Tokenized Money Market Funds Hit $9B as BIS Flags Emerging Risks

Tokenized Funds Hit a Turning Point

The Bank for International Settlements has issued a sharp warning as tokenized money market funds (MMFs) surge to record levels, highlighting emerging risks beneath one of the fastest-growing segments in global finance. Over the past year, these digital representations of traditional cash-equivalent assets have surged to roughly $9 billion in value on public blockchains.

That sharp rise has captured the attention of major regulators, including the Bank for International Settlements (BIS), which now warns that this rapid expansion could introduce new forms of liquidity stress and contagion risk.

As this story unfolds across the latest market news channels worldwide, it is becoming clear that tokenized MMFs may represent both an innovation milestone and a regulatory flashpoint.

Tokenized US Treasurys. Source: RWA.xyz

A Rapid Rise Fueled by Blockchain Adoption

Tokenized money market funds are essentially blockchain-based versions of traditional MMFs, typically backed by short-term U.S. Treasury bills or cash-equivalent instruments. Their appeal is straightforward.

They allow near-instant transfers, global accessibility, and the ability to integrate with digital asset platforms. These qualities have attracted both institutions and sophisticated retail users, making tokenized MMFs one of the fastest-growing segments of real-world asset (RWA) tokenization.

In June 2025, Banque de France reported that tokenized U.S. money market funds invested in Treasuries had surpassed $7 billion, up from around $100 million at the end of 2022, highlighting how quickly asset managers and fintech platforms are adopting tokenization. This growth has largely been driven by investors seeking higher yields than stablecoins typically offer, combined with the flexibility of blockchain-based settlement.

The rising demand also parallels the increasing integration of digital finance tools, from institutional custody solutions to the everyday digital wallet that allows users to hold tokenized versions of traditionally off-chain assets.

Why Regulators Are Paying Close Attention

The BIS warning centers on a structural concern: tokenized MMFs behave differently from their traditional counterparts when market stress emerges. Because they live on programmable blockchains, redemption flows can accelerate far faster than in legacy markets.

During a sudden panic, token holders may rush to redeem or transfer assets within minutes, creating a liquidity spike that fund managers are not structurally equipped to withstand at scale. In traditional markets, redemptions occur through intermediaries and often face processing delays. But in the tokenized environment, redemptions can happen on-chain and near-instantly.

The BIS argues that this speed could amplify contagion risks during a market downturn. If tokenized money funds become deeply intertwined with stablecoins, DeFi lending markets, and cross-chain liquidity protocols, a sharp redemption event could ripple across the ecosystem.

Tokenization Bridges Traditional and On-Chain Liquidity

Despite the warnings, tokenized MMFs are seen by many as a natural evolution of modern finance. They offer a bridge between regulated traditional capital markets and blockchain-based financial rails. For institutional users who already buy crypto for diversification or operational needs, tokenized treasuries and cash products offer an attractive way to keep liquidity within the digital ecosystem without holding volatile assets.

Platforms specializing in RWA tokenization have emphasized that the shift toward tokenized MMFs is part of a broader transformation in capital markets. The ability to tokenize short-term debt instruments and settle them globally around the clock unlocks efficiencies that traditional financial systems cannot match.

However, it also reshapes the risk profile of these funds, particularly when integrated with decentralized lending, automated market makers, and interoperable multi-chain systems.

BIS Warns of Growing Risk

The BIS report points to one specific challenge: interconnectedness. A tokenized MMF held on-chain can be deposited directly into a DeFi protocol, pledged as collateral, wrapped into another asset, or used to provide liquidity. Traditional MMFs do not face this level of composability.

The risk is straightforward. If an on-chain liquidity pool or lending market suffers a sharp price shock, investors may rapidly redeem their tokenized MMF positions to cover losses or rebalance portfolios. This behavior could force fund managers to liquidate assets faster than expected, triggering broader market instability.

Regulators are now questioning whether the existing liquidity-management frameworks for MMFs are adequate for an on-chain environment where movements can occur 24/7 and at a global scale.

Why Investors Are Still Interested Despite the Warnings

Even with the BIS cautioning about systemic vulnerabilities, investor interest continues to grow. This is partly due to the yield environment. Tokenized MMFs have become attractive to traders who typically buy crypto online but want access to yield-bearing assets without leaving blockchain ecosystems. With U.S. Treasury yields remaining high, tokenized funds offer a compelling alternative to stablecoins, which often lack intrinsic yield unless staked or lent.

Some analysts argue that tokenized MMFs could eventually become a core liquidity layer for institutional digital finance, especially as settlement speeds become critical for cross-border transactions. Others believe that the sector’s growth will push regulators to refine guidelines rather than halt innovation. The BIS has not called for restrictions at this stage, but instead urged research, oversight, and better alignment between blockchain liquidity mechanics and traditional fund regulations.

A New Chapter in the Tokenization Story

The surge to $9 billion marks only the beginning of what many expect to become a multi-hundred-billion-dollar sector. But alongside the opportunities, the risks must be carefully mapped. Tokenized money market funds introduce a new dimension of speed, transparency, and composability that traditional markets have never faced.

The next phase will depend on how regulators, issuers, and technologists respond to these dynamics. Strengthening redemption controls, improving liquidity buffers, and designing safeguards around interconnectedness could all play a role in ensuring that tokenized MMFs evolve responsibly.

For now, the BIS warning serves as a timely reminder that innovation brings both progress and pressure. Tokenization is reshaping how global finance operates, but its full impact will depend on how effectively the industry manages the risks emerging beneath the surface.