Stablecoins Challenge Money Market Funds With Tokenization Trends

Stablecoin demand for U.S. Treasury bills is expected to grow steadily, reaching between $25 billion and $75 billion over the next 12 months, according to a report from Bank of America. However, the bank concluded that this growth is unlikely to significantly alter T-bill market dynamics. Instead, the greater challenge stems from the competitive pressure stablecoins may exert on money market funds (MMFs) by potentially offering higher returns to investors [1].

The report highlights that the emergence of stablecoins and the tokenization of government debt-related assets are reshaping the U.S. Treasury market. While stablecoins—cryptocurrencies pegged to assets like the U.S. dollar—are often used in crypto markets for payments and international transfers, their growing demand for Treasuries could introduce new complexities [1].

Money market funds are under increasing pressure to adapt. The report notes that some MMF clients are exploring tokenization as a defensive strategy. Tokenized MMF shares, which offer digital representations of fund ownership, could help MMFs compete with stablecoins by improving liquidity and potentially offering yield advantages. In July, BNY Mellon and Goldman Sachs launched blockchain-based technology to tokenize and manage ownership of MMF shares, marking a significant step in this direction [1].

Despite these efforts, the window for MMFs to respond effectively is limited. The report emphasizes that stablecoins currently face regulatory constraints that prevent them from offering yield, but this situation could change with future regulatory adjustments or workarounds. MMFs must act quickly to leverage tokenization and maintain their relevance in an evolving financial landscape [1].

The development reflects broader trends in financial innovation, where blockchain technology is increasingly used to digitize traditional financial instruments. As stablecoins and tokenization continue to gain traction, they are forcing institutional players to rethink strategies and structures to remain competitive [1].

Source: [1] Stablecoins, Tokenization Put Pressure on Money Market Funds: Bank of America (https://www.coindesk.com/markets/2025/08/21/stablecoins-tokenization-put-pressure-on-money-market-funds-bank-of-america)