Fitch Primer on Fund Tokenization
Earlier this week, Fitch Ratings released a paper, "Global Funds and Asset Managers: Fund Tokenization – A Primer," which comments, "Money market funds (MMFs), and more broadly –- cash-like funds, have been among the earliest affected by tokenization. Historically, MMFs have played a central role in the financial system by providing liquidity, capital preservation, and short-term cash management tools. More recently, tokenized MMFs, particularly those invested in short-dated US Treasuries, have grown rapidly. Estimates by the Bank for International Settlements suggest that assets under management in tokenized short term, cash-like funds increased from about USD770 million at the end of 2023 to nearly USD9 billion by October 2025, reflecting rising institutional interest in on-chain cash products. Nevertheless, these figures remain small compared to the global MMF assets under management of USD13 trillion as of December 2025, according to data from Investment Company Institute." They write, "Tokenized MMFs operate under traditional fund regulations while also facing fragmented digital asset rules, complicating cross border distribution. Tokenization also introduces additional operational risks, including technology dependencies and cybersecurity considerations. We nevertheless expect assets under management to rise as regulation evolves and institutional adoption increases." The piece states, "Tokenization is primarily a distribution and record-keeping technology. The underlying assets held by the fund, such as US treasury bills and repurchase agreements, remain traditional, off chain instruments held with a custodian. This report focuses exclusively on fund tokenization and does not cover stablecoins or other cryptocurrencies, such as Bitcoin." Discussing "Tokenized MMFs as Collateral," Fitch adds, "This demand driver is prominent with tokenized MMFs. Pilot programs in the US, UK, and EU indicate growing industry acceptance in controlled environments. Broader uptake in traditional finance industry will depend on further legal clarity and standardization around how tokenized MMFs are recognized and enforced within existing collateral frameworks." See also, the WSJ article, "JPMorgan, Citi and Big Banks Plan New Tokenized Deposit System to Answer Crypto," which says, "The largest U.S. banks plan to launch a tokenized deposit network next year, an attempt to stave off threats from crypto companies that are seeking to wade deeper into their territory under President Trump."
