Tokenized money market funds (MMFs) are attracting growing interest from institutional investors. By digitizing fund ownership on blockchain networks, these assets promise faster settlements, lower costs, and broader access. Yet, regulatory uncertainty—particularly in the United States—continues to slow adoption, leaving a significant portion of the market untapped.

A Digital Overhaul of Money Market Funds

The appeal of money market funds has always been their combination of stability and liquidity. Traditionally, these funds hold short-term government securities, corporate debt, and other highly rated fixed-income instruments. But the existing model has its flaws: settlement times stretch across multiple days, operational costs remain high, and access is often limited to large institutions. Tokenization reworks this framework by allowing investors to trade fund shares instantly, outside of traditional market hours, and in smaller denominations. The result is a financial product that functions more efficiently, with fewer intermediaries and greater accessibility.

Institutional Players are Testing the Waters

Some of the world’s largest asset managers are already moving tokenized MMFs from concept to reality. Franklin Templeton has expanded its Franklin OnChain U.S. Government Money Fund (FOBXX) to multiple blockchain networks, including Stellar, Polygon, Ethereum, and Solana, pushing its assets beyond $580 million.

Meanwhile, abrdn, through a partnership with Archax, has brought a tokenized MMF to Hedera, citing the blockchain’s ability to process high transaction volumes quickly. BlackRock and Fidelity International have also entered the market via XDC Network and Archax, signaling a wider institutional shift toward tokenized investment products.

U.S. Investors Face Regulatory Roadblocks

A recent Digital Opportunities (DigOpp) report found that 41% of tokenized MMFs remain inaccessible to U.S. investors. The hesitation stems from unresolved regulatory classification—whether these funds should be treated as securities, commodities, or an entirely new category of financial instrument. While European regulators are setting clearer rules through frameworks like the Markets in Crypto-Assets Regulation (MiCA), U.S. authorities have yet to follow suit. This uncertainty has left many fund issuers with little choice but to exclude American investors from their offerings, limiting participation in a market that is otherwise gaining traction globally.

How Returns Are Structured

Not all tokenized MMFs work the same way. The way returns are distributed varies, with two main structures emerging:

• Price Accrual: Rather than distributing yield separately, the token’s value increases over time (e.g., a $1 token yielding 3% grows to $1.03). This simplifies tax reporting and makes integration with decentralized finance (DeFi) platforms more seamless.
• Rebasing and Distributions: To maintain a fixed value, additional tokens are issued to reflect returns. A 3% yield, for instance, would result in an investor holding 1.03 tokens instead of 1. This structure prioritizes stability, making it more attractive for those seeking a predictable unit of account.

Institutional investors tend to favor permissioned tokens, which require compliance checks such as KYC/AML verification. DeFi-focused products, on the other hand, often lean toward non-permissioned models that prioritize accessibility and liquidity.

The Road Ahead

While adoption is increasing, regulatory clarity will determine how quickly tokenized MMFs become mainstream. Europe is already laying the groundwork for institutional participation, and as more asset managers experiment with tokenized structures, demand is expected to rise. Beyond traditional investors, blockchain-based MMFs could also integrate into DeFi lending and staking platforms, creating new ways to use these assets beyond passive investment.