- Crypto funds amplify risks found in conventional finance, according to the BIS.
- Tokenised money-market funds are up 265% in the last year.
- Major market participants include BlackRock and Franklin Templeton.
Tokenised money-market funds have ballooned to a $9 billion crypto market sector, but what looks like quiet progress has got the Bank for International Settlements sounding early risk warnings.
Analysts at the Basel-based global forum of central banks and the Collegio Carlo Alberto, a research institute, said that, despite their digital packaging, these crypto funds remain exposed to traditional money-market tensions, according to a report published on Wednesday.
Tokenised money-market funds are just like their traditional counterparts: they allow investors to earn yield on cash instruments directly on-chain.
“Tokenised money-market funds give rise to risks that mirror and may even amplify those found in conventional money market funds and stablecoins,” the report stated.
The analysts said decentralised finance integration may heighten market stresses through leverage and interconnected protocols, or what industry proponents call composability. Given the tight coupling between such funds and stablecoins, market shocks could spread more quickly and cause greater damage than in traditional markets.
The warning comes as tokenised money-market funds surge alongside crypto’s broader expansion into real-world assets, a trend that even the BIS sees as a gateway for institutional capital to flow into the digital asset market.
Tokenised money-market funds grew 265% in the last year, according to data from RWA.xyz. And the sector could grow to $250 billion in the next three years, Geoff Kendrick, head of digital assets research at Standard Chartered, predicted in October.
Even as it sounded the alarm, the BIS said these crypto products may become a backbone of the global financial system, given their growth and rising institutional interest.
Traditional finance juggernauts like BlackRock, Franklin Templeton, and Swiss Bank UBS are some of the institutional players in the tokenised money market sector.
But with this growth potential comes the need for proactive measures to curtail market risks before they harden into systemic threats that could upend both the crypto and traditional markets, the report stated.
Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. Got a tip? Please contact him at osato@dlnews.com.