The Banque de France published a note last week examining tokenized money market funds (MMFs) from a financial stability perspective, suggesting regulators may be considering new safeguards. The market has expanded dramatically from $100 million at the end of 2022 to over $7 billion today, four times what it was a year ago.
The central bank’s primary concern centers on interconnectedness with traditional markets. Most stablecoins are backed by government debt, particularly US Treasuries, with dollar stablecoins comprising 99% of the market. This relationship means turbulence in tokenization markets could create spillover effects in broader financial systems.
The note identifies several specific risks. Tokenized versions could deviate in price from their underlying assets, and the 24/7 trading nature creates potential liquidity mismatches. Additional concerns include fragmented liquidity across multiple ledgers and the possibility that automated smart contracts could trigger contagion events.
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