Moody’s tapped for Project Guardian tokenization risk analysis

Credit rating giant Moody's is partnering with the Monetary Authority of Singapore’s Project Guardian, a public-private tokenization collaborative initiative to enhance market efficiency, the company announced on Wednesday.

The company plans to provide risk analysis for Project Guardian, which started in 2022. Specifically, Moody’s will be looking at fixed-income products — including stablecoins, tokenized deposits, fractionalized funds and other digital asset securities.

“At its core, tokenization merges digitalization with physical assets to redefine traditional asset ownership and transactional frameworks. With sophisticated technological frameworks and streamlined or interoperable infrastructures, tokenization has the potential to catalyze significant growth,” Moody’s Head of Strategy of Digital Economy Rajeev Bamra told The Block in an email.

Tokenization, the process of representing "real-world assets" as digital tokens on-chain, is a growing sector capturing the attention of some of the biggest global financial firms that see it as a means of making investing more transparent and efficient.

In a Jan. 15 report, Moody’s said the value of tokenized funds grew from $100 million to around $800 million throughout 2023, propelled by the increasing tokenization of U.S. Treasuries. Today, that figure stands above $1.5 billion. Firms including BlackRock, Franklin Templeton and UBS Asset Management have deployed tokenized funds on public blockchains.

Bamra said institutions and investors alike are increasingly waking up to the capabilities and robust infrastructure behind these on-chain products and that the field will likely accelerate.

“These advancements democratize access to traditionally illiquid assets, enhance transactional transparency, and offer new avenues for fractional ownership and global market participation,” Bamra added, mentioning sectors from art to commodities and from real estate to intellectual property.

Project Guardian is a multi-year project involving policymakers worldwide, including the United Kingdom’s FCA, Switzerland’s FINMA and Japan’s FSA, as well as major financial institutions like Deutsche Bank, Citi and Apollo. The effort is running pilots in the fixed-income, wealth management and foreign exchange sectors.

“Moody’s independent risk assessment is intended to enhance market transparency, reduce systemic risks, and facilitate the growth of the tokenization industry,” the company wrote. Bamra noted, “the emergence of digital risks underscores the importance of robust cybersecurity measures and regulatory frameworks to safeguard the integrity and resilience of tokenized assets.”

Analysts at the company previously said the development of blockchain-based secondary markets will be critical to spur the adoption of real-world assets.