BlackRock sees tokenized money-market funds keeping institutions invested for longer

BlackRock sees tokenized money-market funds as a way for institutions to keep their money invested for longer by transferring fund holdings without first redeeming them for cash. By putting fund shares on blockchain networks, the asset manager believes institutions could move assets more easily, including when using them as collateral for financial transactions.

The model is already being used in digital asset markets, where BlackRock’s tokenized funds serve as collateral, according to Dan Maley, who leads its cash business in Asia Pacific.

Extending the practice to traditional finance is more complicated. Banks and other institutions must accept the tokens as collateral, the existing market infrastructure must accommodate them, and regulations must provide sufficient certainty. Round-the-clock token transfers also do not guarantee that investors can redeem their holdings for cash at any hour.

Money-market funds are already widely used as collateral for trading positions, including initial and variation margin. Tokenization could make those holdings easier to transfer without requiring institutions to redeem them first, allowing them to avoid unnecessary cash conversions and remain invested.

Yet the transition faces major obstacles. The International Monetary Fund has cited fragmented platforms, legal uncertainty and difficulties connecting tokenized finance with established financial infrastructure.

The International Swaps and Derivatives Association has raised additional concerns about custody and segregation frameworks, capital and margin treatment, cross-border recognition and legal certainty.

Until the operational and legal barriers are addressed, tokenized assets may continue to move efficiently on blockchains without gaining widespread acceptance in traditional collateral and settlement systems.

BlackRock’s approach does not change the underlying assets held by a money-market fund. Instead, it changes how ownership can be transferred. Tokenized shares can move between approved investors without a cash redemption, potentially allowing institutions to retain their investments while meeting collateral or transfer needs.

Early demand has largely come from crypto investors holding stablecoins on-chain and looking for yield, said Nikhil Sharma, a director on BlackRock’s digital-assets team. That group also helped drive demand for collateral applications.

BlackRock’s BUIDL fund, launched in 2024, has grown to about $2.3 billion, placing it among the largest tokenized funds of its kind. The company has also launched tokenized cash products in the US and Europe and received approval in September for a Hong Kong-dollar digital liquidity fund that accepts traditional and digital cash.

Broader adoption will depend on whether traditional institutions can integrate tokenized funds into existing systems. Investors want to use established custodians and asset servicers rather than building separate operating models for digital assets, Sharma said.

He expects adoption of newer products to start increasing, although institutions will need time to establish how the funds fit into their current workflows.