Rewriting the Rails: Tokenized Money Market Funds
Bringing tokenization to money market funds (MMFs) could offer a true leap forward in one of the most critical tools institutional investment managers use to manage liquidity. For all their value, traditional MMFs rely on manual, batch-driven transaction processing and record-keeping.
Digitizing MMF shares as tokens on blockchain rails creates automated, distributed ledgers. This approach could break through many of the standard operational pain points of MMFs and liquidity more broadly with a promise of “same-day” movement. Tokenized MMFs could combine the opportunity of less friction with the stability of conventional, regulated investment products supported by U.S. Treasury bills, repos, and agency securities and administered by established fund managers.
For example, imagine a common scenario. Global asset managers often move collateral between prime brokers in different trading venues. Transfers between New York and London require cut-off times, NAV updates, and settlement windows. Standard operating procedures often lock up cash overnight and leave it idle.
In theory, a tokenized MMF could allow the same action to move and settle across jurisdictions in minutes. The consequence: streamlining everything from end-of-day NAV strikes and reconciliations to account updates between transfer agents and custodians and settlement delays that force managers into over-funding or holding buffer cash.
These benefits sound compelling, but a lot of work remains to transform theory into practice. Tokenized MMFs exist mostly in pilot programs. In addition, MMF transactions happen within a larger ecosystem of fund accounting, transfer agency, and custodial systems that may carry a lot of legacy. True benefits and wide adoption still depend on how fund sponsors, intermediaries, and settlement partners choose to connect.
Context: the role of money market funds
As of October 30, 2025, MMFs reached over $7.4 trillion in assets under management, with about 60% of that held by institutional investors.i With over 50 years of history behind them, they offer firms familiarity as well as scale, safety, and yield. Their nearly stable $1 NAV, with a float of a small fraction of a cent, makes them predictable.
That same scale also makes structural change slow. Because institutional investment managers use them for liquidity (i.e., cash equivalents), collateral, and securities finance, each transaction moves through settlement rails that were designed for end-of-day processing.
Transfer agents, custodians, fund accountants, and other service providers make their own technology decisions and choices about how to integrate with counterparties. This fragmentation means every touchpoint can also be a bottleneck.
The operational benefits of MMFs
Tokenization gives MMFs a digital operating layer. Each token represents a fund share held by a regulated custodian, recorded and transferred on a blockchain rather than through overnight transfer-agent updates. The legal structure, Rule 2a-7 compliance, and underlying assets remain the same.
Once a subscription is verified, ownership updates instantly. Cash and collateral circulate in real time while regulators, auditors, and investors can all see the same live ledger rather than reconciling separate databases.
The operational benefits of tokenized MMFs tend to cluster in three dimensions: time/efficiency, cost reduction, and transparency.
The next frontier could lie in finding ways to work with MMF as data. Because of their underlying instruments, MMFs generate rich, continuous information about asset flows, exposures, and portfolio positions. It just takes channeling the data out of legacy pipes.
Tokenization adds value by making those flows visible in real time. The result brings the precision of a modern data network to the liquidity ecosystem, a significant advantage over a batch process.
Industry momentum
Several major financial institutions have moved from pilots to live implementations. Some recent examples include:
- BNY Mellon and Goldman Sachs announced a mirrored record tokenization model in July 2025 to enable institutional viewing and processing of tokenized MMF shares.ii This approach preserves traditional fund structures while adding blockchain-based settlement optionality, serving as a pragmatic bridge between legacy systems and new infrastructure.
- Franklin Templeton partnered with DBS Bank and Ripple in September 2025 to pilot a token on the XRP Ledger, enabling investors to trade it and use it for lending and collateral.iii
- In October 2023, J.P. Morgan's Onyx processed a transaction where Barclays used tokenized BlackRock MMF shares as collateral, demonstrating real-time settlement and liquidity mobility in live market conditions.iv
How to make progress
While the benefits and momentum are clear, wider institutional adoption will require overcoming four challenges.
1. Integration with legacy systems. As incumbent technology, many treasury, fund accounting, and custody systems were built for predictable processing cycles. They rely on static cut-offs, daily NAV strikes, and SWIFT-based messaging. Some companies have innovated with APIs, but accessing the blockchain takes additional effort. Connecting blockchain settlement to their architecture means building custom interfaces to translate between on-chain smart-contract events and off-chain accounting systems, meaning working across two different time scales.
2. Governance and assurance. Blockchain adds transparency, but it also demands new controls. Operations teams must change their workflows to monitor settlement flows in real-time. Governance teams also need to adapt their permission models to define who can read, write, and approve transactions across shared ledgers while preserving segregation of duties. Finally, auditors and regulators will require verifiable, reproducible evidence that on-chain activity meets established standards such as SOX, SOC, and Rule 2a-7.
3. Legal and custodial clarity. Even though the fund structure remains under Rule 2a-7, key legal and custodial questions remain unresolved in order to ensure that a token equates to a share of the fund. Custodians also have to determine how to match token holdings to client statements while complying with segregation-of-assets rules. Finally, risk and legal teams need clear standards for how to handle events like default or bankruptcy.
4. Treasury inertia. For many treasurers, the current system works. Cash movements reconcile and audit neatly in the context of accounting systems, SOX sign-offs, and daily liquidity forecasts. Moving to real-time tokenized flows would require revalidating factors like counterparty limits and credit exposure, rewriting procedures, and retraining staff.
The path forward
Tokenized MMFs add new technology and capability to a tried and tested mechanism for liquidity. Blockchain has rapidly moved from the margins to pilots to institutional use. While barriers between systems, controls, and governance exist, they will likely erode quickly the faster standards and proof points accumulate.
Once more firms, counterparties, and providers embed tokenization into collateral, repo, and cash-management workflows and systems, this new generation will create tangible balance-sheet benefits, becoming a regular part of market efficiency in the coming decades.
Authored By
Eashwar Viswanathan
Eashwar leads product management for the institutional asset management segment at Arcesium.
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[i] Investment Company Institute, October 30, 2025. https://www.ici.org/research/stats/mmf
[ii] Reuters, July 25, 2025. https://www.reuters.com/markets/wealth/goldman-bny-team-up-launch-tokens-tied-money-market-funds-2025-07-23/
[iii] Asset Servicing Times, September 19, 2025. https://www.assetservicingtimes.com/assetservicesnews/industryarticle.php?article_id=17179
[iv] Bloomberg, October 11, 2023. https://www.bloomberg.com/news/articles/2023-10-11/jpmorgan-jpm-launches-blockchain-settlement-in-blackrock-barclays-trade
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