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Are central banks warming up to tokenized money market fund?

As the tokenized yield-bearing cash solution space’s No.1 player Ondo Finance’s AUM surged past $464 million this week, the thought of a path towards broader adoption in this nascent but highly important space came to the forefront of my mind.

The space that the tokenized yield-bearing cash solution is currently addressing mostly has to do with stablecoin capital that is already onchain. There are already $160 billion of these but the size of the market outside of crypto is much larger. So what are some broader application examples that apply to the non crypto native capital bases?

This week I came across an interesting case study done by PwC HK, Arta TechFin and Emali that uses the Hong Kong Monetary Authority (HKMA) e-HKD (tokenized HKD) to provide a better cash management solution for mainstream retail banking customers.

In this week’s newsletter I distil the 34 pages report to look at:

  1. The Problem: low balance retail banking customers’ inability to access higher yielding money market fund products for cash managment

  2. The Solution: leverage tokenized HKD and blockchain based MMF product to help them get more flexible and better cash management solution

  3. The Result: key takeaways for tokenized investment products and their future

Let’s dive in.

The Problem

While access to banking is ubiquitous in Hong Kong, as it is in most developed countries, general retail banking customers generally earn less interest income on their bank deposits than more sophisticated customers who utilise wholesale financial products such as money market funds or direct access to government bond bills.

Retail access to wholesale financial products is made more complicated and inefficient by hurdles such as cumbersome and expensive onboarding processes, minimum investment size, steep subscription fees, and long settlement periods.

For example, if a retail banking customer with $100 HKD were to subscribe to a money market fund (MMF), he/she is most likely required to pay a fee of $7-$10 HKD on the transaction plus waiting for T+2 days to have the investment showing up in an investment application. The fee charged is exorbitant when the total investment size is relatively low.

This, of course, assumes that the retail client can even qualify for the minimum investment in an MMF. A more likely scenario may be that at $100 HKD, the retail client won’t even be able to meet the minimum investment criterion of the MMF.

This excludes a significant retail customer base. As such, these traditional MMF products can be unfeasible for retail investors with low balances and/or for short-term investments.

The Solution 

Because the two fundamental constraints of a traditional MMF subscription process have to do with 1) cost and 2) settlement time, a blockchain based MMF product that is faster to settle and cheaper to subscribe to.

In the case study, the HKMA simulated having a tokenized money called e-HKD that is the default onchain representation of low retail banking bank balances. Low bank balances can automatically be converted into e-HKD and then invested in an onchain MMF vault based on a fixed time period. See the workflow chart below.

The Result 

Through instantaneous Delivery vs Payment, the faster settlement time enables 1) real-time pricing of the fund value and 2) shorter investment period. 

The blockchain’s straight-through settlement feature reduces the need for reconciliation and much of the back-office functions and therefore costs involved in the fund subscription process. 

This means by leveraging a tokenized MMF, a retail banking customer with lower bank balance can get a much lower minimum investment threshold and cheaper subscription fee.

What all this mean?

This points to an interesting path towards broad adoption of blockchain based investment products in banking and financial services. There are 3 parts to this adoption curve:

  1. First Unlock: tokenized MMF investments for small bank balances

  2. Next level up: general investors access to MMF fund

  3. Full Unlock: onchain native products utilizing blockchain’s composability fully

First Unlock

As demonstrated by this particular case study as well as the thriving onchain cash management market, the always-on and straight-through settlement features of a blockchain is a game changer for the asset management industry.

The MMF use case comes 3 notable features:

  1. 24/7 mint and redemption - shorter investment period and better liquidity

  2. instantaneous settlement - reduce settlement & reconciliation cost and error

  3. composable capabilities - enables more tailored risk-preference designs

The low bank balance retail banking market is being first unlocked  in a case study example. 

Next Unlock

An interesting aspect of the case study is that although blockchain was used as the operational rail, the workflow process involved a typical cast of upstream and downstream investment intermediaries, including for example placing agents, fund managers, fund administrators.

The disruption of the existing business process was kept to a technical level. This lowers a key friction that often upends efforts to integrate blockchain solutions across a wide ranging section of the financial value chain. 

The benefits of tokenized MMF products apply whether the bank balance is low or high. Of course the lower bank balance account has more of a hair-on-fire problem. But even at a higher balance, the faster settlement speed and 24/7 real-time transaction capability are also great improvements over the existing choices..

If someone with $100 HKD wants to take advantage of being able to park money in an MMF over a 2 days weekend, you can bet someone with $100 million HKD would love to collect risk-free interest over the same period.

The entire investor base would enjoy tokenized investment products benefits once it is hammered out and proven through a low bank balance solution case.

Full unlock: ubiquitous composable tokenized onchain investment product

While the HKMA case study focused on the first-order benefits of tokenized MMF, it has yet to explore the full power composability of blockchain.

We already have seen examples of this in more digitally native use cases.

Ondo Finance’s OUSG already has over a year of track record being the collateral asset in the first onchain MMF repo market. 

Liquidation as well as borrowing rates are set and enforced programmatically. No human resource is required in the execution.

BlackRock’s BUIDL being accepted recently by Securitize Lending as collateral for lending is the latest example of composability utilisation.

Tokenized assets can be programmed to fully automate collateral margining processes at Prime Brokers that only the biggest institutional investors have been able to access.

This means more capital efficient and tailored investment experience and capability will be unlocked for both institutional as well as retail investors for the first time.


Tokenized investment products are being trialled and proved out through various channels, traditional as well as digital asset native, before being offered en masse.

These are important steps where technology integration and challenges are solved and standardised to form best practices.

The HKMA’s utilization of blockchain through a retail focused MMF investment product is but one of such steps.

Digital asset management products such as Ondo Finance’s OUSG and USDY and BlackRock’s BUIDL are running more advanced experiments in parallel.

The massive recent growth in the tokenized yield-bearing cash solution space is a sign of things to come once investors get over the technical hurdle and become comfortable with the processes.

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Disclaimer: This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.


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