Tokenized MMFs: Risks or benefits?
In recent months, there has been growing discussion around the potential risks posed by tokenised money market funds (MMFs) to financial stability. The narrative goes that these funds, by bridging traditional finance and the cryptoasset ecosystem, could create new channels of contagion and amplify volatility through automated redemption mechanisms and 24/7 trading on distributed ledger platforms. While caution is always appropriate when evaluating financial innovations, a careful analysis of the structure, regulation, and scale of tokenised MMFs suggests that these fears are largely overstated. Far from representing a systemic threat, tokenisation may, in fact, enhance the efficiency and resilience of money market operations.
To understand why, it is helpful first to recall what traditional MMFs are and why they are widely used. Money market funds pool capital from investors and invest it in very short-term, highly liquid, and low-risk instruments, typically including Treasury bills, commercial paper, and certificates of deposit. Their appeal lies in providing capital preservation, ready liquidity, and modest returns, usually slightly above those offered by bank deposits. MMFs strive to maintain a stable net asset value, generally pegged at one dollar per share, giving investors confidence that they will receive back the same nominal value when redeeming their units. Because of this stability and liquidity, MMFs are a central component of short-term funding markets, relied upon by both retail and institutional investors.
The memory of the 2008 financial crisis often looms over discussions of MMF risk. In that year, some funds “broke the buck”, meaning that their net asset value fell below the promised $1 per share. his happened because the funds held commercial paper issued by financial institutions with significant exposure to mortgage-backed securities and other asset-backed and/or structured products, which collapsed in value when the housing and credit markets imploded, as in the case of Lehman Brothers. Panicked investors redeemed en masse, creating a liquidity crunch. The Reserve Primary Fund famously broke the buck in September 2008, setting off a chain reaction that threatened the broader short-term funding market. At that moment, the government had to intervene, guaranteeing MMF assets to prevent a systemic collapse.
It is this historical episode that often underpins warnings about tokenised MMFs. Critics argue that the tokenisation of fund units, combined with continuous trading capabilities on distributed ledger technology (DLT), could reproduce a similar scenario, potentially even amplifying the speed and reach of a run. In particular, concerns center on redemption pressure outside traditional trading hours, the risk of liquidity mismatches, and the potential for automated smart contracts to magnify volatility.
Yet a closer look reveals important distinctions between 2008 and today’s tokenised MMFs. First, the asset base of most tokenised MMFs is far safer than that of the funds that failed in 2008. Whereas the crisis funds were laden with opaque mortgage-backed securities or commercial papers issued by troubling financial institutions, the vast majority of tokenised MMFs currently hold US Treasuries or comparably liquid short-term instruments. These are among the most liquid and creditworthy assets in global markets. Even under stress, Treasury markets have historically absorbed large trades without severe disruption, and commercial paper markets have similarly demonstrated resilience. The tokenisation of fund units does not degrade the quality of these underlying assets.
Second, regulatory frameworks have evolved significantly. Tokenised MMFs are subject to the same prudential rules and oversight as traditional funds. In Europe, for instance, the Money Market Fund Regulation imposes strict liquidity requirements, governance standards, and transparency rules. In the United States, SEC rules enforce similar safeguards, including stress testing and redemption limits. Tokenisation does not exempt these funds from regulatory obligations; it simply changes the medium of record-keeping and settlement. This “same risks, same rules” approach ensures that tokenised MMFs cannot operate outside established safety frameworks.
Third, the scale of tokenised MMFs is trivial relative to the broader money market. In the US, tokenised funds held around seven billion dollars by mid-2025, a fraction of the more than seven trillion dollars in traditional money market assets. In Europe, the penetration is even lower. At such small levels, any redemption pressure or liquidity mismatch would be unlikely to ripple through the broader financial system. Historical experience shows that systemic risk in money markets becomes material only when a significant proportion of the market is exposed—a condition not met by tokenised MMFs today.
Source: Banque de France
Tokenisation also offers potential benefits that could actually enhance stability rather than undermine it. Automated settlement and smart contracts reduce operational friction, speed up transaction processing, and minimize errors. Distributed ledger technology can provide near real-time reporting, giving both fund managers and regulators unprecedented visibility into liquidity positions but also redemption flows (not to mention assets holding). This transparency could prevent the kind of panic-driven misperceptions that exacerbated MMF runs during the 2008 crisis. In other words, tokenisation could make money market operations more resilient by improving oversight and operational efficiency.
It is true that tokenised MMFs face technological and operational risks, including cyberattacks or vulnerabilities in smart contracts. However, these funds are usually operated by licensed, regulated financial institutions with robust governance, auditing, and contingency frameworks. Unlike unregulated or decentralized crypto protocols, tokenised MMFs are embedded in existing institutional infrastructures, with legal accountability and risk management mechanisms in place. This mitigates the risks often highlighted by crypto commentators.
Moreover, redemption mechanics in tokenised MMFs remain bounded by the liquidity of the underlying assets. Smart contracts may allow near-instant execution, but managers cannot magically sell illiquid assets or avoid market realities. Since tokenised MMFs generally hold Treasuries or highly liquid instruments, the risk of a liquidity crunch is minimal. Investors are still entitled to cash, and the redemption process mirrors that of traditional funds. Far from amplifying instability, the technology simply reduces operational delays and increases transparency.
In sum, the concerns about tokenised MMFs “breaking the buck” in a fashion reminiscent of 2008 are largely theoretical. The conditions that produced systemic risk during the financial crisis, such as a combination of high exposure to opaque, risky assets, massive market penetration, and panicked investor behavior, do not apply to tokenised MMFs today. Instead, these funds hold safe, liquid assets, operate under rigorous regulatory oversight, and occupy an extremely small portion of the market. The technology underpinning tokenisation provides operational efficiencies and transparency, which may further enhance stability.
Framing tokenised MMFs as a looming systemic threat conflates technological novelty with structural vulnerability. While continuous monitoring and prudent regulation are warranted as the market grows, the narrative of tokenised MMFs as inherently dangerous misrepresents the reality of their design and operation. On the contrary, tokenisation represents an evolution of efficiency in money markets, offering faster, more transparent, and potentially more resilient mechanisms for managing short-term funds. The real innovation here is the refinement of liquidity and oversight that could strengthen, rather than weaken, the financial system.
Alexandru Stefan Goghie is a PhD candidate in the Department of Political and Social Sciences at Freie Universität Berlin, PhD researcher at JFKI’s Graduate School of North American Studies and PhD researcher at Global Climate Forum. His research focuses on geopolitics, the global financial system, monetary policy, and the geopolitics of finance”. You can follow him on his Substack https://goghieas.substack.com/
