Tokenized money market funds (TMMFs) sit right where traditional and blockchain finance now overlap most intensely. They look and feel like on-chain stable assets, but behind each token is a conventional fund full of short-term instruments like T-bills. TMMFs are attracting increasing attention from institutional players and DeFi protocols.
What exactly is a TMMF?
Start with a familiar building block: a money market fund (MMF). It is a pooled investment vehicle that buys very short-term, high-quality instruments – mainly Treasury bills, repos backed by Treasuries and agency debt – and aims to offer a low-volatility, cash-like return.
A tokenized money market fund is a regulated fund of this kind whose shares are represented as tokens on a public blockchain, such Polygon or Ethereum. This follows the digital twin model: Economically you hold a share of the fund; operationally you hold a token in your wallet.
Legally, these tokens are securities, not deposits or e-money. They are issued and supervised under securities law, even when they circulate on public chains. That makes them very different from most stablecoins, which are typically structured as off-chain claims on an issuer and are not allowed to pay interest in many jurisdictions.
In contrast, TMMFs pass through a money-market yield. If short-term dollar rates are 4–5%, holders of TMMF tokens earn something in that ballpark, instead of the 0% on most fiat-backed stablecoins.
The relevance of TMMFs
In lending and derivatives, you need strong collateral. In DeFi, where users are just wallet addresses with no credit history, lenders protect themselves by asking borrowers to deposit more collateral than the loan amount. That means there is always strong demand for very safe, easy-to-trade tokens that can be moved quickly to top up collateral when prices move down and borrowers are forced to add more collateral (if the value of the asset deposited goes too low, the lender will sell the asset to protect itself).
Stablecoins play that role today, but they have some structural limits:
- They usually do not pay interest, so holding large balances becomes costly when rates are positive.
- Some stablecoins have experienced peg breaks, highlighting potential operational weaknes.
TMMFs try to solve this by offering yield-bearing, on-chain “cash”. For treasuries of exchanges, lenders and DeFi protocols, they provide a way to stay on-chain while earning something close to the risk-free rate. Protocols can accept TMMF tokens as collateral, letting users borrow stablecoins against them or enter derivatives positions. Crypto-native asset managers can potentially build “fund of funds” structures that hold TMMFs and then issue their own token with customized fees and minimums.
TMMF tokens are also starting to appear inside other tokens – for example, as reserve assets that back a more broadly accessible stablecoin. In that model, a small number of allow-listed professional investors hold the TMMF, while retail users interact mainly with the stablecoin layer.
On-chain data for leading funds shows that a handful of large wallets (mainly DeFi platforms and corporate treasuries) currently hold a large majority of the supply, with relatively little secondary trading so far.
How big is this market already?
At the end of 2023, tokenized money market funds had roughly 770 million US dollars in assets (total value locked). By the end of October 2025, that figure had climbed to almost 9 billion US dollars, more than a tenfold increase in under two years.
The market’s technology mix has also shifted. Early on, many funds launched on Stellar, which offers cheap transfers and small ticket sizes that suit retail users. As more institutional products came online, activity moved towards Ethereum and Polygon, which now account for a large share of TMMF assets, reflecting its deeper DeFi ecosystem and richer smart-contract capabilities.
In terms of what these funds actually hold, portfolios are mainly composed of US Treasury repos, US Treasury bills and notes, and US agency debt, with small residual cash balances. This composition lines up neatly with the dominance of dollar-pegged stablecoins in crypto: investors want dollar returns, so funds buy dollar assets.
Where TMMFs may be heading
Taken together, TMMFs are an early but telling example of how tokenization of traditional assets can move from pilot projects to real scale. In economic terms, today’s leading TMMFs are “tokenied Treasury and repo portfolios” packaged as funds and wired into DeFi.
If – as many expect – more government bonds become natively tokenized in the coming years, the kind of functionality TMMFs showcase today could become part of the standard plumbing of markets: instant, programmable collateral that still rests on a base of high-quality public debt.
Understanding how these vehicles work, who holds them, what they actually own and how they interconnect with stablecoins and DeFi leverage is essential for anyone operating at the intersection of DeFi and traditional markets.
