Emergence of Tokenized MMFs

The first U.S.-registered money-market fund to utilize a public blockchain to record share transactions and ownership records was the Franklin OnChain U.S. Government Money Fund (FOBXX), launched by Franklin Templeton on April 6, 2021. Like other money-market funds, it invests in government securities and pays dividends to shareholders. WisdomTree followed in November 2023 with the WisdomTree Government Money Market Digital Fund (WTGXX). Crypto news site CoinDesk reported recently that the cryptocurrency exchange Coinbase also plans on launching a tokenized MMF.

The failure of several banks in the spring of 2023, triggered by runs on uninsured deposits, coincided with large inflows into the Franklin Templeton fund as crypto-related entities shifted their cash destinations. A downturn in the crypto market and lack of income returns on stablecoins also drove investors to the fund.

Then, on March 20, 2024, a game changer emerged. BlackRock, the largest fund manager in the world, introduced a digital-token fund, the BlackRock USD Institutional Digital Liquidity Fund (BUIDL). BUIDL is not a money-market fund but a liquidity fund pursuant to Rule 506(c) for accredited investors with “instantaneous and transparent settlement” and a stable value of US$1 per token (share).

These first tokenized funds are all either money-market funds or, in the case of BUIDL, quasi-MMFs that invest in safe instruments such as cash, Treasuries and government securities, and repurchase agreements backed by government securities. Shares are offered at a stable net asset value (NAV). Setting aside regulatory and investment-policy considerations, these features indicate that tokenized government money-market funds may be suitable for corporate cash.

How Tokenization Works

The funds all use a blockchain technology called “tokenization” to process share transactions between parties and record share ownership in a verifiable and permanent way. A blockchain is a decentralized and immutable ledger with growing lists of records (“blocks”) that are securely linked together. Each block preserves all the time-stamped transaction data contained in the previous block, then adds information about the latest transaction—thus forming a chain of blocks. 

Tokenization is a computer routine that permanently converts real assets, such as MMF shares, into digital tokens on a blockchain network. In the case of tokenized money-market funds, each token represents a share worth $1.00, and the blockchain preserves the complete history of who has owned that share, when, and where.

In the world of traditional finance, using physical and computer ledgers to track the ownership and movement of securities is notoriously complex and labor-intensive. Restrictions on trading hours and legal requirements around financial transactions exacerbate those challenges, delaying the movement of cash.

Industry innovators have long envisioned using blockchains to improve accessibility, liquidity, efficiency, and transparency in transactions involving MMFs. Today, U.S. Treasuries are at the forefront of tokenization as tech and financial companies seek to put the world’s largest, deepest, and most liquid financial instruments on a blockchain. Other U.S. Treasury–based offerings, including government MMFs, are also gaining attention as a potential target for tokenization.

For now, the emerging tokenized MMFs are striking a balance between the traditional world and the digital, using the tokenization process as a secondary recording, so each record is replicated in both real and virtual spaces. That may change in the future.

Franklin Templeton believes that Securities and Exchange Commission (SEC)–regulated MMF shares which exist as native digital assets on a blockchain and are held in a digital wallet “can be an ideal stable digital asset to be used in the new economy.” WisdomTree’s transfer agent maintains the official record of share ownership in book-entry form as well as on an electronic distributed ledger called Stellar. BlackRock touts BUIDL’s “interoperability” between digital and traditional markets, using Bank of New York, a large custody bank, to handle the tasks. The fund’s “dual listing” of its shares adds to administrative costs in the short run but enables market participants to test out new concepts before wider adoption.

That adoption continues to pick up in pace. Digital-asset data company RWA.xyz tracks $4.6 billion of tokenized Treasuries, as of March 18, 2025. On that date, total net assets for BUIDL, FOBXX, and WTGXX were $1.2 billion, $631 million, and $107 million, respectively.

Tokenized MMFs Are Not Stablecoins

Like stablecoins, tokenized money-market funds use blockchain technology. But they are different from stablecoins in several important ways. Tokenized MMFs were developed to meet institutional cash investors’ specific needs for liquidity, safety of principal, and yield. So it’s important to understand the differences between stablecoins and tokenized MMFs.

Nature and purpose. Tokenized money-market funds consist of traditional MMF shares that are digitized with blockchain technology. They seek to replicate bank deposits with marketable securities for liquidity-focused investors. Stablecoins, by contrast, are digital currencies. While they are backed by real-world assets and designed to be a reliable medium of exchange and store of value in the crypto ecosystem, stablecoins do not replicate bank deposits. Financial regulators have often viewed stablecoins as unregulated MMFs with systemic implications for the short-term debt market, a concern not shared with tokenized MMFs. The stablecoin legislation in Congress is intended to address regulators’ concerns.

Underlying assets.  Money-market funds invest in Treasury bills, repurchase agreements, and other short-term debt instruments. Tokenized shares represent pro rata ownership in the underlying instruments. SEC rules currently prohibit all MMFs from investing in stablecoins, cryptocurrencies, and other assets that rely on blockchain technology. Stablecoins, on the other hand, can be backed by many types of collateral, including fiat currencies, cryptocurrencies, and algorithms. Stablecoin owners do not have a direct claim against the collateral.

Regulation and compliance.  Tokenized MMFs are subject to the same regulatory frameworks as traditional funds that provide investor protection. The regulatory environment for stablecoins is still evolving.

Liquidity and settlement.  This is an area of similarity: Tokenization can enhance MMF liquidity and settlement efficiency. Ideally, transactions can be settled almost instantaneously on a blockchain, reducing the transaction’s time and cost. Stablecoins’ settlement is also nearly instantaneous across global markets, because their transactions are also recorded on blockchain technology.

Investor base.  Tokenized funds are designed primarily for institutional and corporate cash investors seeking a digital alternative to traditional money-market funds while maintaining regulatory compliance. Although stablecoins’ regulatory status is less clear, they are widely used as the crypto ecosystem’s equivalent of MMFs for purposes including trading, remittances, and hedging against volatility in the cryptocurrency markets.

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To understand why corporate treasury teams should care about tokenized MMFs, stay tuned for the second article in this series, which will publish early next week.