UBS launches tokenized currency market fund pilot on Ethereum

UBS Asset Management, the largest financial holding company in Switzerland, has announced the launch of a tokenized currency market fund pilot on Ethereum, as part of the "Guardian Program." With blockchain technology continuing to integrate into traditional financial systems, this move is seen as part of the ongoing tokenization trend in the financial industry.

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Project Guardian by Monetary Authority of Singapore (MAS)

In May last year, MAS announced Project Guardian. This project primarily involves collaboration with financial institutions to explore applications of decentralized finance (DeFi) and asset tokenization, including:

• Conducting industry pilots with financial institutions and fintech companies in Singapore and other jurisdictions to develop good use cases for asset tokenization in financial services.
• Studying the regulatory and risk management implications of tokenized asset transactions, such as regulatory treatment of tokenized debts and appropriate governance of institutional DeFi structures, for better supervision and accountability.
• Developing technical standards to support interoperability across digital asset ecosystems, with the opportunity to facilitate cross-currency trading of tokenized assets globally.

One of the trials conducted under this initiative by UBS involves directly issuing Variable Capital Company (VCC) funds on a digital asset network. The aim is to enhance fund distribution, facilitate trading of shares of VCC funds in the secondary market, and ultimately improve operational efficiency of the entire industry.

Expanding Tokenization Services with UBS Tokenize

Thomas Kaegi, Head of Asset Management for UBS in Singapore and Southeast Asia, stated:

This is a significant milestone in understanding fund tokenization based on UBS's expertise in tokenizing bonds and structured products. Through this exploratory initiative, we will collaborate with traditional financial institutions and fintech providers to help reduce barriers to market entry for clients and increase market liquidity.

UBS Asset Management has launched a controlled trial of tokenized money market funds using its in-house tokenization service, UBS Tokenize. The pilot project, represented by smart contracts on the Ethereum public blockchain, enables UBS Asset Management to carry out various activities including fund subscriptions and redemptions.

This trial is part of UBS Asset Management's global distributed ledger technology strategy, focusing on enhancing fund issuance and distribution using public and private blockchain networks. It also allows UBS to expand its tokenization services through UBS Tokenize.

UBS Utilizes Blockchain Technology for Bond Issuance

UBS has also utilized blockchain technology for bond issuance. In November 2022, UBS launched the world's first publicly traded digital bond. In December 2022, UBS issued $50 million in tokenized fixed-rate notes, and in June 2023, issued 200 million offshore Chinese yuan fully digital structured notes for a third-party issuer.

As part of Project Guardian, UBS has also executed a digital bond repurchase (repo) trial with DBS Bank and SBI Digital Asset Holdings. The aim is to achieve greater flexibility, operational efficiency in cross-border distribution and settlement, as well as faster settlement speeds and efficiency.