The use of money-market fund tokens from the likes of BlackRock Inc. and Franklin Templeton as collateral in traditional derivatives trades inched closer to reality on Thursday.

The Global Markets Advisory Committee of the Commodity Futures Trading Commission voted to approve use of tokenized non-cash collateral and to send its recommendations to the full CFTC.

The recommendations don’t have the force of official policy until the commission incorporates them into future guidance or rule-making. The agency can decide how and whether to use the recommendations, but because the advisory committees provide relevant expertise, their recommendations often are used by the CFTC. There’s no specific timeline for the agency’s adoption of the recommendations.

The recommendations relate to how registered firms can use distributed-ledger technology for holding and transferring non-cash collateral. These recommendations apply existing policies and procedures to support the tokenized collateral’s use in a manner that’s consistent with the margin requirements of the CFTC, other US regulators and derivatives clearing organizations.

Use of the tokens as collateral could greatly increase adoption of tokenized assets, since many market participants want to pledge digital assets as collateral to gain capital efficiencies. McKinsey estimates that the total tokenized market — excluding stablecoins — could reach around $2 trillion by 2030, driven by usage in mutual funds, bonds and exchange-traded notes, loans and securitizations, and alternative funds. The entire crypto market is currently $3.25 trillion, according to CoinMarketCap.

“This marks a significant first step toward realizing these opportunities for our derivatives markets — with exactly the same guardrails and protections in place,” said CFTC Commissioner Caroline Pham. “Embracing new technology does not mean compromising on market integrity.”

Crypto prime brokers Hidden Road and FalconX have already begun accepting BlackRock’s BUIDL token as collateral for crypto-derivatives trades.

  - Bloomberg