Financial services company Moody’s Investors Service has issued a rating to SGD Delta Fund, a Singapore-dollar fund investing in government securities.
The fund, issued by Singapore’s FundBridge Capital, leverages Standard Chartered’s (NASDAQ: SCBFF) Libeara tokenization platform in a pioneering industry move. Investors to the fund will rely on the XSGD stablecoin to subscribe to the fund’s tokenized units on Ethereum and Stellar public ledgers.
Ethereum is a common choice for developers building on a blockchain, being one of the earliest ledgers in the market. However, the challenge of building on Ethereum is its instability and inability to scale. This means that the network often undergoes changes and lacks the ability to create actual viable solutions, a stark contrast to the BSV blockchain, which is designed to scale unboundedly without compromising security.
Meanwhile, developers often select the Stellar blockchain for its low fees. However, what most fail to take into consideration is transaction volumes. The Stellar protocol is heavily susceptible to price increases when transaction volumes blow up to more than 6 million, compared to the BSV blockchain, whose transaction fees go down when transaction volume spikes.
After scrutinizing the underlying assets, Moody’s assigned an AA rating to the fund but disclosed several reservations. Moody’s analysts note that while the fund may easily earn an AAA rating, the absence of a previous track record in operating a similar fund may raise investor concerns.
The rating agency also highlighted the “small size” of the fund. The issuer, FundBridge Capital, has less than $200 million in committed capital without considerable experience operating with liquid strategies outside of managing private assets.
“It has limited experience managing government bonds and tokenized funds,” read Moody’s report. “In addition, due to the relatively small size of the fund manager compared to other managers of similar bond funds, it faces additional risks such as key person and business disruption risks.”
In its submission, Moody’s questioned the sturdiness of blockchain for bond issuance, citing potential challenges like cyber attacks and governance changes. While Ethereum has several guardrails, the rating agency pointed out that Stellar’s small size amplifies the risks of technical and governance issues.
Despite the downsides, several positives can be gleaned from Moody’s report involving the use of blockchain, including efficiency and cost-saving properties.
“Positively, tokenization will increase transparency and enable whitelisted investors to exchange tokenized units between themselves,” said Moody’s.
Safety measures outside blockchain
Aware of the risks associated with blockchain-based issuances, the fund takes several precautions to ensure investors’ safety. For instance, the fund is only open to accredited institutional investors that meet the capital requirement of issuers, eliminating an avalanche of retail investors.
Although investors can subscribe with stablecoins, the fund remains insulated as it only interacts and invests with fiat currency as an added layer of safety.
Vistra Alternative Investments, the fund’s administrator, is expected to maintain an off-chain investor register in the event of a malfunction by Libeara. The requirement that only investors with whitelisted wallets receive tokens has been hailed as a preemptive measure to reduce the chances of cyber attacks.
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