Blockchain Reshapes Cash with Programmable Mutual Fund 3.0

Tokenized money market funds are emerging as a potential replacement for the $7.5 trillion daily foreign exchange settlement system, according to industry experts. This transformation is driven by the convergence of blockchain technology and traditional finance, enabling faster, more efficient, and programmable transactions. Bank of America analysts argue that tokenized money market funds represent the next stage of investment innovation, likening them to "mutual fund 3.0" — a term used to describe the evolution from traditional mutual funds and ETFs to blockchain-based financial instruments. The bank highlights that, similar to the introduction of mutual funds in 1924 and the rise of ETFs in the 2000s, tokenization is poised to reshape the market through the use of smart contracts and decentralized platforms [1].

The appeal of tokenized money market funds lies in their ability to offer instant settlement, programmable features, and competitive yields. These funds can be structured to operate on either centralized or public, permissioned blockchains, offering flexibility in compliance and access. For institutional investors, the ability to make real-time deposits and withdrawals across borders, with minimal transaction costs, presents a compelling alternative to traditional cash sweep models. Bank of America analysts note that tokenized money market funds could disrupt the economics of cash management, particularly in the context of U.S. brokers who currently generate revenue from order flow and client cash. With the advent of commission-free trading, the value proposition of tokenized versions of equity or ETFs is weaker; however, tokenized money market funds, particularly those offering higher yields than stablecoins, are seen as a key driver of adoption [1].

The regulatory landscape is still evolving, with recent legislation such as the GENIUS Act imposing restrictions on stablecoins by prohibiting them from paying interest. This creates an opening for tokenized money market funds, which can offer yield-generating alternatives while adhering to legal requirements. The bank points to partnerships between tokenization platforms and major asset managers, including BlackRock and Apollo, as evidence of growing momentum. For instance, BlackRock has already launched its tokenized money market fund, BUIDL, and JPMorganChase has introduced an experimental tokenized deposit product. These initiatives, backed by institutions with massive global client bases, could facilitate the creation of a new digital clearinghouse model, where tokenized deposits settle instantly and programmatically [3].

The potential scale of this shift is underscored by recent data from the Investment Company Institute, which reported that total money market fund assets stood at $6.95 trillion as of May 7, 2025. Among these, government money market funds accounted for the largest share, with institutional assets reaching $3.85 trillion and retail assets at $1.81 trillion. This highlights the critical role that money market funds already play in the financial system and the potential for tokenization to enhance their functionality. Analysts argue that the integration of blockchain-based settlement systems could significantly reduce the reliance on traditional FX settlement infrastructure, which is costly and time-intensive. With smart contracts enabling automated, real-time settlements, tokenized money market funds could offer a seamless alternative that is both scalable and compliant [2].

Industry observers remain cautious, however, as the regulatory environment continues to develop. While the GENIUS Act provides a framework for stablecoins, it leaves many questions unresolved regarding tokenized funds. Additionally, distribution remains a challenge, with only a limited number of platforms offering access to tokenized assets. Online brokers like Robinhood, Public, and eToro are seen as potential partners due to their existing crypto infrastructure and large, digitally-savvy user bases. Meanwhile, Coinbase’s expansion beyond pure crypto could further accelerate the adoption of tokenized money market funds. As the technology matures and regulatory clarity improves, the industry is likely to see a broader shift toward tokenization, with major financial institutions playing a central role in shaping the future of global settlements [1].

Source:

[1] Tokenization Is 'Mutual Fund 3.0,' Bank of America Says (https://www.coindesk.com/business/2025/09/05/tokenization-is-mutual-fund-3-0-bank-of-america-says)

[2] Release: Money Market Fund Assets (https://www.ici.org/research/stats/mmf)

[3] Crypto, Stablecoins, and the Rise of Tokenization (https://conversableeconomist.com/2025/09/02/crypto-stablecoins-and-the-rise-of-tokenization/)