BNY Mellon and Goldman Sachs Team Up to Tokenize Money Market Funds on Blockchain

The Bank of New York Mellon (BNY Mellon) has partnered with Goldman Sachs to launch a blockchain-based solution for tokenizing money market fund (MMF) shares, marking a significant step toward digitizing financial markets for institutional use.

The initiative allows investors to subscribe to MMF shares through BNY’s LiquidityDirect platform. These shares are then tokenized on BNY’s Digital Assets platform and mirrored as tokens on Goldman Sachs’ private blockchain, GS DAP, which is built on Digital Asset’s Canton blockchain technology.

Major asset managers involved in this initiative include BlackRock, BNY Investments Dreyfus, Federated Hermes, Fidelity Investments, and Goldman Sachs Asset Management.

From Basic Functionality to Advanced Collateral Mobility

While the initial functionality focuses on subscription and redemption of MMF shares, the long-term vision is to enable instant transferability and the use of tokenized MMFs as collateral for margin and other financial activities. This marks a shift from earlier tokenized MMF efforts, which largely catered to the crypto sector. In contrast, this new approach is designed specifically for traditional financial institutions.

“As the financial system transitions toward a more digital, real-time architecture, BNY is committed to enabling scalable and secure solutions that shape the future of finance,” said Laide Majiyagbe, Global Head of Liquidity, Financing and Collateral at BNY Mellon. “Mirrored tokenization of MMF shares is a first step in this transition.”

Despite the use of blockchain, BNY Mellon will continue maintaining the official books and records for these funds.

Goldman Sachs’ Global Head of Digital Assets, Mathew McDermott, emphasized the broader utility of this innovation:
“Using tokens representing the value of shares of Money Market Funds on GS DAP® would enable us to unlock their utility as a form of collateral and open up more seamless transferability in the future.”

Future Plans: From Permissioned to Decentralized MMFs

Phase One is built on the GS DAP private, permissioned blockchain. However, BNY Mellon hinted at the potential future use of permissionless blockchains, possibly even involving major decentralized networks.

GS DAP itself leverages the Canton blockchain, and Goldman Sachs is a governance participant in the broader Canton Network. While the Canton Network is currently permissioned, it’s on a path toward decentralization, with multiple corporate nodes contributing to its operation. This hybrid approach offers a practical solution for institutional-grade blockchain applications.

This project is part of a larger movement within the financial sector toward tokenized collateral. Other players such as Digital Asset, DTCC, ICE, and CME are also developing tokenized infrastructure aimed at enhancing the efficiency of collateral management in global markets.