Money Market Funds Face Growing Strain from Stablecoins and Tokenization, Says Bank of America

Bank of America: Stablecoins and Tokenization Pose Bigger Threat to Money Market Funds than Treasury Bills

Bank of America’s rates strategy team says that while stablecoin demand for U.S. Treasury bills may rise by $25 billion to $75 billion over the next year, it is unlikely to significantly disrupt the Treasury bill market.

Instead, the report highlights stablecoins and tokenization of government debt assets as more substantial challenges to money market mutual funds (MMFs). Stablecoins—cryptocurrencies pegged to assets like the U.S. dollar or gold—serve important roles in payments and international transfers, but their higher-yield potential creates competitive pressure on MMFs.

In response, some MMF investors are showing increased interest in tokenization as a way to defend against stablecoin competition. Notably, in July, BNY Mellon and Goldman Sachs introduced blockchain-based technology to maintain ownership records for select MMF shares, marking the first tokenized MMF share rollover.

Since stablecoins are currently restricted from paying yields, MMFs have a limited opportunity to leverage tokenization to offer competitive rates before regulatory changes or new solutions diminish this advantage.