$360 billion asset manager Janus Henderson has stepped into the ring with other Wall Street giants in the amusing movement toward blockchain technology.
They’re taking over the management of the $11 million Anemoy Liquid Treasury Fund, which invests in short-term US Treasury bills. This fund’s been tokenized.
What does that mean? They’re turning the fund’s shares into digital tokens on the blockchain, essentially putting this money on-chain.
You’ve probably heard the names before. BlackRock, Fidelity, Franklin Templeton. These companies are already tokenizing Treasuries and money markets. Janus Henderson is now following their lead.
But what’s different here is that they’re doing it through a British Virgin Islands-based fund, which caters to non-US professional investors.
Nick Cherney, the head of innovation at Janus Henderson, said:
“We need to be in a position for what’s next. The way I see it, huge parts of the financial system will likely move onto distributed ledger technology in the coming years.”
Why blockchain? Why now?
Why the shift? It all boils down to cost and efficiency. Blockchain offers a way to cut out the middlemen and make financial products available to investors faster and cheaper.
“You can cut out a lot of steps, save on fees, and make the process smoother overall,” said Cherney. “It’s a more efficient way to get financial products to investors with fewer people involved.”
MJ Lytle, the CEO of Tabula Investment Management (the arm of Janus Henderson that will manage the fund), is struggling with rising costs in the investment industry.
“We’ve seen management fees fall drastically, but other costs haven’t come down nearly as fast,” he said. Blockchain might be the solution.
Lytle added that traditional structures struggle to bring costs down quickly enough, especially when so many people are involved in things like custody and administration.
Custody, administration, and even just holding assets are labor-intensive, expensive processes with lots of people involved. “If you’re one of the big custody providers, cutting costs is tough,” Lytle pointed out.
“You can’t just fire thousands of employees overnight.” But with blockchain, you don’t need third-party custodians, clearinghouses, or other intermediaries. That’s a lot of money saved.
“Trustless” systems
This is where trustless decentralized blockchains come into play. Martin Quensel, co-founder of Anemoy, claims tokenization allows investors to trade units in the fund at any time, with settlement happening almost instantly.
Anemoy has built a network of paid market makers and liquidity providers to make this work. Right now, the fund yields more than 5%, and its tokens can even be used as collateral for other blockchain transactions.
This is where things get interesting. These tokens, as Quensel puts it, offer an alternative to stablecoins like USDC and Tether. Stablecoins are pegged to real-world assets like the US dollar, but they offer no yield.
Tokens in this fund, however, yield more than 5%. So now we’re looking at a future where tokenized funds could rival stablecoins—especially since stablecoins have now amassed a combined market capitalization of $170 billion.
Anemoy is planning a second one, this time focusing on music-based intellectual property. Anil Sood, Anemoy’s chief investment officer, sees long-term potential here and thinks tokenization could even threaten the fast-growing ETF market.
Is tokenization coming for ETFs?
Sood, who has a background in exchange-traded funds (ETFs), believes that tokenization is a major threat to the ETF industry.
“We’ve seen people convert mutual funds into ETFs. But in the future, mutual funds might skip ETFs altogether and go straight to digital tokens.”
And why not? The biggest names in finance are already onboard. According to Sood, once these companies start talking to their clients about tokenization, it’s game over for traditional mutual funds.
Cherney agrees. He even sees this disruption as more significant than the rise of ETFs themselves.
“Twenty years ago, only a few people really saw how ETFs would shake things up,” Cherney said. “Now, everyone gets it. And I think blockchain will be even more disruptive.”
Let’s not forget the Bitcoin ETFs. On September 12, they saw a net inflow of $39 million. Grayscale’s GBTC, had an outflow of $6.5 million, but others like ARKB saw a surge with $18.3 million in inflows.
A summer note from Rosenblatt Securities shows that $9.5 billion has already been poured into Wall Street’s digital infrastructure to handle assets like these.
Compare that to all of 2020, and it’s almost the same amount, just in the first half of 2021. If the trend continues, The Tokenizer estimates that up to $370 billion will be invested in tokenization infrastructure by the end of the year.
Institutional adoption is happening fast, according to Vikas Shah, managing director at Rosenblatt Securities. “We’ve entered a new phase in crypto,” Shah said.
“It’s all about institutional adoption now. Hedge funds, family offices, banks—they’re all getting involved.”
Real estate, NFTs, and beyond
Tokenization is coming for everything—real estate, NFTs, art, sports, you name it. Real estate, in particular, is moving quickly. Shah even believes it has the potential to become the next Bitcoin.
As Wall Street continues to push ahead, true blockchain believers are skeptical.
The question remains: should these institutions get seriously into the decentralized finance (DeFi) world or stick to safer, centralized blockchain-based systems?
DeFi is all about autonomy. What if these guys start wanting control? We all know Wall Street thrives on control. Steven Hu, head of digital assets at Standard Chartered, said:
“Full decentralization is unrealistic. We need some central authority to guarantee authenticity and proper use of assets.”
Still though. Standard Chartered is betting on tokenization, expecting a market of about $30 trillion by 2034.
They believe the future lies in public blockchains. Nana Murugesan, president at Matter Labs, thinks public blockchains like Ethereum will ultimately dominate. “Larger ecosystems will build on public blockchains,” he said.
BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) is also seeing success. Launched in March, the fund has pulled in about $527 million.
Permission-based or not, banks, asset managers, and even regulators are waking up to the potential of tokenization.
Singapore’s Monetary Authority is spearheading Project Guardian, bringing together 24 financial institutions to test asset tokenization use cases. JPMorgan, Deutsche Bank, Citigroup, and Ant Group are all involved.
While Singapore’s regulator remains cautious about cryptos that lack underlying backing, they’re bullish on the blockchain. Regardless though. Crypto is inevitable.