State Street to Tokenize Real-World Assets for Institutional Investors

It’s not just a Silicon Valley fad anymore. Wall Street’s largest and oldest players are coming around on this whole crypto thing, and that could lead to widespread adoption by institutional markets. 

State Street — which manages $4.4 trillion in assets and is almost as old as America itself — is partnering with the Swiss crypto firm Taurus to provide tokenization and digital custody services to its clients. The 232-year-old asset manager will utilize the new technology to create and manage tokenized assets and provide access to the blockchain, according to a statement.

It’s the latest example of a traditional financial institution expanding further into the world of decentralized blockchains, and marks another step toward mainstream acceptance. 

Building Blocks

State Street isn’t ready for digital custody just yet. The Securities and Exchange Commission has a guideline — SAB 121 — that says unlike other assets, entities safeguarding crypto assets must recognize them and their liabilities on their balance sheets, which means further capital requirements and costs. “As soon as the US regulations help us out, we will be providing digital custody services as well,” State Street’s head of digital asset solutions Donna Milrod told CoinDesk. So now they play the waiting game. 

Because tokenized assets are attractive to next-gen clients who might already deal in crypto, and they can be traded outside of market hours, traditional banks and management firms have been increasing their footprints in the new digital landscape:

• In July, Goldman Sachs digital assets global head Mathew McDermott told Fortune that the firm intends to launch three tokenization projects by the end of the year.
• BlackRock unveiled its first tokenized fund issued on a public blockchain in March, called the BlackRock USD Institutional Digital Liquidity Fund, which holds assets in cash, Treasury bills, and repurchase agreements.
• Similarly, in June, State Street Global Advisors announced it was partnering with Galaxy Asset Management to provide investors access to the $2.4 trillion digital asset ecosystem through manager-directed strategies.

Real World, Meet Digital World. Tokenization is when real-world assets like stocks, bonds, real estate, gold, art — really anything you can imagine — are represented as tokens on a blockchain, an immutable ledger controlled by all its users. 

Tokenization makes sensitive data more secure and reduces trading costs by eliminating the need for third-party verification. For instance, tokenized transactions bypass the fees typically charged by banks and payment processors, meaning they’re also faster.

“We continue to elevate our digital asset capabilities and deliver the innovative solutions our clients have been seeking,” Milrod said in a statement.