This text comes from our interview published on YouTube
The Big Whale: This summer you officially launched two tokenised money market funds. Why is it interesting to tokenise them on blockchain? What advantages does this offer over the traditional system?
Paul-Adrien Hyppolite (Spiko): Tokenising a money market fund is interesting because it's like tokenising a form of currency.
In the traditional system, there are several forms of money: central bank money, with a lot of discussion around its tokenisation with central bank digital currencies (CBDC), commercial bank money - there are also discussions about tokenising bank deposits, which correspond to the money you have on deposit in your bank; and then there is electronic money, which is very common. This is the form of currency you have on Lydia, Venmo or PayPal. You could say that stablecoins are a form of tokenised electronic money, particularly since MiCA in Europe has treated them as electronic money.
And finally, there is a fourth form of money which is money market funds. These are funds that generate returns natively. This is unique because it is both a form of money and a savings or investment product, regulated as such. For a number of reasons, including aspects of yield and counterparty risk, it's interesting to tokenise these different forms of money to make them easier to access.
By tokenising a money market fund, you disintermediate traditional securities account providers, making it easier to access this type of product. It's also interesting because it's on a blockchain, which, as many people know, is a very interesting infrastructure for settlement, transferability, but also because it's accessible 24/7. This represents a huge difference from the banking sector, with its hours and bank holidays.
In March this year, BlackRock caused a huge stir when it launched its tokenised money fund, BUIDL, on Ethereum. Since that launch, the market for money market funds on blockchain has grown from just over $400 million to almost $2 billion. How do you explain this?
Money market funds are essentially a way of wrapping Treasuries. In general, they can include other types of monetary security, such as certificates of deposit issued by banks or commercial paper issued by non-financial companies.
But the most common asset remains Treasury bills, particularly in the United States, where the T-bill market is huge. Most dollar money market funds hold T-bills in their portfolios, and at Spiko we do something very similar. Our money market funds are backed entirely by T-bills, a bit like a new type of e-money token under MiCA, backed either by bank deposits or Treasury bills.
There are two main reasons for this success, I think. Firstly, in cryptocurrencies, there was a lack of access to the risk-free rate of traditional finance. You could say that there is a kind of on-chain risk-free rate, like the rate obtained in a lending protocol by depositing USDCs in something like Morpho or Aave, but this rate is heavily influenced by the dynamics of the crypto market and the demand for leverage on assets like BTC and ETH.
This is known as the DeFi risk-free rate, or purely crypto. However, the most recognised risk-free rate in traditional finance, set by central banks, is now accessible on-chain via tokenised money funds, which wrap treasury bills.
"We are only at the beginning of the widespread tokenisation of assets" Is it correct to call you a stablecoin?
If you look at what's happening in Europe at the moment, there are sort of two types of stablecoin: unregulated ones like Tether's USDT and regulated ones like e-money. With the MiCA regulation, you can now have regulated stablecoins, such as the USDC issued by Circle and the Euro CoinVertible issued by SG-Forge, a subsidiary of the Société Générale group. Once regulated in the European Union, these stablecoins become a form of e-money, a new form of e-money on a blockchain, but in essence not so different from a dollar on PayPal or Lydia.
I would say that the tokenisation of money market funds, like what we are doing, represents a new form of stablecoin but with added yield and also because these financial products are less risky than a traditional stablecoin, because money market funds make it possible to introduce the "risk-free rate" in decentralised finance (DeFi).
We could also see, as I mentioned earlier, the tokenisation of bank deposits and central bank money over the next few years, which would add even more types of stablecoin beyond what we currently know. We are only at the beginning of the widespread tokenisation of assets in the traditional financial world.
Other assets beyond currency - such as bonds, equities and real estate - will certainly be tokenised quite quickly. We started with unregulated currency in the form of offshore dollars like USDT. Now we have electronic money thanks to MiCA and this is going to be a major driver of innovation in the payments industry.
Besides the macroeconomic issues, there is also a strong incentive for non-crypto, or "web2", investors to access these products. This is at the heart of what we do at Spiko.
In Europe, access to money market funds is still fairly difficult. In the United States, on the other hand, it's a very common product. You can access money market funds via accounts with Fidelity or other providers; it's a product that's widely available to individuals and businesses, large and small.
That's why we're successful here. There are currently a trillion euros in money market funds domiciled in Europe, but these funds are mainly accessible to large corporates and institutional investors in the capital markets sector, such as pension funds.
And how do you explain this, particularly in Europe?
I think it's because the banks are extremely powerful here, and their distribution networks are very strong for both retail and investment banking. The banks have little incentive to distribute money market funds, as these funds have low fees and do not provide additional liquidity to the banks.
In the US, you could say that the banks are equally powerful, so why is it different there? Because the US has a much stronger capital markets culture and much more influential players in asset management and brokerage, all connected to those capital markets. This reflects the relative size of the banking and capital markets industries in the US and Europe.
In Europe, unfortunately, this disparity is well recognised by policymakers, who are trying to change it, but without much success. Capital markets remain too small here, and people don't have easy access to capital market products. Money market funds are capital market products, not banking products. At Spiko, we're trying to change that. As I mentioned earlier, tokenisation helps by bypassing traditional securities account providers and facilitating access to these products while ensuring a holding of one's own funds.
"We have ambitions in payments" Can you describe your setup, including your custodian, and explain which players you bypass, such as banks?
On the asset side, the fund is traditional. We have what is known as a custodian bank, which looks after both the custody of the Treasury bills and the smooth running of the fund in accordance with what has been approved by the Autorité des marchés financiers (AMF), the French regulator. There's nothing new here; it's entirely traditional. Our custodian bank is Caceis, which is the custodian arm of two major banking groups: Crédit Agricole in France and Santander, Spain's largest bank. They have a very good reputation for custody and are among the best custodians in Europe.
On the liabilities side, however, things are new. Shares are issued in the form of tokens on the blockchain, specifically on Ethereum and Polygon proof-of-stake, with plans to add other networks such as Arbitrum. Cross-chain expansion is a priority for us.
Traditionally, shares would be registered in securities accounts managed by brokers or banks, but in our configuration, the shares are on the blockchain. From a technical point of view, you have tokens instead of entries in a centralised database, and crypto portfolios instead of traditional securities accounts with a broker or bank.
From a legal point of view, our fund operates in registered form. This means that, unlike pure crypto assets or bearer assets, each client's ownership is documented in a shareholder register. For example, if you are a customer with shares in tokenised money market funds, your ownership is recorded in the fund's register.
This differs from bearer assets, which are owned by whoever controls the portfolio. In the crypto world, bearer assets are similar to the way securities worked in the past. For example, if a government issued a bond, you had a paper certificate, and whoever held it could collect interest from the bond.
With tokenised electronic money, such as stablecoins, this bearer model can pose additional risks for some users. However, in registered form, tokenised monetary funds offer legal protection and mitigate these risks. This can be beneficial for businesses and institutions, but it is also true for individual customers. Holding stablecoins can be risky as access can be lost, and using a custodian shifts this risk to the custodian. With tokenised money market funds in registered form, you mitigate this risk and have better legal protection in terms of ownership.
How do you explain that you are the first to launch this type of product in France when the law has allowed it for 7 years now with the Pacte law?
Our shares in the money market fund are tokens, and the registrations on the blockchain represent the true ownership and transfer of these shares. This clarity in French law, which has also influenced MiCA, gives us a significant advantage in operating a compliant, on-chain product within the European Union. This configuration is quite unique in the Web3 industry at the moment.
And yes, this is also the sad reality of Europe. Although I said it's progressive and we have good decision makers, we remain the only ones to do this in seven years. My view is that we simply lack innovative players, that's all. Regulations aren't really the issue here; it's more a question of who takes the initiative. What we have done could have been done years ago, as you rightly said. It simply wasn't done because nobody tried.
We're not using any special permission; we're simply using the Ordinals blockchain, which has been in use for at least five years. This is the reality. In the US, for example, asset managers like BlackRock, Fidelity, Franklin Templeton, and a few others are more innovative and more willing to take risks, even though they operate in a more restrictive jurisdiction.
Just what is the difference with your products and BlackRock's?
BlackRock's BUIDL fund is a private fund structured in the British Virgin Islands (BVI). As it is not registered with any regulator, it can only admit accredited investors under US law, with strict limits on eligibility criteria. This is why their minimum investment is set at five million dollars, due to the constraints of being a private fund without registration with the Securities and Exchange Commission (SEC), the US stock market regulator.
We chose a different route with a public fund that is registered with a regulator, which meant we had to submit a full prospectus and wait for approval, which took around six months. However, once approved, we can target a wider audience, including retail investors, and we have the freedom to set the minimum investment threshold. In our case, it's 1,000 euros or dollars. Although we can reduce it, we keep it because of onboarding and KYC costs. We also have a prospectus, which offers transparency and full guarantees to investors about how the fund works.
On several occasions in this interview, you mentioned the idea of paying with a money market fund. Many players, such as Franklin Templeton, have this ambition. What are the next steps for you? Do you want to become a stablecoin issuer?
To be clear, there are regulatory hurdles. Just as stablecoin issuers are not currently allowed to distribute returns to their holders, regulations also draw a line between payment and savings instruments. Money market funds are classified more as savings, while stablecoins are considered a payment instrument.
I am not convinced that this regulatory separation is necessary or beneficial, but that is how the system is currently structured. Both issuers of stablecoins and issuers of tokenised money funds aim to combine savings and payments. Personally, I believe that all money should generate a return; your bank deposits should earn interest. There is no reason why you should miss out on the risk-free rate, even if it is sometimes negative. That would allow better transmission of monetary policy.
So, yes, money should generate a return, and we should be able to pay with that money. Currently, unused funds end up benefiting banks and payment providers. At Spiko, we want to push the boundaries of money funds, and I expect stablecoin issuers to take a similar approach of their own.
For now, we're focusing more on the buy-and-hold market, but eventually we want to facilitate transferability for the use cases you mentioned, such as payments, transactions and beyond.
What set-up could you put in place to enable payment via a tokenised money fund?
Imagine you want to buy a coffee using a money fund balance. You could integrate this with card networks, a bit like with crypto cards. At the point of payment, there is a transaction between the crypto you hold in your card and the merchant. In this case, an automatic redemption of money fund shares could occur when you pay at the point of sale.
With a card, you would have time to settle with the network, and this setup could work well with money funds in terms of settlement times. Let's say you have a Spiko account with an associated card: this configuration could allow both generating returns and spending.
What is your long-term goal?
We want to be the most widely used form of currency. The ultimate goal is for every individual investor, every company, to be integrated into Spiko and to use the Spiko currency. By "Spiko", I mean our neutral issuing platform.
In the long term, we will have several types of money market funds. At the moment, we are concentrating on money market funds backed by T-bills, but we could diversify into other risk profiles, such as funds with certificates of deposit, commercial paper, etc. We could even introduce bond funds with longer maturities or credit risks. All of these will be available on the platform.
For the moment, we are focusing on money market funds to build a kind of bank based entirely on money market funds.
"We are in discussions with platforms to integrate our money market funds as collateral for derivatives" You recently exceeded $100 million in total value locked up (TVL). Can you tell us who your users are? Are they mainly individuals or companies?
What I can share with you is that at the moment we have a balanced mix of individual and corporate clients, about 50/50 in terms of the number of holders. In terms of assets under management, this leans towards corporates, as they generally have much larger cash holdings than individuals.
And in the corporate segment, what type of companies do you focus on? Startups, perhaps?
Yes, this can include personal holding companies, which are the smallest form of business, startups, SMEs, even small non-tech companies, and property investment companies (SCIs in France), for example. That's really our target market, and we currently have several hundred investors, who together hold more than €100 million in cash, as you mentioned.
In the future, we also aim to target institutional investors. As we grow, we will focus more and more on large corporates and institutional players. In crypto, this could include liquid funds, VCs, hedge funds or market makers, essentially any structured business, whether native crypto or from traditional finance.
So, not just crypto-focused clients, but traditional institutions too?
Exactly. Many institutional funds have a "cash reserve" that they generally allocate to money market funds, so they are natural clients for us.
However, within Web3, we want to specifically explore the use of funds for collateral management, which is a major issue in the capital markets. For example, when you trade derivatives on an exchange, your position needs to be backed by high-quality assets that can maintain their value in all market circumstances. This is where treasury bills and money market funds come in: they are essential as collateral in the traditional financial system.
I believe there is significant scope to improve collateral management with tokenised money market funds. In crypto, this is currently even less optimal than in traditional finance, because most of the collateral listed by market makers is in USDT, Tether's stablecoin, which offers no return and has a higher counterparty risk than money funds. BlackRock's BUIDL is very focused on that, and we also want to play our part by offering the only European-based, tokenised retail money fund.
Two weeks ago, Bloomberg revealed that BlackRock was in discussions with some crypto platforms to use BUIDL as collateral for crypto derivatives. Do you intend to do the same?
We are indeed in discussions with crypto platforms, brokers and custodians, but it's a bit of a chicken and egg problem. We need to target both investors to convince them to use it and the recipients of the collateral, such as platforms and custodians.
You have launched a euro product, which makes sense for Europe, but you also have a dollar product. Why is that?"
Originally, we had planned to launch the product in dollars only. This may seem strange, but there were several reasons. Firstly, our initial go-to-market focus was on crypto-native businesses, which operate primarily in dollars. So, if you want to offer an alternative to USDC or USDT, starting with a dollar money market fund makes sense.
But we eventually added euros because we broadened our vision and started focusing on traditional markets, or Web2, as well. The euro product has proven to be very valuable, and we're seeing a product-market fit. Currently, our euro fund is actually larger than the dollar fund, although this may change as we grow internationally.
In addition, many customers invest in the dollar fund by depositing euros. They also withdraw in euros, which helps them avoid the need for a dollar bank account. Access to the dollar is attractive because of the higher interest rates and diversification it offers. Once we start accepting euros directly into the USD fund, we expect it to grow considerably.
Today, what is Spiko's business model?
It is based on asset management fees. The SICAV, which is the open-ended investment company that issues the money market funds, takes a share of these management fees; essentially, it's a volume-based model, where the aim is to have large deposits to generate income.
For the time being, there are no plans to charge subscription fees to access Spiko accounts. Opening and managing a Spiko account is free, with no custodian fees, which differentiates us from securities accounts. Our share of fees is based on the performance of the T-bills in the portfolio: currently 10 basis points (0.1%) for the euro fund and 40 basis points (0.4%) for the USD fund. This commission is deducted daily from the interest generated, so the rates displayed on our website and in the Spiko app are always net of this fee.
Are you concerned about the possibility of rate cuts in the coming months, given that your product is dependent on the performance of central bank rates?
This is something to keep an eye on, indeed. We remember the time when rates were negative in Europe, not so long ago. It was an 'interesting' time, with T-bills issued by countries like France and Germany paying negative rates. I don't think we'll be going back to that situation any time soon.
If you look at the market forecasts, they suggest convergence towards an ECB nominal rate of around 2%. In a stable world with 2% inflation, that would mean a real rate of zero, which is already pretty low. In the US, however, real rates are not generally expected to be zero, so we could see an equilibrium around 2.5%.
Of course, if there is a recession, there could be short-term adjustments, but that is what the market is currently expecting. Even if rates fall to zero or below, this does not mean that money market funds will disappear. Negative rates have not prevented banks from charging negative rates on business deposits.
There are other ways of adapting in this space, such as taking more credit or duration risks. For example, with a rising forward yield curve, taking a 3, 6 or 12 month exposure would make sense. We could also facilitate this in the Spiko app when the time comes.
You position yourself straddling the crypto and traditional worlds. Where are we in terms of large companies being aware of DeFi and the principles of public blockchain?
I think we're still in the very early stages. As you mentioned, assets under management for tokenised money market funds are only around $2 billion, which is tiny. To give you an idea, US T-bills alone represent around $6 trillion in the traditional world. Money market funds domiciled in the United States total between $6,000 billion and $7,000 billion, and in Europe, around $1,000 billion. The orders of magnitude are not at all the same. The same applies to stablecoins.
The crypto ecosystem is still very much inward-looking. The protocols gaining traction in DeFi are mainly crypto-native use cases: borrowing ETH, staking ETH, borrowing BTC, using wrapped versions of BTC, that's the core of crypto right now. And collateral tends to be very speculative.
That said, I'm very optimistic. With fintechs and more intuitive user interfaces like what we're building, we can make this industry more mainstream. The technology is improving, and now products can start to be built on it.
In your opinion, is it realistic to say that public blockchains will eventually "win"? We've seen many reports suggesting that private blockchains might be a better option. Is DeFi, as we know it today, the future of the traditional financial system?
That's a tough question. I'd say I have a mixed answer. I really like the vision of public blockchain, and I'm not a fan of private blockchain. To me, private blockchains are just another form of centralised database technology carrying the same problems we already face in traditional finance.
For example, there are so many different centralised databases that don't communicate well with each other, which creates a lot of friction. A public blockchain with layers of messaging between blockchains is a much more interesting-and frankly, beautiful-vision. I hope this infrastructure wins out, but it's hard to say because there are adoption challenges, particularly among the traditional financial players who still control much of the industry.
As for DeFi, I think it needs to evolve. For example, there's the issue of bearer versus registered assets, which I mentioned earlier. Many traditional companies and institutions won't feel comfortable with bearer assets, and neither will regulators. Bearer assets bring custody concerns, tax concerns and other compliance issues. So, I think DeFi will have to continue to adapt by incorporating registered assets, such as tokenised money market funds, which are a good place to start.
