Fidelity Head of Digital Asset Management says stablecoins, tokenized Treasurys and onchain credit are areas they are exploring

While Cynthia Lo Bessette, the head of Fidelity’s digital asset management division, has been overall pleased with how the market has taken to exchange-traded funds tracking bitcoin and ether, she is not yet convinced there is sufficient demand for alternative cryptocurrency ETFs.

“The way that we have been thinking about our product roadmap, it is primarily driven by demand from our client base as well as how we evaluate the market in terms of its ability to support such a new product,” Lo Bessette told The Block in a recent interview. “It's not clear at this point that there is an obvious next ETP following Bitcoin and Ethereum,” like Solana.

This is an important point considering Lo Bessette’s role at Fidelity is to research and identify novel investment products for different digital assets that are worth building. A veteran of the asset management industry, Lo Bessette joined Fidelity five years ago as the legal chief in the asset management division and has worked her way to the top.

Fidelity’s Wise Origin Bitcoin Fund is the second-largest exchange-traded product of its kind, and at least the fifth-most traded ETF in the U.S. this year. As of July 31, the fund had nearly $12 billion in assets under management, while the Fidelity Ethereum Fund has already garnered $259 million since launching in early July.

“Where many of us were very surprised was the velocity of that demand certainly was very significant,” Lo Bessette said. “The asset growth has been generally as we've expected, given the overall market cap and the size of Ethereum as compared to Bitcoin.”

Raising stakes

Lo Bessette added that while the U.S. Securities and Exchange Commission has not yet approved an ETH ETF that can stake the underlying assets held in the fund, that may change down the road because staking is “a critical component of the Ethereum ecosystem … it's a critical component of the Ethereum investment opportunity.”

“Whether that happens over whatever time period, think it's more a matter of when it happens and not necessarily if,” Lo Bessette added. She noted her teams have had “constructive conversations” with SEC staff about potentially bringing this attribute to market.

Further, Lo Bessette said the firm is discussing the possibility of “enhancing the way in which our products are traded right now” by enabling in-kind contributions. Right now, all the BTC and ETH ETFs on the market must settle in cash.

Getting assets onchain

What else is on the product roadmap for a company that has been working with blockchain for over a decade, and runs two separate units focused on crypto? Well, like just about every major financial firm working with crypto: tokenization.

Lo Bessette noted that her team is not just looking for “whether an asset can be represented on-chain,” but whether it should be represented onchain. This all comes back to client demand and whether blockchain unlocks activities that cannot be done in existing traditional capital markets.

Stablecoins, in particular, are one area where tokenization has clearly provided value, Lo Bessette said.

“Where we are looking at and certainly have been evaluating projects that we've already seen in the market, we think stablecoins, from the standpoint of representing tokenized cash, are certainly an obvious use case,” she said.

“The next evolution post-stablecoins is tokenized Treasury products. Post that, we've seen a lot of interesting project work in the credit and structured product space that we're also researching,” Lo Bessette said.