Wall Street investment bank Morgan Stanley (NYSE: $MS) is moving into stablecoins as it grows its digital asset business.
The firm's investment management arm has announced the launch of a new “Stablecoin Reserves Portfolio.”
The new product is a government money market fund designed for issuers of stablecoins who need a regulated, safe place to store the reserves that back their tokenized versions of fiat currencies.
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Stablecoins are cryptocurrencies pegged to an underlying asset, most often the U.S. dollar.
When a company issues a stablecoin, it must hold real dollars in reserve to back every token created. For every blockchain-based dollar issued, a real dollar must exist somewhere safe.
Morgan Stanley says its new fund, MSNXX, is a safe and reliable place to store the reserves that back-up stablecoins.
The fund invests in the safest and most liquid instruments, such as U.S. Treasury bills, which are short-term loans to the U.S. government.
It also invests in repurchase agreements, or repos, that are overnight loans backed by U.S. government securities.
The Morgan Stanley fund also targets a $1 U.S. net asset value (NAV), meaning every dollar put into the fund is worth exactly the same when taken out, helping prevent price fluctuations.
The new reserve fund is being launched as Morgan Stanley grows its cryptocurrency offerings. The bank recently launched a new Bitcoin Trust (NYSE: $MSBT) exchange-traded fund (ETF).
Stablecoins have seen their market capitalization grow strongly in recent years, reaching $316 billion U.S., with dollar-pegged tokens such as Tether (CRYPTO: $USDT) and USD Coin (CRYPTO: $USDC) making up the bulk of the total.
While initially used to facilitate cryptocurrency trading, stablecoins have expanded to help with payments and cross-border capital flows.
MS stock has risen 63% in the last 12 months to trade at $188.65 U.S. per share.