Tokenization projects continue to be in favor with major international banks, with Swiss banking giant UBS this week announcing a live pilot of a Variable Capital Company (VCC) fund through its UBS Asset Management arm. The pilot project is part of a wider initiative called Project Guardian, led by the Monetary Authority of Singapore (MAS) to bring multiple ‘real world assets’ onto the blockchain.
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The VCC is a legal structure for all types of investment funds in Singapore, which was introduced in 2020. Benefits include “greater flexibility and improved operational and tax efficiency.” The VCC can exist as a standalone fund or, as is the case with the UBS pilot, act as an umbrella entity with two or more sub-funds holding different assets.
The tokenized money market fund was launched using UBS Tokenize, the firm’s in-house tokenization service, and is represented as a smart contract on the Ethereum blockchain. The pilot is part of the company’s global distributed ledger technology (DLT) strategy, as Thomas Kaegi, Head of UBS Asset Management in Singapore and Southeast Asia explained:
“This is a key milestone in understanding the tokenization of funds, building on UBS’s expertise in tokenizing bonds and structured products. Through this exploratory initiative, we will work with traditional financial institutions and fintech providers to help understand how to improve market liquidity and market access for clients.”
Previous elements of the UBS Asset Management’s DLT strategy have included the launch of the world’s first publicly traded digital bond in November 2022, the issue of a $50 million tokenized fixed rate note in December 2022, and the issue of tokenized bank notes in Hong Kong in June of this year.
As we Observed at the time, the CNH 200 million ($28 million) of digital structured notes were the first to be issued on the Ethereum public blockchain. This initiative also made use of the company’s in-house UBS Tokenize platform.
UBS plans to carry out more live pilot use cases under Project Guardian, “working with a wider set of partners and exploring various investment strategies.”
The Monetary Authority of Singapore announced the project in May last year with one aim being to establish open and interoperable networks.
A number of pilot schemes have already been undertaken through the project, under the banners of asset and wealth management, fixed income, and foreign exchange. Partners have included HSBC, SBI, Standard Chartered, Citi and JP Morgan.
Many believe that the eventual tokenization of many real-world assets is inevitable, as the benefits and efficiencies of the blockchain greatly improve on the legacy systems currently used for trade.
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