Tokenised money market funds: what are the use cases?

Tokenised money market funds (tMMFs) offer some significant benefits over their traditional cousins – but what are the most significant use cases for corporate treasurers? BlackRock’s Hannah Winter explains how treasurers can harness tMMFs for everything from liquidity management and collateral to cross-border payments.

Hannah Winter

Head of Digital Cash

Corporate treasurers have long used money market funds (MMFs) to manage their cash. MMFs offer liquidity and security as well as a competitive yield, making them an attractive alternative to bank deposits.

But in today’s digital world, there’s a new kid on the block. Tokenised money market funds (tMMFs) offer the benefits of traditional MMFs, while fund shares are represented as digital tokens on a blockchain. As a result, they offer additional functionality, such as the ability to transfer shares easily between investors.

So how do tMMFs work, which use cases do they support for corporate treasurers and which benefits do they offer compared to traditional MMFs?

tMMFs: the basics

Hannah Winter, Head of Digital Cash at BlackRock, explains that in terms of shape and form, a tMMF is largely the same as a traditional MMF, with a similar underlying operating structure.

“However, the shares of the MMF have been wrapped into a token and are displayed on a blockchain.” “In the current market”, she notes, “the underlying portfolio of securities is not tokenised”.

tMMF shares are issued by the transfer agency in token form and can be held on either a private or a public blockchain. As a result, a tMMF share has features that differ from an analogue share.

“The benefit to corporate treasurers is that having the share held in token format introduces new features and new utility.”

Portability and transferability

One important functionality of tMMFs is that shares become portable – in other words, readily transferable between investors.

With traditional money market funds, transferring a fund share is an inefficient process that involves going back to the transfer agency and instructing the redemption and subscription to a new investor. But in the tokenised world, this process is much simpler: two recognised investors could transfer shares between each other without having to go to the transfer agency.

Another key difference is that tokenised share classes come with fewer market settlement restrictions – meaning that transfers are no longer limited to the fund’s operating hours.

“So today, if you want to do anything with your share, you need to go to the transfer agency, which will have a fund dealing cut off time,” says Winter. “With the ability to transfer and port shares between investors, you can move your shares 24/7 to eligible investors, because you’re not touching the underlying fund or market.”

For example, says Winter, the Irish branch and Brazilian branch of a large organisation could move liquidity between each other at any time of the day, without being constrained by the fund operating hours.

A growing market

According to Winter, the market for tMMFs is “really starting to take off”. For corporate investors, adoption is largely being driven by the need for real-time liquidity management, digital payments, improved collateral efficiencies and operational efficiencies.

In the last 18 months, she says support for the stablecoin market has particularly been propelling growth in this space. “A lot of the growth is still coming from the decentralised finance (DeFi) crypto native investor, which is helping to prove out the utility of digital cash as complementary investment product,” she adds.

The current market for tMMFs includes more than US$30bn in tokenised real-world assets on-chain, with treasury funds accounting for around half of the total. “We’re seeing that expanding into more regulated money market products, and more issuers are coming to market to solve for this space,” Winter notes.

But in the tokenised realm, it’s important to note that not all funds are built equally. “Issuers are selecting between regulated or unregulated fund structures, and between variations of native and digital twin models,” says Winter. “It’s important to understand the underlying fund structure, and the nature of the token. But there’s a lot of issuance momentum coming from real demand that is starting to emerge from traditional investors.”

What do treasurers need to consider?

For treasurers interested in adopting tMMFs, a key requirement is to find the right balance between harnessing tokenisation’s transformational potential and integrating it into wider processes and workflows. Treasurers also need to think about the regulatory context of the jurisdictions in which they operate, and the risk profiles they are focusing on.

Tokenisation is the technology by which the share is issued onto the blockchain. It does not change the underlying structure or risk profile of the fund, so due diligence on the fund remains critical. Tokenisation does potentially introduce new service providers, so treasurers should also consider which service providers they are comfortable with.

As Winter points out, many existing MMFs are starting to issue tokenised shares, which can be helpful to corporate investors that are starting on this journey. “It’s something that they know and recognise and trust, and therefore it’s easy to differentiate the new tokenisation layer or component,” she says.

In contrast to traditional MMFs, “the tokens of a tMMF need to be held in a wallet, which is equivalent to a custody account – this may be a new requirement for corporate treasurers,” says Winter. “Corporate investors aren’t typically used to having to custody their MMF shares, but any digital asset activity will require a wallet to hold the tokens or assets.” She explains that investors can either opt to self-custody their assets (self-host their wallets) or can choose to appoint a wallet provider (equivalent to a custodian).

Other considerations include deciding which type of blockchain to use – either private or public – as well as choosing a specific blockchain, and determining how to manage the ‘gas fees’ associated with the chosen blockchain. As Winter explains, “A gas fee is the equivalent to the transaction fee you pay for moving an asset digitally on-chain. For institutional investors, these are not outsized and can be managed directly or via a wallet provider.”

As investors start to consider how to engage with tokenised workflows or tokenised assets, they should aim to identify any gaps in terms of their providers, policies or infrastructure. “This will also help investors ready themselves to capitalise on distributed ledger technology more broadly,” Winter notes.

tMMFs: understanding the use cases

According to Winter, the portability and 24/7 liquidity offered by tMMFs are opening up a number of new use cases for investors. For corporate treasurers, some of the most significant of these include intercompany liquidity management, payments and collateral.

Liquidity management

tMMFs can help companies mobilise liquidity on an efficient 24/7 basis, without being constrained by market settlement hours.

“By enabling the 24/7 transfer of fund units between entities, tMMFs can provide an alternative to physical cash sweeps, which are constrained by market settlement windows, and to notional pooling structures,” says Winter.

“We are also seeing emerging escrow use cases. Here, the real-time mobility of tMMF units – unrestricted by traditional settlement cycles – supports around-the-clock global business operations, while continuing to optimise yield on underlying balances.”

tMMFs in action: Ant International

One company that’s leading the way with the adoption of tokenised deposits and tMMFs is payment, digitisation and financial technology company Ant International.

In order to achieve real-time intra-group treasury management, the company has started using tokenised deposits. But to avoid yield drag, Ant also needs to adopt a complementary yield-bearing short-term investment solution.

As a result, the company is exploring the use of tMMFs to complement its internal on-chain liquidity management solutions. tMMF shares can also be ported between the company’s intra-group entities on a global basis – in real-time and outside of market hours – in order to mobilise liquidity efficiently within its ecosystem.

In this way, the company is driving internal treasury efficiencies and transparency, as well as making significant cost savings.

Kelvin Li, General Manager of Platform Tech and Senior Vice President at Ant International, said: “We are glad to work with BlackRock, the world’s largest asset manager. They share our belief that tokenisation is the future of instant, borderless money movement.”

“By combining their world-class asset management with our in-house on-chain liquidity expertise, we hope to achieve secure, compliant investment solutions accessible 24/7 for our business.”

Payments

Treasurers are increasingly harnessing digital payments solutions such as stablecoin or tokenised deposits. These can be used for cross-border intercompany payments, or to make or take payments to or from clients.

However, once cash has moved on-chain, treasurers need access to a yield-bearing solution in order to avoid a yield drag. “Stablecoins aren’t interest bearing today,” says Winter. “Tokenised deposits can bear yield, as do traditional bank deposits today and MMFs are a complementary high quality, short-term investment vehicle.” tMMFs enable treasurers to maintain liquidity while accessing on-chain yield.

As such, when treasurers use digital payment solutions, they will need to look at interoperability with a short-term, yield-bearing investment product, such as a money market fund, in order to avoid the issue of yield drag.

Collateral

According to Winter, “The collateral use case is significant for us and our investors that post collateral for derivatives margin, repo or any other purpose.”

Today, collateral buffers are typically held in money market funds – but collateral is typically posted as cash or treasuries. When there’s a margin call, MMFs are typically sold to raise cash and posted to the counterparty. The counterparty, in turn, then typically reinvests that cash in a money market fund.

“This is highly inefficient operationally, and creates portfolio churn and turnover in front-end markets,” says Winter. “A more efficient solution would be to directly post the MMF to a counterparty, and this portability is enabled through tokenisation. It’s more operationally efficient, transparent and atomic.”

Reserve management

On another note, Winter says a number of BlackRock’s corporate clients are starting to explore use cases related to stablecoins.

“For example, corporates are looking at reward programmes on-chain – and tMMFs can offer a solution for managing the reserves associated with that issuance,” she says.

Direction of travel

In the next one-to-three years, Winter predicts a significant increase in institutional adoption of tokenised assets and tMMFs. “We absolutely expect there to be an expansion of the collateral and treasury use cases,” she says. “And we think there will continue to be an evolution in the digital cash space, which will create further momentum for the adoption of tMMFs.”

In the medium and long term, she expects more markets infrastructure to move on-chain. “There’s certainly a trend in markets today to develop blockchain solutions,” Winter says. “But markets infrastructure is so significant and so intertwined that it will take time for global markets infrastructure to transform for the blockchain opportunity.”

Once this trend gains momentum, Winter expects to see the underlying assets and portfolios of money market funds starting to move on-chain as well – “and therefore transfer agency operations will start to move into more of a 24/7 world.”

Programmable smart contracts

Another trend Winter highlights is the convergence of blockchain, smart contracts and AI.

“Today, firms are primarily moving individual assets on-chain,” she says. “The next step is programmable markets, where assets, cash and collateral can move simultaneously through automated, rules-based workflows.”

Winter believes blockchain will be the foundation that enables agentic AI in finance.

“AI needs trusted, real-time and machine-executable infrastructure. Blockchain provides that foundation, while smart contracts allow financial logic to be embedded directly into transactions.” She adds that programmability could transform everything from collateral and liquidity management to settlement and treasury operations.

Here to stay

While tMMFs have much in common with traditional MMFs, it’s clear that their distinct characteristics will open up some interesting use cases as treasurers step further into the digital world.

By issuing shares in token formats, tMMFs can offer new opportunities to transfer shares easily, add yield-bearing solutions to digital payments, and manage intercompany liquidity.

“We would say to investors that this is a trend that’s here to stay,” Winter concludes. “The market is moving at pace, but not everyone will move at the same speed. I would encourage people to think about starting sooner rather than later, and to start small – you don’t necessarily need to wait for a transformative project to realise some of the benefits.”

Cash & Liquidity Management