Goldman Sachs, BNY introduce money market fund digital tokens

Goldman Sachs and Bank of New York Mellon are set to announce that they’ve created the ability for institutional investors to purchase tokenized money market funds, CNBC has learned.

Clients of BNY, the world’s largest custody bank, will be able to invest in money market funds whose ownership will be recorded on Goldman’s blockchain platform, according to executives of the two firms.

The project has already signed up fund titans including BlackRock, Fidelity Investments and Federated Hermes, as well as the asset management arms of Goldman and BNY.

The Wall Street giants believe that tokenizing the $7.1 trillion money market industry is the next leap forward for digital assets after President Donald Trump last week signed a law marking the arrival of U.S.-regulated stablecoins. The GENIUS Act is expected to boost the popularity and use of stablecoins, which are typically pegged to the U.S. dollar, and JPMorgan Chase, Citigroup and Bank of America have said they are exploring their use in payments.

But unlike stablecoins, tokenized money market funds pay owners a yield, making it an attractive place for hedge funds, pensions and corporations to park their cash.

“We have created the ability for our clients to invest in tokenized money market share classes across a number of fund companies,” said Laide Majiyagbe, BNY’s global head of liquidity, financing and collateral. “The step of tokenizing is important, because today that will enable seamless and efficient transactions, without the frictions that happen in traditional markets.”

Money market funds are mutual funds that are typically invested in safer, short-term securities including Treasurys, repo agreements or commercial paper. They are generally considered the most cash like of investments that still offer a yield. Traditional money market funds can be liquidated within a day or two, though redeeming shares only happens during market hours.

Institutional and retail investors have rushed into the asset class in recent years, pouring roughly $2.5 trillion into them since the Federal Reserve began a rate-hiking cycle in 2022.

By creating digital certificates of ownership for money market funds that reside on a blockchain, Goldman and BNY’s move should allow for faster settlement, round-the-clock trading and automation. To ease the transition, BNY will also keep traditional money market records on top of tokens of the same assets.

The banks view the tokenized funds as setting the foundation for a future in which the assets are traded in a more efficient, always-on digital ecosystem. Investors and corporations could lean on stablecoins for global payments and tokenized money market funds for cash management.

But tokenizing the asset class gives the funds new capabilities beyond speed and ease of use; the digitized funds could eventually be transferable between financial intermediaries without having to first liquidate funds into cash, according to BNY and Goldman.

That could bolster the use of tokenized money market funds by the world’s largest financial players as collateral for a multitude of trades and margin requirements, said Mathew McDermott, Goldman’s global head of digital assets.

Doing so would free up time and capital that is today consumed by traditional transactions, he said. Instead of investors and corporations selling money market funds to deliver cash collateral for a trade, they could just exchange the token, for instance.

“The sheer scale of this market just offers a huge opportunity to create a lot more efficiency across the whole financial plumbing,” McDermott said. “That is what’s really powerful, because you’re creating utility in an instrument where it doesn’t exist today.”