Digital Funds Seeks to Launch Tokenized S&P 500 Fund

A newly created digital asset manager that filed last month for its first ETF is seeking to bring another offering to market.

Digital Funds has filed to launch a Tokenized S&P 500 EW Index Fund that would primarily invest in the securities of issuers included in the S&P 500 Equal Weight Index, according to a regulatory disclosure filed last week.

Though the fund’s official record of share ownership would be maintained in book-entry form, they will also be recorded — as digital tokens — on the Algorand blockchain, the filing states. Fund shares may eventually be recorded on other blockchain protocols.

The fund will not invest in any assets that rely on blockchain technology, such as cryptocurrencies, the filing states.

Michael Willis, who founded Digital Funds in December, told Blockworks that registered digital securities will become “the new de facto digital marketplace” as the unregistered space endures more scrutiny from regulators.  

“Until now, the registered digital securities marketplace has lacked a high-quality, easy-to-price, immediately recognizable security,” he added. “Therefore, adoption has been limited. We believe the approval of a marquee tokenized index fund has the potential to break adoption wide open.”

Similarly, WisdomTree filed last year to launch a Digital Short-Term Treasury Fund that would secondarily record its shares on one or more blockchains. 

Sumit Roy, crypto editor and analyst for ETF.com, previously told Blockworks that it’s conceivable for the shares’ official record to live on the blockchain in the future — allowing investors to trade their shares peer-to-peer — but noted there are regulatory hurdles to get past first.  

The latest Digital Funds filing comes after the Florida-based firm revealed plans last month to launch an S&P 500 Bitcoin 75/25 Index ETF. The proposed fund would invest roughly 75% of its assets in large US companies within the S&P 500 Index and about 25% of its assets in bitcoin futures contracts.

Willis called bitcoin “really volatile” at the time, noting that the S&P 500 exposure provides more stability to a bitcoin portfolio.

“We believe registered digital securities will replace the current financial legacy system because they are better engineered at every level,” Willis said, noting the advantages of selling from anywhere at any time, with immediate settlement. “Self-banking and peer-to-peer payments is a dream once thought impossible, but shortly will be a reality.”

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