Standard Chartered Bank teams up with OKX to allow off-exchange collateral using tokenized Money Market Fund Shares (MMFS)
Tokenized Collateral Gains Momentum in Institutional Digital Asset Custody and Regulatory Pilot Programs
The world of digital asset custody and collateralization is seeing significant advancements, as traditional financial institutions, digital asset exchanges, and regulators join forces to create secure, compliant, and efficient systems. This evolution is particularly evident in the use of tokenized collateral, a concept that is gaining traction in various pilot programs.
One such initiative is the "mirrored collateral" offering launched by OKX, a major cryptocurrency exchange. Assets held in custody by Standard Chartered are being used as collateral for trading on the OKX exchange. This pilot, which is being supervised by the Dubai Virtual Asset Regulatory Authority's (VARA), aims to address concerns about cryptocurrency exchanges holding assets following the collapse of FTX.
The use of tokenized collateral is not exclusive to OKX, however. The Commodity Futures Trading Commission (CFTC) is also running trials for using tokenized collateral as margin, as part of a broader industry push to explore the potential of this innovative approach.
These trials are not limited to off-exchange collateral solutions. They could potentially be applied to various contexts, reflecting the growing interest in tokenized collateral across the industry. In fact, the trials are happening in the United States, a clear indication of the global reach of this trend. It's worth noting that while OKX's initiative is currently under the watch of VARA, the CFTC's involvement would focus on regulating derivatives and ensuring compliance when tokenized collateral underpins futures contracts.
Institutional custody and ancillary services are also evolving in this space. According to the President's Working Group Report (August 2025), banking institutions can provide digital asset custody either directly or via sub-custodians, managing cryptographic keys and offering ancillary services such as staking, lending, and decentralized ledger governance. This requires technical competence and cybersecurity vigilance, with ongoing calls for more detailed regulatory guidance.
The GENIUS Act of 2025 has clarified regulatory frameworks for stablecoins, limiting activities of stablecoin issuers to issuance, redemption, reserve management, and custody. It mandates segregation of reserve assets and prohibits rehypothecation except to ensure liquidity for redemption. Custodial services must be provided by regulated entities, a provision that impacts how tokenized stablecoins can be used as collateral and custodied in institutional contexts.
Major financial institutions like BNY Mellon and Goldman Sachs have launched solutions for tokenized money market funds, bridging the gap between traditional finance and blockchain technology. These tokens symbolize fund shares, enabling seamless transfer and collateral use, while official fund records remain with traditional custodians.
Circle’s USYC, a tokenized money market fund, partnered with Binance to be held as yield-bearing off-exchange collateral for institutional derivatives trades. This initiative supports nearly instant fungibility and capital efficiency in tokenized traditional assets, with custody managed by institutional partners and integrated with blockchain networks like BNB Chain.
As these developments unfold, it's clear that the landscape of tokenized collateral is maturing, driven by regulatory clarity, institutional collaborations, and evolving custody frameworks requiring regulated oversight and segregation of assets. This progression enables institutional investors to deploy tokenized stablecoins, money market fund shares, and similar digital assets as collateral within compliant custody systems and pilot regulatory programs involving traditional banks and global regulatory bodies.
Both Standard Chartered and Brevan Howard, while not explicitly mentioned in the documents, are known participants in institutional digital asset custody and trading pilot programs globally, possibly involved in private or regulatory sandbox initiatives aligned with evolving laws like the GENIUS Act. As the industry continues to evolve, it's likely that more entities will join this exciting and transformative journey.
- The growing interest in tokenized collateral in the industry extends beyond OKX, as the Commodity Futures Trading Commission (CFTC) is also conducting trials to explore its potential use as margin for derivatives trading.
- The world of digital asset custody is not limited to exchanges; major financial institutions like BNY Mellon and Goldman Sachs have launched solutions for tokenized money market funds, bridging the gap between traditional finance and blockchain technology.
- The use of tokenized collateral in various pilot programs reflects an industry-wide effort to integrate technology from the aerospace and finance sectors, aiming to create secure, compliant, and efficient systems for digital asset custody.
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