Federated Hermes plans first tokenized fund shares with Prometheum next year
In brief
- Federated Hermes, with $911 billion in assets, plans its first tokenized fund shares early next year.
- Prometheum's SEC-registered broker-dealer subsidiaries will handle custody, clearing and settlement.
- Money market funds are a likely starting point, Barr says; specific funds and blockchains are undisclosed.
- Citi has projected the tokenized securities market could reach $5.5 trillion by 2030.
Money market funds are the likely first move
The firm hasn't said which funds it'll tokenize or which blockchains it'll use. Kevin Barr, Federated Hermes' director of digital asset products and platform, told CoinDesk that money market funds are a likely starting point, pointing to the firm's large liquidity-management business. (Money market funds invest in short-term debt and give investors a place to park cash while earning yield.)
"There's enormous interest in the industry at large around tokenized money market funds, [and] it aligns very well with the ballast of our franchise, which has been our liquidity funds,"
Barr said access, rather than the underlying blockchain technology, has been one of the main barriers to wider adoption.
From third-party wrappers to direct issuance
Federated Hermes isn't new to this. It has worked with London-based Archax, Goldman Sachs and Singapore-based Conduit Digital to create tokenized representations of its existing investment products, but those arrangements had third parties issuing digital versions of conventional fund holdings. Now, Barr said, the firm intends to issue tokenized share classes itself (a more direct role in bringing products onchain).
Prometheum's SEC-registered broker-dealer subsidiaries will provide custody, clearing and settlement services, and its correspondent clearing platform is meant to let other broker-dealers offer the products. Barr joined the asset manager in May after 15 years at BNY, most recently as head of digital cash and innovation.
A crowded field on Wall Street
The plan puts Federated Hermes alongside BlackRock, Franklin Templeton, JPMorgan and New York Life Insurance Company, all of which have embraced blockchain-based versions of traditional funds. Tokenized money market funds and U.S. Treasuries have led Wall Street's tokenization efforts so far.
The ceiling is big, at least on paper. Citi has projected that the tokenized securities market could reach $5.5 trillion by 2030.
Frequently asked questions
Which Federated Hermes funds will be tokenized first?
Federated Hermes hasn't disclosed which funds it plans to tokenize or which blockchains it will use. Kevin Barr, its director of digital asset products and platform, said money market funds are a likely starting point because of the firm's large liquidity-management business.
What role does Prometheum play in the Federated Hermes tokenization plan?
Prometheum's SEC-registered broker-dealer subsidiaries will provide custody, clearing and settlement services. Its correspondent clearing platform is meant to let other broker-dealers offer the products, which the companies plan to make available through traditional brokerages and financial advisers.
How is this different from Federated Hermes' earlier tokenization work?
Federated Hermes previously worked with Archax, Goldman Sachs and Conduit Digital, where third parties issued digital versions of conventional fund holdings. Barr said the firm now intends to issue tokenized fund share classes itself, giving it a more direct role in bringing products onchain.
