Weekly tokenization update covering SEC stablecoin guidance, U.S. bank deposit token pilots, State Street initiatives, BNP Paribas Ethereum experiments, Ondo DVN adoption.
The tokenization era accelerated this week as regulators, banks, and asset managers pushed new blockchain initiatives. Developments varied from updated stablecoin capital treatment to deposit token pilots to new onchain fund experiments. Together these signals reinforced a greater movement towards convergence between digital assets and traditional finance infrastructure.
SEC Updates Stablecoin Capital Treatment for Broker-Dealers
The U.S. Securities and Exchange Commission released new staff guidance on how broker-dealers can treat stablecoins. Specifically, the Division of Trading and Markets supplemented Rule 15c3-1 with an FAQ on proprietary positions in payment stablecoins.
Under the guidance, staff noted that they would not object if broker-dealers made a haircut of only 2% in calculating net capital. Previously, the assumption among market participants was a haircut of 100%, in effect, stablecoins would not be counted towards regulatory capital buffers.
Crucially, the FAQ gave qualifying payment stablecoins “ready market” status. This classification is important because assets that do not have a ready market receive punitive capital deductions. By contrast, the 2% haircut comes closer to the standard of high-quality liquid assets of traditional markets.
As a result, broker-dealers have more regulatory clarity to use stablecoins as working capital. Industry participants see this as a significant move towards unlocking onchain securities settlement, where instant transfers on the blockchain can be used as a complement to current clearing systems.
Moreover, the decision marks regulatory acknowledgment of the fact that certain stablecoins have adequate liquidity and stability. However, eligibility is subject to issuer oversight, reserve transparency and compliance with relevant legal frameworks.
U.S. Regional Banks Test Deposit Token Network
Meanwhile, five regional banks announced that they would join a deposit token initiative based on the blockchain. Institutions such as Huntington Bancshares Inc., First Horizon Corp., and M&T Bank Corp. joined the project along with KeyCorp and Old National Bancorp.
The pilot focuses on the Cari Network, a system that is built to help with the processes of 24/7 instantaneous payments that uses tokenized deposits. Unlike the public stablecoins, these tokens are backed by the liabilities of federally regulated banks, and have a direct connection to regulated deposit accounts.
The initiative is led by a former U.S. Comptroller of the Currency Eugene Ludwig to provide policy and supervisory credibility. Banks first discussed the formation of the network in September, emphasizing the continuing concern at keeping abreast of digital assets adoption.
Deposit tokens are not like stablecoins because they are still within the banking perimeter. As a result, banks can provide blockchain-enabled speed without forgoing deposit insurance protection or existing compliance protection.
Industry players understand the Cari Network in the light of a defensive and strategic reaction. On one hand, banks are interested in competing with crypto-native payment rails. On the other hand, they are interested in modernizing the efficiency of settlement without giving ground to external issuers.
Furthermore, instant deposit token transfers could eliminate operational friction around treasury management, interbank payments and cross-institution liquidity flows. However, there are still key variables scability, interoperability, and regulatory harmonization.
State Street Expands Digital Asset Platform Strategy
In parallel, State Street Corp. made progress in its digital asset roadmap. The Boston-based custody bank said it was developing a comprehensive platform that includes tokenized money market funds, ETFs and cash products.
Planned offerings also involve tokenized deposits and services of a stablecoin nature, indicating an increased institutional demand for blockchain-compatible instruments. State Street focused on the infrastructure capabilities and not the speculative crypto exposure.
As one of the largest custodians in the world, State Street’s growth signals growing normalization of tokenization in the mainstream of finance. Custody banks are central to the function of this as they are responsible for the security of assets, settlement workflow and regulatory compliance.
Additionally, the potential in tokenized fund structures in terms of transparency, fractionalization and speed of settlement. However, integration with transfer agency systems and existing fund accounting frameworks is complicated.
Market participants view the move as a sign that big financial institutions are moving from the experimentation phase to the deployment phase. Still, the speed of client adoption and clarity of regulations will determine near-term impact.
BNP Paribas Pilots Fund Ethereum Tokenized
Across the Atlantic, a new tokenization pilot by BNP Paribas Asset Management was launched on Ethereum. A firm of issued a tokenized share class of a French domiciled money market fund.
The shares were created through BNP Paribas’ AssetFoundryTM platform and implemented using a permissioned access model. Holdings and transfers are limited to qualified and authorized participants based on regulatory requirements.
Importantly, BNP Paribas wrote that the initiative was a limited intra-group experiment. The pilot tested end-to-end processes including the issuance process, transfer agencies operations, the mechanics of tokenization and connectivity to a public blockchain.
The experiment demonstrates how some major European institutions are cautiously looking into public networks. Rather than open, permissionless standards of a token, permissioned frameworks, developed for regulated assets, are more preferred by firms.
Tokenized money market funds have become popular around the world because of their short-duration risk profile and compatibility with operations. However, legal structuring, controls on investor eligibility and reporting are still crucial considerations.
Ondo Adopt Fidelity’s DVN to Cross-Chain Verification
Finally, a first to adopt a Decentralized and Verification Network from the Fidelity Center for Applied Technology was Ondo Finance. The DVN comes live with LayerZero infrastructure.
The integration enables the Ondo Bridge to make use of an institutional-grade verification for cross-chain asset transfers. Verification networks try to reinforce trust, accuracy, and security in the interoperability workflows.
Cross-chain operations are a lingering problem with digital asset markets. Failures in bridging mechanisms have led in the past to quite substantial losses. As a result, improved verification layers grab the attention of institutions in which risk controls are a priority.
Fidelity’s involvement implies an increasing cooperation of traditional financial research units and crypto-native platforms. Market participants increasingly consider these partnerships to be key to scaling tokenized asset ecosystems safely.
Outlook: Tokenization Momentum Continues
This week’s developments taken together are indicative of converging movements across the spectrum of regulation, banking, custody and asset management. Stablecoin capital clarity, deposit token pilots and onchain fund experiments found their way towards system modernization.
Nevertheless, there remain challenges, such as legal standardization, interoperability frameworks, liquidity depth, and supervisory coordination. Despite these hurdles, institutional engagement is still growing beyond isolated proofs of concept.
As a consequence, tokenization is increasingly being described not in terms of disruption, but as infrastructure evolution as part of global capital markets.