BIS Warns of Hidden Risks as Tokenized Money Market Funds Surge Toward $9 Billion

Source: ETHNews Original Title: BIS Warns of Hidden Risks as Tokenized Money Market Funds Surge Toward $9 Billion Original Link: https://www.ethnews.com/bis-warns-of-hidden-risks-as-tokenized-money-market-funds-surge-toward-9-billion/ Tokenized money market funds have entered one of the fastest expansion phases in on-chain finance, and the Bank for International Settlements is now calling attention to the pace.

Assets in these funds jumped from $770 million at the end of 2023 to nearly $9 billion in November 2025, marking an explosive rise that has pulled in some of the world’s largest financial institutions. BlackRock and Franklin Templeton have become central players, with BlackRock’s BUIDL fund alone surpassing $2.5 billion in tokenized assets.

These products have grown popular because they offer on-chain access to short-term, yield-bearing assets like U.S. Treasuries, giving traders and institutions a way to earn interest in a space where stablecoins typically do not provide yield. As a result, TMMFs are increasingly being used across crypto markets for collateral, treasury operations, and liquidity management.

BIS Flags Liquidity and Settlement Mismatches

Despite the momentum, the BIS is warning that tokenized money market funds inherit the weaknesses of both decentralized finance and traditional markets. The most pressing issue is the liquidity mismatch between blockchain settlement and the slower settlement cycles of the underlying assets. Token transfers settle instantly, while traditional instruments cannot be redeemed at the same speed. The BIS notes that during periods of heavy withdrawals, this structural gap could challenge funds’ ability to meet redemptions and amplify volatility.

Operational Vulnerabilities and Market Interconnectedness

The BIS also points to operational risks tied to off-chain dependencies. Many TMMFs rely on a small number of large custodians, intermediaries, and wallet holders to function. If market stress intensifies, this concentration could accelerate instability across the system. In addition, these funds are now deeply intertwined with stablecoins and leveraged crypto trading, creating feedback loops that can transmit stress faster than in traditional markets. The level of interconnectedness means that disruptions in one area could quickly ripple through the broader ecosystem.

A Growing Sector That Needs Clearer Regulation

While cautioning about potential vulnerabilities, the BIS acknowledges that tokenized funds are becoming a meaningful pillar of the emerging financial landscape. Many see tokenization as a way to modernize global markets and improve efficiency, especially as major asset managers continue to expand their presence in this space.

The BIS is urging regulators to create clearer frameworks, improve liquidity standards, and coordinate internationally to prevent systemic risks from building unnoticed. With proper oversight, the organization suggests tokenized money market funds could eventually form a foundational layer of future financial infrastructure.