Today Bloomberg reported that State Street is exploring participating in various digital currency initiatives. The bank is already an investor in Fnality, the interbank DLT payment solution backed by 20 institutions. Bloomberg cited a source saying it was exploring participating in other DLT payment consortia, as well as tokenized deposits and a stablecoin.
While the mention of tokenized deposits is no surprise, it’s the stablecoin plans that stand out. It’s highly unlikely that U.S. banking regulators would sanction the bank issuing a stablecoin. However, State Street has a significant asset management subsidiary, so that could be a different story.
State Street Global Advisors (SSGA) recently partnered with Galaxy Asset Management to launch crypto-related ETFs. Notably, Galaxy is collaborating on the AllUnity Euro stablecoin with another bank-affiliated asset manager, Deutsche Bank’s DWS.
The need for asset manager stablecoins
The settlement of tokenized assets triggers the need for a stablecoin. It’s likely SSGA may want to tokenize funds. Many of the incumbents that have launched tokenized funds on public blockchain support settlement using stablecoins, including Franklin Templeton.
ETF issuer WisdomTree, which is also a Fnality stockholder, is planning to issue its own stablecoin and recently received a trust license to do so.
If asset managers are willing to offer redemptions using stablecoins, then they ideally have to have a significant stablecoin balance. However, stablecoins don’t pay interest. On the other hand, if the asset manager has its own stablecoin, it will earn the interest on the Treasuries that back the stablecoin.
While BlackRock doesn’t have its own stablecoin, stablecoin issuer Circle has offered to buy back any BlackRock BUIDL tokens – BUIDL is the asset manager’s tokenized money market fund. BlackRock is both an investor in Circle and manages most of its reserves.
Tokenized deposit initiatives
Turning to tokenized deposits, JP Morgan has its JPM Coin and Citi has its Citi Token Services. That’s useful for multinational companies that deal with the same bank in different countries. But the interesting work is happening for payments involving more than one bank.
There are numerous initiatives (see our upcoming report!), but State Street isn’t involved in the high profile ones. For example, in the U.S. there Regulated Settlement Network is starting another round of trials co-ordinated by SIFMA. Participants include JP Morgan, Citi, Wells Fargo, Visa and Mastercard. State Street’s biggest competitor, BNY Mellon, is a project contributor.
Time will tell which projects State Street plans to join.
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