Charles Esther
Tokenized short-term funds have emerged as a new class of digital financial products that bridge traditional finance and decentralized finance.
Since 2021, these funds have grown to hold $5.7 billion in assets, according to a recent Moody’s report.
The credit rating agency highlights increasing interest from traditional asset managers, insurers, and brokerages seeking to offer clients seamless access between fiat and digital markets.
What Are Tokenized Short-Term Funds?
Tokenized short-term funds operate similarly to traditional money market funds but are issued and managed on blockchain technology.
These funds typically back their assets with US Treasurys or other low-risk securities.
By using blockchain, they enable fractional ownership shares and allow for real-time settlement of transactions.
For comparison, US money market funds held about $7 trillion in assets as of December 2024, according to Federal Reserve data.
Growing Use Cases and Market Potential
Moody’s expects the assets under management (AUM) for tokenized short-term funds to continue expanding rapidly.
Emerging use cases include yield optimization for institutional investors as a safer alternative to stablecoins, liquidity management solutions for insurance firms, and collateral options in trading and lending operations.
Major wealth brokerages, private banks, and asset managers offering digital assets are likely to adopt tokenized short-term liquidity funds as a cash-sweep tool to convert uninvested cash into yield-earning products regularly.
Leading Players in the Sector
Several companies currently dominate the tokenized short-term funds market.
BlackRock’s USD Institutional Digital Liquidity Fund leads with $2.5 billion in assets under management.
Franklin Templeton’s OnChain US Government Money Fund follows, managing $700 million.
Other notable participants include Superstate, Ondo Finance, and Circle, with assets ranging from $480 million to $660 million each.
Tokenization Expands Market Access
Companies are leveraging tokenization to broaden investor access across regions.
For example, the German protocol Midas recently launched a tokenized certificate backed by US Treasury bills aimed at European investors.
This product provides exposure to yield-bearing government bonds with no minimum investment required.
Similarly, brokerage firm Robinhood has moved to offer European investors access to US markets via tokenization.
Robinhood’s CEO, Vlad Tenev, described tokenization as “a new paradigm for institutional asset allocation.”
Risks and Challenges
While tokenized short-term funds offer innovation, they also face typical credit and liquidity risks associated with money market instruments.
In addition, blockchain-specific risks exist, including vulnerabilities in smart contracts, cyber threats, network downtime, and regulatory uncertainty.
Moody’s also warns of asset representation risks, where discrepancies might arise between the blockchain registry and traditional shareholder records regarding legal ownership.
Conclusion
Tokenized short-term funds represent a rapidly growing intersection of traditional finance and blockchain technology.
With $5.7 billion in assets and expanding use cases, they offer promising avenues for institutional investors and asset managers.
However, addressing technological and regulatory challenges will be essential for their sustained growth and broader adoption.
