Tokenized short-term funds have rapidly grown to $5.7 billion in assets since 2021, driven by increased institutional demand for digital financial products that link traditional and decentralized finance. According to a Moody’s report, traditional asset managers, insurers, and brokerages are increasingly interested in these funds, which use blockchain technology to manage fractional shares and facilitate real-time settlement. The funds are often backed by low-risk assets like US Treasurys. Moody’s predicts that assets under management in this space will continue to expand as major wealth firms seek to optimize cash as a yield-earning product. Leading this sector are companies like BlackRock with $2.5 billion in its USD Institutional Digital Liquidity Fund. However, while these tokenized funds offer advantages, they also face risks tied to blockchain technology, including smart contract vulnerabilities and regulatory uncertainties.

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