Crane Data hosted its latest European Money Fund Symposium conference in Paris late last month, where a record 250 money market professionals discussed rates, tokenization, record asset levels and a number of other hot topics in "offshore" cash. The opening session of day 2, "Tokenized Money Funds, Stablecoins & More," was moderated by our Peter Crane and featured Brenden Carroll of Dechert LLP, Andrew Paranthoiene of S&P Global Ratings and Rachel Thornton of Northern Trust. Paranthoiene says about tokenization, "This is sort of the question of the day.... The balloon of ESG is sort of fading away.... But one of the things that we are thinking about ... from a wider market perspective is the evolution, or the revolution, in regards to tokenized money market funds." (Note: Thanks again to those of you who supported our European Money Fund Symposium in Paris, and mark your calendars for next year's show in London, Sept. 23-24, 2027!)
He explains, "For decades, Ireland and Luxembourg have been known as the traditional hubs of liquidity [with] infrastructure and support [for] bank deposits, money market funds, commercial paper, custodians, and payment rails built over many years. Today, however, we're witnessing the emergence of something different as these two centers position themselves as not merely hubs for traditional liquidity, but also for digital liquidity."
The S&P MD tells us, "Tokenized money market funds, tokenized deposits, stablecoins, and digital asset infrastructure are beginning to reshape how liquidity is created, transferred, and managed. So, what is a tokenized money market fund? There's a lot of particular detail on this fund, but hopefully it provides sort of the characteristics that people are starting to become more familiar with. A tokenized money market fund is still a money market fund. And the token represents an investor's share of a unit in that fund. Sounds simple, right?”
Paranthoiene says, "Everyone's obviously becoming familiar not only with the portfolio credit quality and liquidity, but also the new components of the operating layer, the ownership record, investor access, transfer processes, settlement workflows, blockchains, permissioned wallets, smart contract governance. All these things are the new additions to what is traditionally a simple, straightforward, vanilla investment product that serves the industry so well."
He continues, "So, in terms of the structures of a tokenized money market fund, they sit on a spectrum. In a digital twin model, which we're going to explore a little bit more, their traditional transfer agent register remains authoritative, and the token mirrors the fund interest. In a fully native structure, the on-chain register is the primary ownership record. And of course, in a traditional way, it would be a hybrid approach, with long-term opportunities to connect regulated money market funds with tokenized deposits, stablecoins, securities, and of course collateral."
Paranthoiene then comments, "So, when we think about the differences between Ireland and Luxembourg, there's obviously a lot of similarities in where the particular push is. Ireland obviously has scale.... But Luxembourg is certainly leading as a stronger legal and regulatory information pathway for tokenized funds at the moment. While Ireland's differentiation is the scale and specialization in its money market fund ecosystem, which would make it Europe's leading application for tokenized institutional liquidity once implementation paths do mature."
He states, "Ireland would be classified as the most conservative in terms of its digital twin approach. Luxembourg would be classified as being further down the legal path to a native tokenization, while Hong Kong [has] the idea of tokenizing the entire market. So, in that regard, Ireland tokenizes the fund, Luxembourg tokenizes the legal instrument, but Hong Kong is tokenizing the entire market. So, in particular for Ireland, it's not starting from scratch. It has deep expertise in funds, custody, service international banking. It's trusted as an institutional and credible location for establishing supervision from the CBI. The work is obviously moving from supervision to technology, being a trusted and resilient financial claims center."
Paranthoiene explains, "So, when we think about Europe's digital liquidity opportunity, it begins with an established liquidity franchise.... I think that it's fair to say that the tokenized discussion is already moving from theory and into practical implementation. But the broader European message is important. Existing money market funds do not need to be rebuilt to participate in digital finance. The established funds can instead connect to new distribution, transfer and settlement channels.... Tokenization may therefore be less about creating new assets and more about creating new ways to access and manage existing ones."
He adds, "Tokenization can change how money market fund liquidity is accessed, transferred, settled and used as collateral. It can also connect funds to more direct treasury systems. But the fundamentals remain -- credit quality, portfolio liquidity and investor rights still matter, as do the manager, the depository and all the supporting infrastructure that goes into operating a fund. Greater connectivity can improve the efficiency but may amplify liquidity, operational and the legal risks. So, when assessing a tokenized money market fund, do not focus only on the speed of the token. Focus on the liquidity of the fund and the liquidity available when everyone wants to move at once."
Thornton then tells the EMFS crowd, "It's great to be here today talking to you on behalf of Northern Trust, but also Irish Funds. I am the Chair of the Irish Funds Money Market Fund Working Group.... Obviously, we've all heard about Ireland being the leading cross-border domicile for money market funds. And I suppose importantly, over the last two months, we have seen some launches of real-world tokenized money market funds from some of the biggest global asset managers."
She says, "In the last two months, we have seen Aviva, Schroders, and BlackRock launch tokenized money market fund share classes within Ireland. So really exciting news and a lot of hard work done with the CBI, working with the managers, and the Funds Association.... Money market funds [are] being the first real use case [of tokenization]. So, we see Ireland's approach as being practicable and flexible ... working in compliance with existing regulations."
Thornton adds, "The Irish Funds Money Market Fund Working Group published an article just two weeks ago that demonstrates that path. It does focus on very much the digital twin model. The name of the paper is The Path to Fund Innovation, which is a really important piece in the digital twin model. To Andrew's point, is it a revolution or an evolution? We certainly see it as an evolution and probably is the beginning path forward to the fully native type of fund."
She continues, "So, the digital twin model still seems authoritative off-chain. So that is the traditional TA registered as the definitive record of legal ownership and settlement clarity. Then we've got the on-chain token layer. And this is providing the digitally verifiable representation of entitlements and obviously leads to a more automated transfer mechanism. It's both for the on-chain piece that uses the smart contracts to manage the life cycle of a money market fund."
Lastly, Thornton tells us, "Talking specifically around the tokenized money market fund, I think the overall ecosystem is super, super important. Tokenizing share class or fully native money market fund is only one part of the journey without atomic settlement.... Some of the recently tokenized offer 24-7. They offer Saturday and Sunday transfers, but an investor can't get their cash out on a Saturday, etc. So, there's a bit of work still to come on the whole ecosystem and the rails with the cash piece.... Just to sort of close off in terms of how important it is for Northern from an asset servicing or custody bank, along with my peers from BNY, JPM, State Street, etc., we are talking to clients almost every day on tokenization."
Carroll comments, "Just to sort of start with some of the question that you have raised, is it evolutionary or revolutionary? I tend to think of it as not so binary. I think in very simple terms, it's just an evolution in the way people maintain records.... There's been a sea change in the U.S. in its approach to all things crypto or crypto adjacent, including blockchain. I remember working on the first fund sponsor to natively issue its shares on a public permissionless blockchain [Franklin Templeton].... That was back in 2021. It took a lot of dialogue with a regulator at the time. The discussions we now have are totally different."
Tokenized money market funds, he says, "Sit in this trifecta where you have a product that is highly regulated, yield-bearing, and this token provides the same type of rights that a shareholder would otherwise have if they held their shares in more traditional form. But I think it's important to be clear-eyed about this technology for all the reasons that have already been discussed. This technology is never really going to take off and fully integrate itself into our financial services system if people can't trust the technology and know that they will have cash when they need it the most."
Finally, on Stablecoins, Carroll comments, "I think the amount of stablecoins has stalled somewhat, but our rules in the U.S. haven't even taken effect. I think where the payment stablecoins and money market funds sit; they can interact at a few different levels. On the one hand, sure, they can be competitors, just like money market funds could be to bank deposits and other places to put your cash. That's not new, that's existed for a while. The money fund industry is at times, I don't know how you'd say it, being like a complicated relationship with the banking industry."
