European mutual fund trade group Irish Funds published a white paper titled, "Tokenising Money Market Funds: Ireland's Practical Path to Fund Innovation." They write, "Tokenised money market funds are increasingly being adopted as a pragmatic response to frictions in today's collateral and liquidity management workflows. In stressed conditions, the need to redeem MMF holdings into cash in order to meet margin or funding demands can introduce avoidable settlement lag and operational complexity, and may amplify liquidity pressures. Tokenisation offers a route to mobilise MMF exposure more directly between eligible parties, supporting faster collateral movements while preserving the familiar risk profile and yield characteristics of regulated MMFs while reducing redemption and reinvestment risk for both shareholders and other market participants and removing fiat settlement lag." (Note: Next week's European Money Fund Symposium, which will be held Sept. 24-25, in Paris, will feature a number of discussions and sessions on Tokenized Money Funds. Safe travels, and we look forward to seeing many of you in France!)
The piece explains, "This paper focuses on a 'digital twin' approach to tokenising existing Irish MMFs. Under this model, the authoritative off-chain share register remains the definitive record of legal ownership and settlement finality, whilst an on-chain token layer provides a digitally verifiable representation of entitlements and a more automated transfer mechanism. As this paper will explain, the model can deliver a 'best of both worlds' outcome: the legal certainty associated with the off-chain register, combined with the operational efficiency, speed and programmability of token transfers."
It continues, "MMFs are inherently scale-dependent products. They benefit from deep liquidity pools, diversification and operational efficiency. Tokenising existing MMFs offers a highly effective route to attracting investment. Investors can gain immediate access to an established fund platform and asset base whilst benefiting from the enhanced transferability and automation associated with tokenisation. This avoids fragmenting liquidity across multiple standalone tokenised vehicles and supports faster adoption by market participants."
The paper states, "Ireland benefits from commitment across industry, government and regulators to realise the opportunities associated with fund tokenisation. The Irish Funds Project Springboard laid the analytical groundwork, the Central Bank of Ireland's "Discussion Paper on DLT & Tokenisation in Financial Services" in March 2026 opened a structured dialogue on enabling tokenisation within a proportionate regulatory framework and the Department of Finance's Funds Sector 2030 review recommended developing a pathway to the adoption of tokenisation. The Ireland for Finance Vision 2030 strategy, published in August 2026, further commits the Government to supporting the development of tokenisation of investment funds."
Irish Funds comments, "Tokenised money market funds have moved from concept to commercial reality in Ireland with the recent launch of three digital twin tokenised MMFs by Aviva Investors, BlackRock and Schroders. By leveraging distributed ledger technology to tokenise interests in MMFs the landscape of collateral management can be transformed. The impetus for this transformation is well documented. Many market participants use MMFs for cash management purposes and often need to post margin for their non-centrally cleared derivative transactions. To do so they often must redeem from the MMF and pass the cash to the counterparty. When the cash is received by the OTC counterparty, it may place that cash with an MMF or invest it directly in the short-term markets subject to the terms of the arrangement."
They say, "The systemic impact of collateral frictions became clear during the UK's LDI crisis in 2022, when sharp movements in gilt yields forced pension funds to redeem MMF holdings to source cash for margin calls, contributing to a negative spiral of falling prices, increasing collateral requirements and amplified liquidity demands. While tokenisation would not have altered the underlying market dynamics, tokenised MMFs may have enabled certain market participants to mobilise collateral more efficiently, potentially reducing some of the operational and market pressures associated with margin calls and the need to redeem fund holdings into cash. Tokenised versions of constant and low-volatility NAV MMFs could be transferred outside of the normal valuation cycles allowing market participants to maintain the yield, safety, and familiarity of MMFs with new levels of operational efficiency and real-time usability."
The paper adds, "Ireland hosts more than 43% of MMFs in Europe. Project Springboard identified the hybrid or digital twin model as a transitional structure designed to enable real-time updates and automated processes while ensuring the off-chain register remains the definitive source of truth for legal ownership. This approach reflects the prevailing market reality: the vast majority of tokenised funds operational today incorporate some element of hybrid on-chain and off-chain functionality, layering DLT-based registers over existing fund administration systems rather than replacing them entirely. The digital twin model is therefore not a departure from existing fund infrastructure but an enhancement of it. By leveraging established transfer agency, fund administration and governance arrangements, the model supports innovation whilst preserving legal certainty, operational resilience and regulatory oversight."
In related news, State Street also published two updates on website Funds Europe. The first, "Building trust in digital market infrastructure: The role of tokenized MMFs," explains, "As distributed ledger technology (DLT) moves from proof-of-concept toward early-stage deployment in financial markets, tokenization is emerging as a way to improve efficiency through faster settlement, near-24/7 availability, and enhanced programmability. Although still small relative to traditional markets, tokenized money market funds (MMFs) have expanded rapidly in recent years. This growth is driven by increasing institutional use of these products as an efficient form of collateral and as a vehicle to actively generate yield."
It claims, "The liquidity of these funds enables their units to be pledged as collateral without requiring conversion to cash during periods of stress. This dynamic was evident during the UK Liability Driven Investment crisis of 2022, when rapid selling of traditional MMFs by pension funds contributed to market stress. In addition to improving investment operations in normal conditions, these products may also reduce risk if adopted at institutional scale. However, these efficiency gains will only translate into meaningful adoption if market participants trust that these new products operate with the same integrity, enforceability, and resilience as traditional institutional investment systems."
State Street tells us, "Adoption is being shaped by both cyclical and structural factors. Higher interest rates have renewed demand for short-duration Treasury exposure, while stablecoin balances have continued to grow across digital asset markets. Tokenized MMFs have emerged as a mechanism that connects these environments and serve as yield-bearing instruments within digital ecosystems. Their broader impact will depend on how effectively they integrate with existing financial systems -- and whether they can establish the trust required for institutional-scale activity. These products should therefore not yet be understood as a mature solution, but as an early-stage evolution within the broader transformation of financial market infrastructure."
The piece continues, "Tokenized MMFs are not a homogeneous category. Their design varies considerably, with important implications for both functionality and risk. The predominant structure to date resembles traditional MMFs, with tokens representing claims on an underlying fund. These models enable transferability and on-chain interaction but do not fundamentally alter the legal or operational framework. In these cases, trust remains anchored in traditional infrastructure and established regulatory frameworks, particularly in jurisdictions such as Luxembourg, where legal certainty and investor protection are well defined. This reflects the continued institutional preference to anchor trust in proven regulatory structures, even as new technological layers are introduced."
It adds, "Some structures are beginning to incorporate digital liquidity buffers within the fund itself by holding a portion of assets in stablecoins. This can support near-continuous digital redemptions and reduce reliance on external conversion mechanisms. However, it also shifts part of the trust framework onto the stability, governance, and liquidity of the underlying digital cash instruments. Models continue to evolve, with more servicing functions moving on-chain, including subscription, redemption, and peer-to-peer transfers. While this increases programmability, it also shifts operational risk toward smart contracts, infrastructure dependencies, and governance frameworks. Fully blockchain-native fund models remain limited."
Finally, State Street writes, "The most likely path forward is gradual integration, where tokenized MMFs evolve alongside traditional products rather than replacing them. Their long-term role will depend on whether a stable, interoperable, and well-governed financial ecosystem can support them. At its core, this is a question of trust. Without clear legal certainty, robust operational resilience, and confidence in how these instruments behave under stress, adoption is likely to remain constrained. The scaling of tokenized MMFs will depend not only on innovation, but on the market's ability to embed trust into the underlying infrastructure." See also State Street's second article, "`Evolving regulation of tokenized MMFs: clarity is emerging, but not consistently."
