BofA Report: Stablecoins & Tokenization Reshape US Treasuries, Challenge MMFs

The intricate landscape of the U.S. Treasury market is undergoing a significant transformation, driven by the emergence and increasing integration of digital assets. A recent report from Bank of America’s (BofA) interest rate strategy team highlights two pivotal forces at play: the growing demand for government securities stemming from stablecoins and the strategic adoption of tokenization within money market funds. These developments signal a fundamental shift in investor behavior and competitive dynamics, bridging the divide between traditional finance and the evolving digital economy.

• Stablecoin issuers are projected to invest an additional $25 billion to $75 billion in short-term U.S. Treasury bills over the next year.
• These digital currencies are increasingly viewed as direct competitors to traditional money market funds (MMFs).
• Money market fund providers are adopting tokenization as a strategic response to enhance efficiency and maintain competitiveness.
• While tokenized products offer a current advantage, their long-term efficacy depends on stablecoins’ potential integration of yield-bearing mechanisms.
• The U.S. Treasury market faces significant, albeit unpredictable, shifts as digital assets and traditional finance converge.

The Evolving Role of Stablecoins in Treasury Holdings

Stablecoins, digital currencies primarily pegged to the U.S. dollar, have solidified their role as essential instruments for global trade and international payments. Bank of America projects that issuers of these stablecoins will substantially increase their allocations to short-term U.S. Treasury bills, with potential investments ranging from $25 billion to $75 billion over the next year. While this represents a considerable capital inflow, analysts suggest its overall impact on the vast government debt market’s dynamics may be limited. Instead, stablecoins are increasingly seen as direct competitors to traditional money market funds (MMFs), which historically attract capital through yield-seeking strategies. Currently, MMFs retain an advantage by offering interest payments, a feature generally absent from stablecoins. However, this competitive edge could diminish rapidly if regulatory changes or technological innovations enable stablecoins to offer comparable yields.

Tokenization as a Strategic Countermeasure

In response to this rising competition, money market fund providers are exploring tokenization as a defensive strategy. The BofA report notes a heightened interest in this technology, which allows for the representation of real-world assets on a blockchain. A notable example occurred in July 2025 when BNY Mellon and Goldman Sachs deployed blockchain technology to record ownership of specific money market fund shares. This initiative marked the first renewal of tokenized MMF shares, aligning with a broader industry trend following the adoption of the GENIUS Act, which established a federal regulatory framework for stablecoins. Such moves underscore a proactive effort by traditional financial institutions to leverage blockchain’s efficiency while retaining their core yield-generating capabilities.

Future Outlook and Competitive Dynamics

Bank of America posits that these tokenized products may offer a temporary advantage, combining the familiar yield of conventional funds with the enhanced efficiency of blockchain-based settlements. Nevertheless, this advantage is likely to be short-lived should stablecoins successfully integrate yield-bearing mechanisms. For the time being, analysts believe money market funds maintain a superior position. Yet, the rapid convergence of digital assets and established financial systems is setting the stage for unpredictable shifts within the U.S. debt market, necessitating continuous vigilance and adaptation from all participants.