As markets explore tokenised deposits and stablecoins, tokenised money market fund shares deserve equal attention, given their high credit quality, interest-bearing nature and institutional familiarity. Not only does tokenisation bring considerable benefits to money market fund shares, it changes how institutional liquidity is managed, shifting it from redemption towards circulation. It transforms money market funds from a passive savings vehicle to a multi-purpose financial instrument.
Money market funds have grown by more than half during the past five years to about $10tn in assets under management in the US and the European Union. In many jurisdictions, regulatory regimes have been tightened and funds are subject to greater transparency on permissible investments. Several tokenised money market funds have been launched, including Franklin Templeton’s Benji and BlackRock’s BUIDL.
Money market funds are normally used by institutional investors such as pension funds, insurance companies and banks to park excess liquidity. Investments are typically made through subscription and reversed through redemption. The shares are generally not traded and rarely serve in margin payments or as collateral. They represent a proportional claim on the underlying assets, and the fund structure is typically bankruptcy-remote. As a result, money market funds can be subject to significant redemption pressures in times of market distress.
With tokenisation, fund shares are issued in a token format on blockchain and other distributed ledger technology platforms. The blockchain records and processes ownership of the shares. It allows the merging of fund law with securities tokenisation, converting the technical and legal character of the shares, facilitating their use in settlement and securing intraday liquidity operations without operational recourse to the transfer agent. The tokenised shares retain the bankruptcy-remote structure.
The interest in tokenised money market fund shares is largely twofold. First, share transfers can occur instantly among subscribers on a delivery-without-payment and delivery-versus-delivery basis to discharge obligations. Atomic settlement enables the exchange of shares of funds denominated in different currencies for foreign exchange transactions – which may help address deficiencies in FX settlement and other cross-border transactions through transfers among domestic and non-resident fund subscribers.
Second, the use of the tokenised shares as collateral rests on transferring control of the share to the lender without a title transfer, allowing the borrower to maintain economic exposure to the fund. The absence of a title transfer results in a secured lending operation instead of a conventional repurchase operation.
The outright transfer of the shares and use as collateral may reduce structural redemption incentives, while not eliminating redemption entirely. Shares can remain in circulation if accepted in payment or pledged in the event of cash shortfalls. This could make tokenised money market funds de facto subscription-only funds and reduce liquidity pressures in the underlying assets.
Net asset value funds
Tokenised money market funds may become a preferred settlement instrument among institutional investors for large-value transactions. Constant NAV funds – invested solely in government securities and equivalent assets – combined with a distributing tokenised share class provide a par instrument of the highest credit quality. In many jurisdictions, the look-through approach may afford favourable prudential treatment, including a zero-risk weight.
Unlike tokenised deposits and many stablecoins, tokenised constant NAV fund shares give investors a bankruptcy-remote, interest-bearing claim on underlying sovereign assets.
Residual uncertainties remain on the operational, legal and regulatory fronts. Blockchain is an evolving technology and in some jurisdictions the legal register will continue to reside with the fund administrator. The prudential and regulatory treatment of the shares may also require further clarification.
Even so, tokenised money market funds seem set to transform intraday liquidity management and cross-border settlement. The structure could unlock dormant high-quality collateral trapped within conventional fund structures. If widely adopted, tokenised money market funds may become one of the most consequential innovations in wholesale liquidity management. In the contest among tokenised monies, they may yet prove the fairest of them all.
Ousmène Mandeng is Director and Founder, Economics Advisory and Visiting Fellow of London School of Economics and Political Science.
This article features in the forthcoming Digital Monetary Institute Journal, publishing 19 March 2026.
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