Why banks should offer tokenized money market funds

Our previous post argued that stablecoin adoption will grow demand for tokenized deposits, helping banks keep the operating balances of corporate clients that get paid in stablecoins. Adding tokenized money market funds helps banks win a larger share of each client's wallet.

With tokenized funds, treasurers earn yield on surplus balances even if they hold them for only a few hours. They can also pledge fund shares as collateral, and move or swap them outside banking hours, including back into stablecoins. For a bank, money market funds are a familiar product that earns fee income while staying off its balance sheet.

This post explains these benefits in more detail, the range of tokenized funds a bank can choose from and how to enable instant swaps between stablecoins, deposits and tokenized funds.

What corporate clients expect from a bank today

Banks already sell money market funds (MMFs) to corporate clients through sweep accounts and liquidity portals. Clients keep operating cash in deposits and move cash they won't need for a few weeks into funds, which are managed either by the bank itself or by third-party asset managers.

US corporates use government funds, which hold Treasury bills and repo. European corporates use funds domiciled in Ireland or Luxembourg, which hold primarily short-term bank deposits, commercial paper and certificates of deposit. Funds that follow money market fund rules usually count as cash equivalents, so they support the client's liquidity ratios and loan covenants.

For the bank, this is a profitable, capital-light business: moving excess cash into off-balance-sheet funds generates a recurring management or distribution fee, and because fund redemptions settle back into the client's deposit account, the bank still captures the payment and FX flows.

Stablecoins, tokenized deposits and MMFs offer different economics for a bank:

What tokenizing the fund adds

Tokenized fund shares are recorded on a blockchain and can be transferred between eligible wallets at any time. The first buyers were crypto-native firms. Stablecoin issuers use them to back their tokens, and exchanges accept them as collateral for trading.

As more businesses get paid in stablecoins, corporate treasuries are starting to hold them too. Because the shares move onchain, a bank can offer these clients three things a conventional money market fund cannot, while keeping the balances, fees and payment flows inside the bank.

• Intraday yield accrualA conventional MMF accrues yield to shareholders of record at the end of each day, so balances that come in and go out the same day earn nothing. Some tokenized funds pro-rate yield to the second on transfer, so intraday balances earn too. The bank can therefore keep more of the client's operational cash in the sweep longer, without changing the underlying portfolio or taking additional balance-sheet risk.
• Pledging shares as collateralMMF shares can already be posted in tri-party collateral arrangements, but the process is heavy and settles T+1. Tokenized shares can be pledged onchain with the bank remaining as custodian or collateral agent. The client keeps earning yield and stays in the fund, while the bank holds collateral it can enforce at any time.
• Instant liquidity in tokenized moneyA conventional MMF redemption settles on the same day at best, and only if it's placed before the fund's daily cutoff on a business day. The bank can instead swap the client's fund shares for stablecoins or tokenized deposits against pre-funded liquidity providers, so the client gets paid within minutes, even on weekends. The bank keeps the payment and FX flows without holding fund shares itself.

Not every tokenized money market fund is a money market fund

Products sold as tokenized money market funds fall into three categories, and a bank's risk and compliance teams will treat each one differently.

• Registered money market funds are authorized under money market fund rules, such as Rule 2a-7 in the US or the EU Money Market Funds Regulation, and record their shares onchain. They come with liquidity requirements, limits on what they can hold, a board and a regulator. Examples include WisdomTree's WTGXX, Franklin Templeton's BENJI and J.P. Morgan's JLTXX.

• Offshore liquidity funds invest like money market funds but are domiciled in the British Virgin Islands or the Cayman Islands, outside money market fund regulation. BlackRock's BUIDL, Circle's USYC and Franklin's iBENJI are the largest, and each is open only to a narrow group of investors.

• Tokenized notes are a debt claim on the issuer, backed by Treasuries. Ondo's USDY is the largest tokenized Treasury product, but its holders lend to Ondo rather than own shares in a fund.

The seven largest tokenized Treasury products hold over $10B in assets:

Source: rwa.xyz (assets as of October 30, 2026); SEC filings, issuer documents, BVI FSC and CIMA registers.

The registered funds are the smallest group today, but they are the ones bank risk teams, collateral desks and stablecoin reserve managers accept most readily. The offshore funds are larger, and each needs its own review.

Domicile also decides who a bank can sell each product to, since the token contract only lets approved wallets hold it. A bank serving multinationals will need different funds for its US and European entities.

How the bank runs conversions end to end

A money market fund takes subscriptions and pays redemptions in fiat through its custodian bank, so stablecoins can't go into a fund directly. A bank that offers all three products handles that conversion itself, and the client sees one swap.

• Stablecoins to tokenized depositsThe bank takes the client's stablecoins and credits the client its tokenized deposit. It then redeems the stablecoins with the issuer, or keeps them to pay out the next client who wants stablecoins, so the conversion runs on the bank's own balance sheet.
• Stablecoins to fund sharesA client can also go straight from stablecoins into a fund without holding a deposit in between. Some tokenized funds already offer conversions to and from stablecoins, but subscriptions still follow the fund's daily cutoff.
• Tokenized deposits to fund sharesThe bank swaps deposits for fund tokens atomically. If it is the fund's custodian, both legs settle on its own books. To offer swaps outside the fund's daily cutoff, the bank can bring in a market maker that holds fund tokens and quotes prices at any hour.
• Back to stablecoinsWhen the client needs to pay a supplier, the same swaps run in reverse, from fund shares or tokenized deposits back to stablecoins.

Without a bank in this role, the client has to offramp through an exchange and subscribe the usual way, or rely on a third-party liquidity provider. In both cases the conversion fees and the balance leave the bank.

What a bank needs to offer

To support the digital asset needs of its corporate customers, a bank needs to offer stablecoins, tokenized deposits, a menu of tokenized funds that fits its clients' jurisdictions, and instant swaps between all three.

Banks that already distribute money market funds can start by adding tokenized versions of those, using tokenized deposits as the cash leg. If you're a bank exploring tokenized deposits or tokenized fund distribution, get in touch with our team.