(Kitco News) – While cryptocurrency prices struggle in the face of multiple headwinds and the absence of any notable bullish developments, blockchain technology continues gaining favor on Wall Street, with Goldman Sachs preparing to launch three tokenized projects by the end of 2024.
According to a report from Fortune, the firm is attempting to woo major institutional clients with the offerings – and the launches are part of a broader push into the digital asset sector.
Mathew McDermott, Global Head of Digital Assets at Goldman Sachs, told Fortune that the expansion of crypto offerings includes initiatives in the tokenization sector, where real-world assets (RWAs) such as money market funds and real estate holdings are issued on private blockchains.
McDermott said the focus is on creating products that investors want, and the bank gained insights from a variety of institutions at a digital asset summit they recently held in London, which included more than 500 clients in attendance.
“There’s no point doing it just for the sake of it,” McDermott said. “The definite feedback is that this is something that actually will change the nature of how they can invest.”
As part of Goldman’s foray into the world of crypto, the bank played a key role in the launch of the first spot Bitcoin exchange-traded funds (ETFs) in the U.S. by serving as an authorized participant, which means it assists with the redemption and creation mechanism for the ETFs.
McDermott said the ETF launches brought “renewed momentum in crypto” – and despite comments from Sharmin Mossavar-Rahmani, chief investment officer for Goldman Sachs Wealth Management, who said in April that she does not view crypto as an investment class and has not seen interest from clients, there are those at the bank who are excited about the developments.
“The nice thing is, about an institution of our size, there are differing views,” he said. “We’ve continued to see, certainly this year, an uptick and broadening in the product suite that clients would like to see available.” This includes trading cash-settled crypto derivatives on behalf of clients and Goldman's activity in the ETF markets.
McDermott said that tokenization remains a central part of the bank's plans moving forward as it looks to keep pace with BlackRock, who launched the BlackRock USD Institutional Digital Liquidity Fund (BUIDL) fund earlier in the year, which has already surpassed $500 million in assets under management.
He said that as opposed to the funds offered by BlackRock and Franklin Templeton, which target a retail customer base, Goldman is focused on institutions and would work exclusively with private blockchains due to regulatory restrictions.
McDermott added that the bank’s primary objective is to create functioning marketplaces for tokenized assets along with delivering improvements in terms of speed and the types of assets that can be used as collateral.
When asked for specifics on the three tokenized projects set to launch in 2024, McDermott declined to comment on the finer details but said that one is focused on the fund complex in the U.S. and another deals with debt issuance in Europe.
Noting the upcoming presidential election in the U.S. and the potential change in regulatory approach depending on the winner, McDermott said the bank’s opportunities in the space could expand, including the possibility of holding spot crypto assets.
“There could be other things that we as a firm would naturally be interested, subject to approval, to do, like execution and maybe sub-custody,” he said.
Goldman’s interest in expanding its tokenization operations is not surprising, as the bank has steadily increased its engagement with crypto over the past year.
The firm is currently active in tokenizing traditional assets using blockchain through its GS DAP digital asset platform, which “captures the full complexity of rights, obligations, and cash flows throughout the lifecycles of assets” and “makes the digital representation and workflow accessible and fully automatable across distributed interconnected ecosystems of participants.”
The bank also participated in a pilot test in March that involved a blockchain network that connects banks, asset managers, and exchanges. BNY Mellon, Cboe Global Markets, and several other firms also participated in the pilot, which involved the execution of more than 350 simulated transactions on blockchain for tokenized assets, fund registry, digital cash, repo, securities lending, and margin management.
The goal of the pilot was to explore potential benefits, including reducing counterparty and settlement risks and optimizing capital.
Other blockchain-related ventures by Goldman Sachs include a bond issuance with the European Investment Bank in 2022 and the tokenization of a sovereign green bond for the Hong Kong Monetary Authority in 2023.
