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Citi and Fidelity International have successfully tested a proof-of-concept that combines tokenised money market funds with digital foreign exchange swaps, enabling real-time settlement of cross-currency fund transactions. The innovation will be showcased at the Monetary Authority of Singapore's (MAS) FinTech Festival this week.
The solution addresses a significant pain point in current market infrastructure, where non-USD investors face delays and operational friction when investing in US dollar-denominated money market funds (MMFs). Traditional processes require manual reconciliation of foreign exchange hedging, which can create timing mismatches and transaction risks.
The development comes as tokenised MMFs are projected to experience rapid growth. According to McKinsey research from June 2024, this asset class could reach USD 400 billion by 2030. The market opportunity is substantial, with US dollar MMFs currently managing over USD 6.1 trillion in assets.
The proof-of-concept leverages blockchain technology through smart contracts to synchronise the settlement of simulated FX swaps with the issuance and redemption of simulated MMF tokens. The solution also incorporates built-in compliance standards for fund tokens throughout their lifecycle.
The project falls under MAS's Project Guardian initiative, which brings together regulators and industry participants to explore asset tokenisation's potential to enhance financial market efficiency.
Sam Hewson, Global Head of FX Sales at Citi, said: "As tokenization continues to evolve in capital markets, we see a potential future in which investors could trade and settle digital assets in real-time, in different currencies, and across multiple distributed ledger technology platforms. FX markets could enable investors to quickly and efficiently access digital assets globally, with timely liquidity. This innovation could also open potential opportunities to address broader goals, such as portfolio diversification and risk management."
Emma Pecenicic, Head of Digital Propositions and Partnerships, APACxJ Distribution at Fidelity International, said: "Fidelity International is committed to exploring the real-life applications of asset tokenization. Our aim is to develop practical approaches that promote capital efficiency, democratize access to financial services, and bring value to our clients. As a global asset manager, we are excited to engage with partners like Citi to explore technological innovations like this on-chain money market fund with digital foreign exchange (FX) swap solution to better understand the efficiencies it can bring, as well as help establish best practices and standards for tokenized funds for the benefit of investors."
Deepak Mehra, Global Head of Digital Assets and International Lead for Strategic Investments for Markets at Citi said: "We continue to partner with our clients and to explore blockchain use cases across our Markets business. While the current solution tested settlement of tokenized MMFs denominated in foreign currencies, the underlying technology could potentially be expanded in the future to unlock further efficiencies and enable compatibility with other tokenized assets."
The solution will be demonstrated at the Singapore FinTech Festival from 6 to 8 November at the MAS booth in Hall 3 of the Singapore Expo.
