Yesterday Moody’s published an analysis of fund tokenization, drawing from its experience in assessing three tokenized money market funds. Of those three, only one lacks a strong link to a traditional financial institution. That one was downgraded, perhaps relating to one of its co-founders departing under a cloud. We’ll explore that and another related controversy.
The credit rating agency highlighted the many benefits of fund tokenization, including the ability to trade 24/7 and fractionalization, which benefits both asset managers and investors. Additionally, asset managers can potentially achieve significant cost savings.
The credit risk of the underlying assets is key, but in all cases, these are money market funds, which usually attract good ratings. Moody’s recognizes potential risks with some of the permissionless blockchains, the lack of track records of the tokenization startups and/or asset managers and potential regulatory issues. Last year the rating agency raised similar issues.
Some of the specifics are illuminating. For example, Moody’s is more comfortable with issuances on Ethereum because the blockchain is more proven and used by institutions compared to some others. An issuance on multiple blockchains exposes the fund to more potential blockchain disruptions. However, Moody’s noted that all the funds have permissioned access to tokens, potentially sheltering them from hacks. They also have off chain records of investors. Additionally, Moody’s explored redemption, favoring the availability of an off chain mechanism as a fallback to stablecoins.
While dollar money market funds often get AAA ratings, both the TradFi linked funds have Aa-bf ratings, where bf stands for bond fund. In both cases, startups are the primary asset managers of the Delta Wellington Ultra Short On-chain Treasury Fund (ULTRA) and the Janus Henderson Anemoy Treasury Fund (JTRSY). However, brand name asset managers are sub advisors and take care of the day-to-day asset management, which Moody’s took into account.
Tokenization and startup risks
The third fund is issued by “Treasury Bills Institutional Liquidity” and likes to call itself TBILL. In June 2024 when Moody’s first graded the fund which is tokenized by OpenEden, it gave it an A-bf rating. That’s partly because there’s a potential conflict of interest given some shared personnel between the asset manager and the tokenization firm.
Now TBILL has been downgraded to a Baa-bf rating. Moody’s wrote that OpenEden “terminated its relationship with a co-founder in November 2024”, without saying whether this was the downgrade trigger.
It was widely reported that there were allegations, including surveillance footage, that co-founder Eugene Ng put something in a woman’s drink at a bar. Fortunately, she was tipped off and only consumed a fraction of it.
However, that is not the end of the story.
Mr Ng was also one of three founding partners of DWF Labs, a crypto market marker. More than six months before his dismissal, the Wall Street Journal ran a report alleging wide scale wash trading, which DWF Labs managing partner Andrei Grachev denied.
The WSJ wrote: “Instead of price neutrality, DWF offered to use its active trading position to drive up the prices of tokens and create what it called “artificial volume” on exchanges including Binance that would lure in other traders, according to proposals it sent to potential clients in 2022.”
Eugene Ng co-founded OpenEden alongside Jeremy Ng, who is CEO. The two men previously worked together at Gemini where Jeremy founded the APAC division.
Despite having a lower rating, TBILL has the highest assets under management (AUM) of the three tokens. The current TBILL AUM is $129 million, closely followed by JTRSY. The ULTRA fund is further back at $22 million, most of which is held by Ondo Finance.
