According to a new report by Moody’s, tokenized short-term funds have grown to $5.7 billion in assets since 2021 as a new type of digital financial product connecting traditional finance and decentralized finance.
The credit rating agency found that traditional asset management companies, insurance companies, and brokerage firms are increasingly interested in providing clients with the ability to convert between fiat currency and digital markets. In a report shared with Cointelegraph on June 3, Moody’s noted, “Tokenized short-term liquidity funds are a niche but rapidly growing product.”
These funds are typically backed by U.S. Treasury bonds or other low-risk assets and operate similarly to traditional money market funds, but utilize blockchain technology to issue and manage fractional shares, enabling real-time settlement. Data from the Federal Reserve shows that as of December 2024, the total assets of U.S. money market funds are approximately $7 trillion.
Moody’s stated that emerging use cases for tokenized funds may include providing institutional investors with yield optimization compared to stablecoins, offering liquidity management for insurance companies, and serving as collateral in trading and lending operations. The report stated:
“We expect the assets under management (AUM) in this space to continue to grow, as most major wealth brokerage firms, private banks, and asset management platforms offering digital assets may use cash sweep products similar to tokenized short-term liquidity funds to regularly transfer uninvested cash into yield products.”
A few participants are leading the growth in this industry. BlackRock’s USD Institutional Digital Liquidity Fund leads with $2.5 billion in managed assets, followed by Franklin Templeton’s OnChain US Government Money Fund, which manages $700 million. Other key players include Superstate, Ondo Finance, and Circle, with fund management assets ranging from $480 million to $660 million.
Companies also view tokenization as a tool to reach a broader market. The German protocol Midas recently announced the launch of a tokenized certificate backed by U.S. Treasury bonds for European investors, offering exposure to yield-generating government bonds with no minimum investment requirement.
In May, brokerage firm Robinhood also took similar steps to provide European investors with exposure to the U.S. market. Additionally, the company recently submitted a proposal to the U.S. Securities and Exchange Commission (SEC) regarding a regulatory framework for U.S. tokenization. Robinhood CEO Vlad Tenev stated, “Tokenization represents a new paradigm for institutional asset allocation.”
The report noted that in addition to the common credit and liquidity risks associated with money market instruments, tokenized funds also face vulnerabilities related to blockchain technology, including smart contract flaws, network threats, network availability, and regulatory uncertainty.
The report mentioned: “Asset representation risks may arise from discrepancies between blockchain registries and other shareholder records regarding legal ownership of shares.”
Related: Dubai regulators approve Ripple’s RLUSD stablecoin
Original: “Moody’s Report: Tokenized Funds Scaling Fast, Hitting $5.7B”
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