Why Money Market Funds?

Money market funds (MMFs) are highly liquid mutual funds that invest in short-term debt instruments such as Treasury bills, certificates of deposit, and commercial paper. Institutional investors rely on them as safe, stable, yield-generating instruments for treasury and cash management.

However, despite their importance, MMFs suffer from the same limitations as other TradFi instruments: delayed settlement times (often T+1 or longer), restricted trading hours, and friction when moving liquidity across custodians or platforms.

• Transfer fund ownership near-instantly 24/7
• Use tokenized MMFs as collateral in real-time on-chain finance
• Improve cash efficiency and reduce operational complexity

BNY Mellon’s Digital Asset Strategy

BNY Mellon—the oldest bank in the United States and the world’s largest custodian bank with over $45 trillion in assets under custody—has steadily built out its digital asset capabilities in recent years.

Its strategy includes:

• Developing a digital asset custody platform for cryptocurrencies and tokenized securities
• Investing in blockchain infrastructure and interoperability protocols
• Collaborating with fintech startups to integrate tokenized fund infrastructure into its existing rails

By integrating tokenized MMFs into its custody and treasury services, BNY Mellon enables clients to manage both traditional and blockchain-based assets in one interface — a critical step toward institutional adoption.

Goldman Sachs and Tokenized Financial Products

Goldman Sachs, long known for its innovative financial engineering, has also been advancing its blockchain initiatives through its Digital Assets Platform and GS DAP (Digital Asset Platform).

The bank has already piloted tokenized bonds and repo agreements on permissioned blockchains. Tokenizing money market funds aligns with its goal of digitizing the full trade lifecycle:

• Issuance
• Trading
• Settlement
• Custody

Goldman has emphasized its preference for private and permissioned networks (vs. public blockchains), focusing on compliance, identity, and integration with capital markets infrastructure. Still, the underlying benefits — near-instant settlement, smart contract automation, and data transparency — remain transformative.

How Tokenization Works

• Creating a digital token on a blockchain that represents a share of the MMF
• Maintaining a 1:1 backing between the token and the actual fund share
• Using smart contracts to manage issuance, redemption, compliance, and reporting

Tokens can be issued on permissioned blockchains or hybrid chains that preserve institutional controls while gaining some of the openness and interoperability of public chains. Investors could move tokens between wallets, use them as collateral in decentralized applications, or integrate them into algorithmic treasury management systems.

Benefits for Institutions and Markets

Tokenized MMFs provide several advantages for institutional investors, fund managers, and the financial system at large:

• 24/7 Liquidity: Tokenized shares can be transferred any time, not just during market hours.
• Faster Settlement: Instant or same-day clearing, reducing counterparty and settlement risk.
• Transparency: Blockchain-based ownership and activity records reduce the need for intermediaries.
• Composability: Tokenized funds can be used in automated workflows, lending protocols, and treasury platforms.

Regulatory Considerations

Both Goldman Sachs and BNY Mellon are taking a cautious and compliant approach. Money market funds are regulated under the Investment Company Act of 1940 in the U.S., and any tokenized implementation must preserve KYC/AML, reporting, and liquidity requirements.

This is why these projects are mostly launching on private, permissioned blockchains initially — to ensure regulatory compliance and enterprise-grade access controls.

Still, many believe the long-term future involves interoperability between permissioned and public networks — enabling liquidity and access without sacrificing compliance.

The Bigger Picture: Institutional Tokenization

The tokenization of MMFs is part of a broader trend in finance. Banks and asset managers are exploring how to digitize everything from bonds and equities to real estate, private credit, and even carbon credits.

According to Boston Consulting Group, the tokenized asset market could grow to $16 trillion by 2030. Key drivers include:

• Rising institutional interest in blockchain efficiency
• Demand for better collateral management in volatile markets
• Growth of digital-native financial services
• Regulatory clarity around digital securities