Tokenized money market funds are emerging as the yield-bearing complement to idle stablecoins.

Stablecoins helped bridge traditional fiat capital to the onchain economy, with over $300 billion in circulation. They have become widely adopted across exchanges, payment systems, and DeFi protocols as an essential tool for liquidity and settlement. However, stablecoins are not naturally yield-bearing instruments. Balances held for operational purposes typically do not generate return unless actively deployed into separate strategies.

By comparison, in traditional financial (TradFi) systems, operational balances are often invested in money market instruments or other short-duration assets, allowing institutions to earn a return on idle capital. As financial activity increasingly migrates onchain, the absence of an equivalent yield-bearing instrument becomes economically relevant.

This problem is particularly salient in the following cases. Crypto exchanges hold large stablecoin balances as customer deposits, margin collateral, and settlement buffers. Payment platforms maintain stablecoin reserves that function similarly to traditional settlement float. In both cases, these balances are generally non-yielding in their default state. At prevailing short-term rates of approximately 3.5%-4%, the opportunity cost associated with holding large idle balances can be material.

Regulations further constrain stablecoin holders’ ability to earn yield directly on balances. The GENIUS Act, enacted in 2025, prohibits payment stablecoin issuers from passing through yield directly to holders. The CLARITY Act’s most recently published markup draft would further limit platforms’ ability to pass on yield to passive holders in a bid to assuage the banking industry’s concerns about deposit flight. While certain workarounds such as platform-level rewards for active use could serve as a pathway to work within restrictions, these mechanisms may become more limited over time.

Tokenized money market funds (tMMFs) have emerged as one of the primary market responses to the challenge of generating yield for onchain capital. These instruments combine traditional fund exposure to short-duration government securities with an onchain representation of ownership.

The Tokenized Money Market Fund Market

Launched in 2021, Franklin Templeton’s Onchain U.S. Government Money Fund (BENJI) helped pioneer the tokenization of traditional money market funds on public blockchains. Since then, assets under management (AUM) in tokenized U.S. Treasuries products increased from approximately $700 million at the end of 2023 to roughly $9 billion by the end of 2025. In the past six months, the AUM further accelerated to $15 billion driven by substantial institutional adoption.

This growth in AUM is led by major players’ products including BlackRock’s BUIDL, the largest product by assets; Franklin Templeton’s BENJI; Ondo’s USDY; Centrifuge’s JTRSY; and WisdomTree’s WTGXX. More recently, large financial institutions have introduced products targeting stablecoin issuers, aiming to position their tMMFs as eligible reserve assets under the GENIUS Act: JP Morgan filed for a JPMorgan OnChain Liquidity-Token Money Market Fund (JLTXX) following its private tMMF My OnChain Net Yield Fund (MONY) launched in December 2025; BlackRock filed for one more tMMF while debuting a digital class of shares of an existing traditional money market fund. State Street Investment Management partnered with Galaxy to launch the State Street Galaxy Onchain Liquidity Sweep Fund (SWEEP) this month, designed for broader onchain liquidity use cases across DeFi and TradFi, including but not limited to stablecoin reserve applications.

Shares of tokenized funds are increasingly being put to work as reserve assets backing stablecoins and as collateral on centralized and decentralized trading venues. For example, one of Ethena’s stablecoins, USDtb, with more than $1 billion supply, is backed more than 90% by BlackRock’s BUIDL. In December, the Commodity Futures Trading Commission issued guidance recognizing tokenized real-world assets (including tokenized money market funds) as eligible collateral for derivatives trading. This development reduced a key barrier to institutional adoption and further drove the growth of tMMFs.

While still small relative to traditional money market funds ($8 trillion), tMMFs’ growth and integration with the broader financial ecosystem, whether onchain or offchain, suggest that they are evolving toward a more infrastructure-like role.

tMMFs’ Current Constraints

Despite this progress, a few characteristics of existing tokenized money market fund limit their substitutability for stablecoins in operational contexts.

• Lack of DeFi Composability: Many tokenized funds operate with permissioned access models and transfer restrictions that limit their interaction with smart contracts. As a result, their use in decentralized applications such as lending protocols or automated trading strategies is constrained. This reduces their functional equivalence to stablecoins, which are natively composable across onchain systems.

• Redemption Mechanics: Although underlying blockchain infrastructure supports near-instant settlement, fund subscription and redemption processes often remain tied to traditional operational windows. Some products offer mechanisms for off-hours liquidity, but these are typically supported by external facilities or balance sheet arrangements. Such structures introduce capacity limits and counterparty dependencies that differ from the more continuous liquidity profile associated with stablecoins.

• Intraday Yield Accrual: Most tokenized money market funds typically calculate net asset value once per day, at the close of the business day. This disadvantages investors who hold shares for less than a full calendar day because capital deposited intraday begins earning yield only from the following NAV calculation, and capital redeemed before end of day may forfeit the day's accrual entirely. However, some providers have improved on this model. Franklin Templeton’s BENJI and WisdomTree’s WTGXX, for example, now offer the continuous yield accrual that DeFi users expect. Still, for stablecoin holders accustomed to second-by-second yield accrual in DeFi protocols, these options remain exceptions rather than the norm. The limitation also constrains the substitutability of tMMFs in high-frequency treasury operations where capital may move in and out of a position multiple times in a single trading day.

Refining the Design of tMMFs

The following features are emerging across tMMFs. Their integration will be key to making tMMFs more effective as onchain cash equivalents while providing attractive yield exposure.

• Direct Onchain Interaction: Allowing investors to subscribe to and redeem fund shares directly via smart contracts would reduce reliance on intermediaries and align the instrument more closely with onchain workflows.

• Embedded Liquidity Management: Incorporating stablecoin reserves within the fund structure itself, rather than relying on external counterparties, may enable more consistent redemption availability, particularly outside traditional market hours, although such reserves may be depleted under stress. To address this constraint, Grove Labs recently launched Basin, an external credit facility that provides up to $1 billion in daily stablecoin liquidity for tokenized fund redemptions, mostly for BlackRock’s BUIDL and Janus Henderson’s money market funds. Basin is designed to enable investors to exit positions instantly without waiting on traditional settlement cycles. More directly embedded is State Street and Galaxy's jointly launched SWEEP fund, which allocates 10%-15% of assets to PYUSD reserves, allowing investors to subscribe and redeem in stablecoins outside traditional market hours.

• Non-rebasing Token Structures: Representing yield through net asset value appreciation, rather than through increases in token balances, simplifies integration with smart contracts. Fixed-balance tokens are generally easier to incorporate into lending protocols, automated market makers, and other onchain systems that rely on predictable accounting behavior. Approximately 70% of the tokenized money market funds are non-rebasing.

Implications for Market Participants

The appeal of tMMFs is for any entities that hold idle cash, but it is most apparent for companies that maintain cash balances for operational purposes rather than active investment. The balances held across exchanges, payment platforms, DeFi protocols, and TradFi investment vehicles including digital asset treasuries (DATs) often generate no yield. They are needed for liquidity, settlement, or collateral requirements and so can’t be put to work.

To avoid cash drag, i.e., the opportunity cost of missing yield, tMMFs can be particularly useful to a broad swath of institutions that hold stablecoins in the ordinary course of business. For example:

• Crypto exchanges: crypto exchanges hold substantial stablecoin reserves as customer deposits, margin collateral, and settlement buffers. While these balances are operationally necessary, they are not continuously deployed. To the extent that tokenized money market funds can offer comparable liquidity with incremental yield, they may function as a treasury management layer, effectively allowing exchanges to sweep a portion of idle reserves into yield-bearing instruments without materially altering their liquidity profile.

• Payment companies and prediction market platforms: Firms such as Stripe, Mastercard, and Kalshi maintain balances that serve the same economic role as traditional settlement float. tMMFs can provide a mechanism through which these entities can manage reserve assets more profitably, provided the instruments meet the liquidity and accessibility requirements of payment systems.

• Cross-border payment and remittance providers: Money transmitters such as Remitly and Western Union increasingly look at stablecoins to facilitate 24/7 value transfer across jurisdictions. Outside standard banking hours, liquidity must be maintained but is not actively used. tMMFs may offer a way to reduce the opportunity cost of holding such balances, assuming that redemption mechanisms are reliable during these periods.

• DeFi Protocols: Lending platforms such as Kamino and automated market makers such as Uniswap require collateral assets that can be held in smart contracts and integrated into automated systems. Stablecoins dominate this function due to their simplicity and composability. tMMFs may provide a yield-bearing alternative, but only where token structures, particularly non-rebasing formats, support predictable accounting and compatibility with protocol design.

• TradFi: For traditional financial institutions exploring onchain settlement, the availability of a liquid, yield-bearing reserve asset is a relevant consideration. In traditional systems, money market funds play a central role in managing operational cash. A functionally similar instrument onchain could mimic TradFi cash management and thus allow institutions to integrate more comfortably with an onchain environment.

• Crypto Hedge Funds and Venture Capital Firms: Crypto-native investment firms routinely hold significant stablecoin balances between capital deployments during due diligence periods, between fund closes, or while awaiting entry points. Unlike operational float, these balances may sit idle for a time. tMMFs may offer a natural parking vehicle that preserves liquidity while generating incremental yield on otherwise dormant capital.

Conclusion

As stablecoins continue to scale as the primary medium for onchain liquidity and settlement, a growing share of capital remains idle. These idle balances are increasingly looking to generate yield as part of standard treasury management.

tMMFs allow institutions to earn yield on otherwise static balances without compromising liquidity. They are emerging as a core component of onchain financial infrastructure, supporting treasury management, collateral optimization, and reserve construction across DeFi and TradFi.