BIS Highlights Risks in Tokenized Money Market Funds

According to PANews, a recent report by the Bank for International Settlements (BIS) reveals that the total assets of tokenized money market funds have surged from $770 million at the end of 2023 to nearly $9 billion. These funds have become a crucial source of collateral within the crypto ecosystem. However, the BIS warns that while these assets offer the flexibility of stablecoins, they also pose significant operational and liquidity risks. The BIS identifies liquidity mismatch as the primary risk associated with tokenized money market funds. It notes that although investors can redeem tokenized fund shares daily, the underlying assets still adhere to the traditional T+1 settlement mechanism. During periods of market stress, concentrated redemption demands could expose this structural vulnerability. The organization further points out that the market is still in its early stages of development, with solutions continuously evolving. For instance, financial technology company Broadridge has introduced a Distributed Ledger Repo (DLR) system, which enables same-day settlement of tokenized treasury transfers.