Tokenized money market funds are emerging as one of the most vital income-producing assets on public blockchains, offering money market returns and securities-level protection that stablecoins cannot provide, according to a recent report from the Bank for International Settlements (BIS).
According to bulletintokenized money market funds now hold almost $9 billion in assets, up from about $770 million at the end of 2023. BIS warned that as these tokenized treasury wallets become a key source of collateral in the cryptocurrency ecosystem, they also pose recent operational and liquidity risks.
Tokenized money market funds are blockchain-based representations of classic money market portfolios, providing investors onchain access to short-term, interest-bearing assets such as U.S. Treasuries.
BIS noted that while these tokens offer the flexibility of stablecoins, they depend on permissioned wallets, off-chain market installation, and a compact set of immense holders; factors that may accelerate stress in the event of a keen enhance in the number of redemptions or a loss of liquidity in the chain.
Although tokens move on public blockchains, the underlying wallets, pricing, and settlement still take place in classic markets. BIS says the loophole creates a structural mismatch: token transfers settle immediately, while the assets behind them do not. During periods of high drawdowns, this gap may make it challenging for funds to realize redemptions without causing further volatility.
Stablecoin pegs pose additional risks because some tokenized money market funds also allow rapid conversion to stablecoins or are used for leveraged trades. BIS warns that these feedback loops can allow market stresses to spread much faster than classic money market funds.
The analysis was published just a day after the institution named International Monetary Fund chief and CBDC supporter Tommaso Mancini-Griffoli as the next head of its Innovation Hub.
Related: Stokenized money market funds are becoming Wall Street’s answer to stablecoins
Asset managers are accelerating fund tokenization
The world’s top asset managers are accelerating the expansion of tokenized money market funds across multiple blockchain networks.
On November 12, Franklin Templeton announced the integration of its Benji tokenization platform with the Canton Network, bringing tokenized assets – including the U.S. government’s onchain money market fund – to the blockchain ecosystem intended for financial institutions.
Asset manager BlackRock also recently announced the expansion of its tokenized money market fund, USD Institutional Digital Liquidity Fund (BUIDL), to Aptos, Arbitrum, Avalanche, Optimism and Polygon, expanding beyond Ethereum.
RWA.xyz data shows that BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) currently dominates the onchain money market with over $2.5 billion in tokenized assets.
Data shows that Franklin Templeton’s BENJI fund holds over $844 million in tokenized U.S. government securities.
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