank of China Investment (BOCI), making it the first time a financial institution in Hong Kong issued a tokenized security. The tokenized notes were also programmed and issued on the Ethereum blockchain.
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Last year, traditional financial (TradFi) giants JP Morgan, DBS, and SBI Holdings conducted a joint pilot for foreign exchange transactions and trading of government bonds on the Polygon (MATIC) blockchain using the decentralized finance (DeFi) lending platform Aave (AAVE) and the decentralized exchange (DEX) Uniswap (UNI).
The tokenization of real-world assets has been gaining popularity among financial giants and central banks. By utilizing the power of blockchain-based ledger technology, these assets can be tracked, stored, traded, programmed, and managed effortlessly.
Meanwhile, in the U.S., major investment firms have just launched a total of nine ETH-based exchange-traded funds (ETFs) for the futures market on the Chicago Board Options Exchange (CBOE). This is the first time an Ether-focused investment product was made available on the country’s stock market.
At the time of writing, Ether (ETH) is trading at $1,649 – down 0.7% from the previous day’s price.
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