JPMorgan says tokenized money market funds unlikely to grow beyond 15% of stablecoin market

Tokenized money market funds are likely to continue growing, but they are unlikely to capture more than 10% to 15% of the stablecoin market without regulatory changes, according to JPMorgan analysts.

Despite offering investors yield, tokenized money market funds currently account for only around 5% of the stablecoin universe or market cap, the JPMorgan analysts led by managing director Nikolaos Panigirtzoglou said in a report.

The analysts said stablecoins continue to dominate because they have become the crypto ecosystem's preferred cash instrument. Stablecoins are widely used for collateral management, trading, settlement, cross-border payments, and day-to-day liquidity management across centralized exchanges and decentralized finance protocols.

Tokenized money market funds, by contrast, face what the analysts described as a "structural regulatory disadvantage."

Unlike stablecoins, tokenized money market funds are generally classified as securities. As a result, they are subject to securities law requirements such as registration, disclosure, reporting obligations, and transfer restrictions. According to the analysts, these requirements make it harder to circulate onchain funds freely across the crypto ecosystem.

Because of these limitations, the analysts said the main users of tokenized money market funds today are crypto-native investors looking to earn yield on idle cash and institutional investors seeking the operational benefits of tokenization, such as faster settlement and programmability, while remaining within traditional investor protection frameworks.

The analysts expect these funds to continue growing faster than stablecoins because of their yield advantage. However, they do not expect that growth to fundamentally change the balance between the two markets.

"We doubt that tokenized money market funds would grow beyond 10%-15% or so of the stablecoin universe, unless there is a regulatory change that reduces the structural disadvantage arising from tokenized money market funds classified as securities," the analysts said.

Limited regulatory support 

So far, regulatory support has been limited. The analysts pointed to the Securities and Exchange Commission's introduction earlier this year of a streamlined process for issuing onchain money market funds. The initiative is intended to simplify redemptions and reduce operational friction for funds using blockchain-based recordkeeping.

The analysts also noted recent efforts by traditional financial firms and crypto-native companies to allow institutional investors to use onchain money market funds as off-exchange trading collateral.

Under these arrangements, investors can post tokenized fund shares issued through regulated platforms while the underlying assets remain in regulated off-exchange custody. The value of those holdings can then be represented within a trading venue or crypto exchange, allowing institutions to earn yield on collateral while also using it for trading purposes.

However, the analysts described these developments as only "marginal" improvements and said they are unlikely to change the broader picture, "which puts tokenized money market funds at a structural regulatory disadvantage relative to stablecoins, preventing their seamless circulation and use across the crypto ecosystem."