Tokenized money market funds hit $9B as BIS flags growing structural risks
Tokenized money market funds have exploded in popularity over the past year, climbing from roughly $770 million at the end of 2023 to nearly $9 billion today, according to a new report from the Bank for International Settlements (BIS). While the sector is becoming one of the most influential yield-generating segments on public blockchains, the BIS is urging caution, warning that the rapid adoption of these products brings fresh liquidity and contagion risks.
These tokenized funds act as blockchain-based versions of traditional money-market portfolios, giving investors onchain exposure to short-term, interest-bearing instruments such as U.S. Treasurys. The BIS notes that, on the surface, they combine the flexibility of stablecoins with the regulatory protections of conventional securities. But this comes with trade-offs.
The organization highlights several vulnerabilities: reliance on permissioned wallets, the involvement of offchain infrastructure, and the concentration of tokens among a small number of major holders. These factors could amplify instability during periods of heavy selling or thin onchain liquidity.
Another major concern lies in the disconnect between the blockchain and traditional markets. Tokenized shares can move instantly onchain, but the underlying assets—Treasurys and other money-market securities—still settle through legacy systems at slower speeds. In a high-stress scenario, this mismatch could make it harder for funds to meet rapid redemption requests, potentially feeding further volatility.
The BIS also points to growing ties between tokenized money market funds and stablecoins. In some cases, these funds can be quickly swapped for stablecoins or used in leveraged trading strategies. Such interconnections, the report warns, could accelerate the spread of market stress in ways traditional money market funds have not historically faced.
The bulletin was released just one day after the BIS announced that Tommaso Mancini-Griffoli—known for his work at the International Monetary Fund and his advocacy for central bank digital currencies—will lead its Innovation Hub.
Asset managers double down on tokenization
Major financial institutions have been aggressively expanding their footprint in tokenized funds across multiple blockchain networks.
On Nov. 12th, Franklin Templeton revealed that its Benji tokenization platform had been integrated with the Canton Network, allowing its onchain U.S. government money market fund to operate within an institutional-grade blockchain environment.
BlackRock has also broadened the reach of its own tokenized fund, the USD Institutional Digital Liquidity Fund (BUIDL). Originally launched on Ethereum, BUIDL has now expanded to Aptos, Arbitrum, Avalanche, Optimism, and Polygon—significantly widening investor access.
According to RWA.xyz data, BUIDL remains the dominant player in the space with over $2.5 billion in tokenized assets. Franklin Templeton’s BENJI fund follows with more than $844 million in tokenized U.S. government securities.
