Tokenized short-term funds, a new class of digital financial products bridging traditional and decentralized finance, have grown to reach $5.7 billion in assets since 2021, according to a new Moody’s report.
The credit rating service sees growing interest from traditional asset managers, insurers, and brokerages looking to offer clients access between fiat and digital markets. “Tokenized short-term liquidity funds are a small but rapidly growing product,” notes a June 3 report shared with Cointelegraph.
These funds, typically backed by US Treasurys or other low-risk assets, operate similarly to traditional money market funds but use blockchain to issue and manage fractional shares, enabling real-time settlement. Data from the Federal Reserve shows that US money market funds held approximately $7 trillion in total assets as of December 2024.
According to Moody’s, emerging use cases for tokenized funds may include yield optimization for institutional investors versus stablecoins, liquidity management for insurance companies, and use as collateral in trading and lending operations.
“We expect the AUM of this space to grow because most major wealth brokerages, private bank and asset management platforms that offer digital assets will likely use a cash-sweep type product like a tokenized short-term liquidity fund to regularly move uninvested cash into a yield earning product.”
A handful of players is leading the sector’s growth. BlackRock’s USD Institutional Digital Liquidity Fund leads the pack with $2.5 billion in assets under management, followed by Franklin Templeton’s OnChain US Government Money Fund with $700 million. Other key players include Superstate, Ondo Finance and Circle, whose funds each manage between $480 million and $660 million.
Companies are also looking at tokenization as a tool to reach broader markets. German protocol Midas recently announced a tokenized certificate backed by US Treasury bills for European investors, offering exposure to yield-bearing government bonds with no investment minimum required.
In May, brokerage firm Robinhood made a similar move to offer investors in Europe exposure to US markets. In addition, the company recently submitted a proposal to the US Securities and Exchange Commission (SEC) for a tokenization regulatory framework in the country. According to Robinhood CEO Vlad Tenev, “tokenization represents a new paradigm for institutional asset allocation.”
Beyond the credit and liquidity risks typical of money market instruments, tokenized funds also face vulnerabilities tied to blockchain technology, the report notes. These include smart contract flaws, cyber threats, network availability and regulatory uncertainty.
“[…] asset representation risks may arise from discrepancies between the blockchain registry and other shareholder records concerning the legal ownership of shares,” the report says.
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