Fidelity Investments Quietly Prepares to Bridge Traditional Finance and Decentralized Technology

Here's what it means for the future of assets

Investment giant Fidelity Investments has quietly filed plans for a blockchain-based U.S. Treasury fund, aiming to launch by May 30 pending final approval from the U.S. Securities and Exchange Commission (SEC).

While applying for approval in March, the firm now faces a final decision from the regulator on whether to proceed with the fund, which would mark a significant entry point into the rapidly growing market for tokenised assets.

This year alone, the market for tokenised assets is set to explode sixfold, reaching an impressive $4.8 billion, according to Global Optimum Data.

While competitors like BlackRock (NYSE:) and Franklin Templeton have already taken the lead in specific segments of this burgeoning market, Fidelity’s entry could completely alter the competitive landscape.

For instance, BlackRock’s tokenised Treasury fund has already managed to accumulate $1.5 billion, highlighting the strong demand for faster and more transparent transactions in this asset class.

Meanwhile, Franklin Templeton’s blockchain fund, launched in 2021, has attracted $689 million, showcasing investor confidence in this emerging investment vehicle.

However, despite this initiative, Fidelity is venturing into the market for tokenised assets relatively late.

Banks and asset managers are increasingly turning to blockchain technology to streamline their operations and improve efficiency.

Tokenisation, the process of converting assets into digital tokens on a blockchain network, offers several advantages, such as reducing settlement times from days to minutes and administrative costs.

Fidelity’s proposed fund seeks to capitalize on these benefits, aiming to build on the success of existing tokenised Treasury products.

Fidelity’s proposed fund will tokenise shares of its existing Treasury Digital Fund (ticker: FYHXX) on the Ethereum blockchain, with each token representing ownership, which will be tracked on the blockchain for real-time transparency.

Crucially, the underlying Treasury bills themselves won’t be tokenised, only the shares of the fund investing in them.

Daily reconciliations will be performed to align the blockchain records with the traditional ledgers, ensuring the accuracy of both systems.

Moreover, Fidelity plans to expand to other blockchains in the future, likely in response to concerns over Ethereum’s potential scalability issues as the mainnet becomes congested during periods of high activity.

In addition to expanding to other blockchains, Fidelity is also reportedly planning to offer a range of tokenised products in the future, expanding beyond Treasury investments.

This move aligns with the broader industry trend towards institutional adoption of Ethereum for tokenising real-world assets (RWAs).

Currently, Ethereum holds the largest share of the RWA market, managing over $3.3 billion in assets, according to Global Optimum Data.

For instance, BlackRock’s crypto head, Robbie Mitchnick, recently stated that Ethereum is the “natural default” choice for TradFi firms due to its strong security and the size of its developer ecosystem, which provides support for building and deploying new applications.

Stellar is the second-largest blockchain, managing $465 million in RWA assets, but Ethereum’s edge is evident.

As TradFi firms continue to enter the RWA market, it remains to be seen which other blockchains will gain traction for this use case.

While BlackRock’s BUIDL fund has managed to take the lead in the tokenised Treasury market, considering the vast scale of Fidelity’s operations, it wouldn’t be surprising to see them quickly disrupt this lead.

For instance, they already manage $16.5 billion in spot bitcoin ETFs through their subsidiary Invictus, showcasing their experience and success in the crypto market.

On the other hand, Franklin Templeton’s early entry in 2021 gives them a head start, and their product has already managed to accumulate $689 million, showcasing the potential of this new asset class.

Moreover, with several other players now entering the market, and more expected to join in the coming year, it's likely that we'll see some consolidation as products that aren't competitive simply won't survive.

According to Global Optimum Data, tokenised U.S. Treasury products now total $4.77 billion, nearly a 500% increase since the start of 2023.

This rapid growth is a testament to the increasing demand for faster, more transparent, and efficient ways to invest in this asset class.

As more players join the fray, the competition will become fiercer, and the winners will be those who can offer the best integration between legacy systems and blockchain technology, catering to the specific needs of both institutional and individual investors.