Fidelity introduces a new blockchain-based share class called "OnChain" for its money market fund, the Fidelity Treasury Digital Fund (FYHXX). The product aims to offer investors transparency and verifiable tracking of stock transactions.
In March 2024, BlackRock, the world’s largest asset manager with over $10 trillion in assets under management (AuM), launched a tokenized fund on Ethereum. The BlackRock USD Institutional Digital Liquidity (BUIDL) is intended to bring U.S. government bonds to the blockchain on a large scale for the first time. A year later, the product stands at nearly $1.5 billion in assets under management and holds 30% of the $4.8 billion tokenization market. Fidelity also wants a piece of this pie, as indicated in a filing with the US Securities and Exchange Commission (SEC).
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Traditional money market fund on the blockchain
The asset management giant, which manages around $5.9 trillion, will issue shares of its Fidelity Treasury Digital Fund (FYHXX) that are recorded on the Ethereum blockchain. The share class, named "OnChain," is designed to provide investors with transparency and a verifiable tracking of stock transactions. However, Fidelity retains traditional accounting records as the official ownership ledger, reconciling them daily with the blockchain.
"The transfer agent maintains the official records of share ownership for the OnChain class in the form of book entries. Ownership of the OnChain class is also digitized on a public blockchain. While the secondary blockchain record does not represent the official record, Fidelity’s transfer agent will reconcile the blockchain transactions daily." - SEC filing regarding Fidelity "OnChain"
The fund itself primarily invests in cash and US government bonds, thus complying with the standard regulations for money market funds, which aim to generate returns while preserving capital and maintaining liquidity. As a result, the product yields approximately 4.15% per year.
Potential still not fully realized
The tokenization of traditional assets could bring a host of benefits. With blockchain representation, real-time settlement, higher liquidity through fractional ownership, and better accessibility for global investors around the clock would be possible. Additionally, integration into so-called smart contracts allows for better automation. However, the current state of regulation does not permit many of these possibilities.
Both BlackRock's BUIDL and Fidelity's OnChain cannot be purchased by just anyone on a decentralized exchange (DEX). Due to securities regulations, these products, like their traditional counterparts, are only available to qualified investors. Nevertheless, these experiments are important steps toward integrating the traditional financial world into the blockchain era.
