Money Market Funds (MMFs) have long played a key, if unglamorous, role in providing a secure, liquid and (moderately) yield-delivering vehicle for treasurers to store capital. However, the growing market for tokenised MMFs is opening up a new future; one where they move from product category to core financial infrastructure within digital markets
This is not just a speculative idea. Calastone research from last year found not only that MMFs are one of the most favoured asset classes to distribute in tokenised form, but that a fifth of asset managers were already using tokenised MMFs as digital cash equivalents (up from 4% in 2024).
In an industry where tokenisation has been stuck at a conceptual level for some time, this is a notable example of how the technology has moved from theory into practical application at a significant scale.
MMFs are no longer just a product
Moving an MMF on-chain augments the traditional use case of these funds to create a potential new base-layer for the tokenised market.
Money market funds were originally created as an alternative to standard bank deposits and portfolios of treasuries to spread cash across stable assets, providing security, liquidity and yield. In the traditional financial system, accessing that liquidity remains an inherently cumbersome process. To move capital, an investor typically has to sell out of a fund, wait for the cash settle into their bank account, and then manually transfer it.
This traditional movement requires money to exit the fund entirely before the other party can move the cash. This inefficiency creates idle days where capital generates no interest at all, as well as slowing the pace of transactions.
In some circumstances on-chain environments eliminate this friction entirely. In digital collateral ecosystems, investors can leave their capital generating yield within the fund itself. When they need to transact, they simply move the digital tokens rather than the underlying fiat.
In trade finance the oncoming wave of stablecoins being used as payments globally will require a yield bearing asset to work alongside them, again TMMFs are the ideal vehicle to trade into and out of a stablecoin with no friction on an intra-day basis.
This creates clear use cases for on-chain treasurers, with MMFs sitting between a range of on-chain transactions, functioning as a liquidity layer, treasury tool and operational infrastructure.
The opportunity for on-chain liquidity
Currently, there is approximately $8 trillion sitting in traditional money market funds globally – a peak, driven by current geopolitical instability. By contrast, capital in tokenised MMFs sits at a more modest $15 billion.
Much of this latter volume sits with early-mover funds like BlackRock’s flagship BUIDL and new entrants from the DeFi world such as Circle. However, while the market remains small, in relative terms, their market capitalisation has roughly doubled within a year, outpacing growth in both stablecoins and traditional MMFs.
One of the most powerful use cases is the use of tokenised MMFs as collateral for on-chain trading, eliminating the cash drag of holding uninvested fiat or zero-yield assets that erode potential returns.
Tokenised MMF units can be transferred and pledged intraday, meaning investors can hold collateral that continuously earns interest right up to the exact moment it is deployed. This enables more precise margin-management and a reduction in systemic risk during periods of market stress.
Scale starts with design
The maturing regulatory landscape provides a tailwind for expanding the use cases of these products. While the GENIUS Act is focused on stablecoins rather than tokenised securities, it has helped create a clearer regulatory framework for on-chain dollar infrastructure and settlement, indirectly supporting the development of tokenised money market funds. In the US, they are subject to strict SEC Rule 2a-7 requirements and come fully supported by custodial backing. But the technology behind these funds has a major role to play in expanding market access.
The majority of funds today sit on the Ethereum blockchain – one of the most popular, to be sure, but the public nature of Ethereum and the proliferation of chains could make this a limiter on acquisition. If your target customer prefers an alternative chain, you face either a major redevelopment project, or losing a deal.
The earliest pioneers in tokenised MMFs incurred significant operational and technological costs to bring products to market, often building new infrastructure or adapting systems not originally designed for digital assets and tokenisation.
While these first-generation products have played a critical role in proving the market opportunity and accelerating adoption, the additional complexity and investment required has, in some cases, resulted in higher fee structures than traditional MMFs.
For tokenised MMFs to achieve broader institutional scale, the market will need more flexible and cost-efficient infrastructure that can support distribution across multiple chains and customer environments without materially increasing operating costs.
Tokenised MMFs have arrived when they become unexceptional
To truly scale, tokenised MMFs need to move from a specialist, exceptional solution to one that asset managers and businesses can integrate without disrupting the systems and cost structures they depend on.
That means solving the chain problem, the cost problem and the technology problem at once, and letting asset managers assign a fund to any preferred chain, keep their existing infrastructure, and maintain their share class basis points pricing, all without rebuilding from the ground up.
There are already examples of funds making this step with an eye to a flexible future; Legal & General (L&G) recently announced that its liquidity funds are now live on Calastone’s Tokenised Distribution Network, making £50bn in liquidity assets available in tokenised form.
Tokenised MMFs are already growing faster than both stablecoins and traditional MMFs, but how quickly that curve steepens will depend on which asset managers can build solutions that meet customers where they are: on the chain they want, at the price point they expect, without the technology overhead of the first movers.
The $15 billion in tokenised MMFs today is a proof of concept. The $8 trillion behind it is the prize. The direction of travel is clear; it just needs the next generation of leaders to step up.
