From Paper to Protocol: The Evolution of Money Market Funds

Background:

At DigiFT, I wrote this article as part of a comprehensive content marketing strategy to promote uMINT, UBS's first tokenized Money Market Fund.

Format: 

Blog article | Published 21 January 2025 here

In the world of finance, where trends come and go, few instruments have been as steadfast as Money Market Funds (MMFs). Traditionally, MMFs have served as low-risk investment vehicles, offering liquidity and modest returns by investing in short-term, high-quality debt securities.

Often considered cash equivalents, MMFs are a staple for short-term treasury management, providing businesses and institutions with a reliable solution to park surplus cash. Their stability and liquidity also make them a preferred choice for margin collateral, bridging the needs of both traditional and modern financial markets.

According to PwC, global MMF assets under management (AUM) is now expected to nearly double in size in 2025, from US$84.9 trillion in 2016 to US$145.4 trillion by 2025.

That said, the financial world is undergoing a seismic shift. The introduction of blockchain has paved the way for the tokenization of traditional assets—and MMFs are no exception. Tokenization has emerged as a game-changer. By creating a digital representation of an asset on a blockchain network, tokenization promises enhanced transparency, increased accessibility, and improved efficiency.

The Power of Tokenization

Tokenization is poised to revolutionize asset management by redefining asset lifecycles, accelerating product innovation, and enabling hyper-personalized investment options. Among the myriad of financial products, MMFs stand out as the most standardized and widely accepted instruments—making them a natural starting point for tokenization.

By converting traditional MMFs into digital tokens, investors can partake in fractional ownership, lowering the barrier to entry and democratizing access to investment opportunities. Moreover, tokenized assets facilitate 24/7 trading on blockchain platforms, offering unparalleled liquidity compared to traditional markets.

The inherent transparency and security of blockchain technology foster greater trust among investors, while smart contracts automate processes, reducing operational costs and minimizing human error.

How Tokenization is Driving Change
By creating a digital representation of an asset on a blockchain network:

Pioneers in Tokenized MMFs

As tokenization reshapes the financial landscape, leading institutions and Web3 innovators are venturing into the realm of tokenized MMFs.

Traditional asset management giants, including BlackRock and Franklin Templeton, have initiated projects to tokenize their MMFs, aiming to enhance efficiency and broaden their investor base. However, their approaches vary:

• BlackRock USD Institutional Digital Liquidity Fund (BUIDL): Operates through a BVI Special Purpose Vehicle (SPV) and relies on the third-party Securitize for tokenization and transfer services, rather than managing the process internally.

• Franklin Templeton OnChain U.S. Government Money Fund (BENJI): Tokenization process depends on a centralized ledger, with blockchain technology used primarily for secondary record-keeping rather than as the primary system of record.

Web3 firms are also making significant strides. Circle, a global financial technology leader and stablecoin pioneer, announced on January 21, 2025, its acquisition of Hashnote—the issuer of USYC. According to RWA.xyz, USYC is the largest tokenized treasury and money market fund in the world, with $1.25B deployed as of 20 January.

A recent market entrant is the multinational investment bank, UBS, which introduced “UBS USD Money Market Fund Investment (uMINT)“—its first tokenized MMF that was built on the Ethereum blockchain. What distinguishes UBS is its in-house tokenization capabilities—via UBS Tokenize—supported by a comprehensive legal and compliance framework.

This approach allows UBS to maintain direct control over the tokenization process, ensuring robust risk management, seamless integration with existing financial systems, and regulatory compliance.

For Web3 investors, tokenized MMFs like uMINT offer a game-changing opportunity—a yield-generating, stable, and liquid asset with real-world value. These digital alternatives eliminate the need to “leave the chain” or deal with the complexities of accessing MMFs through traditional channels, marking a significant shift in how investors engage with financial instruments.

What’s Out There?

For Web3 investors, tokenized MMFs like uMINT offer a game-changing opportunity—a yield-generating, stable, and liquid asset with real-world value. These digital alternatives eliminate the need to “leave the chain” or deal with the complexities of accessing MMFs through traditional channels, marking a significant shift in how investors engage with financial instruments.

The Next Generation of MMFs

The shift from traditional Money Market Funds (MMFs) to their tokenized versions is more than just a technological upgrade—it’s a financial revolution.

As more institutions and platforms embrace this innovation, the asset management world is transforming to meet the demands of the digital age, offering investors more flexible and inclusive financial products.