Stablecoins and Tokenization Reshape Treasury Markets, Challenge Money Market Funds

Bank of America's rates strategy team highlights two transformative forces in the U.S. Treasury market: surging stablecoin demand for Treasury bills and the accelerating tokenization of government debt assets. While stablecoins currently pose minimal disruption to Treasury market dynamics, they present a growing competitive threat to money market funds (MMFs) through their yield potential.

The report projects stablecoin-driven T-bill demand to grow by $25 billion to $75 billion over the next year—a meaningful but not market-moving increase. Stablecoins continue to serve as critical infrastructure for crypto markets and cross-border payments, despite regulatory constraints on yield generation.

Institutional response is gaining momentum. BNY Mellon and Goldman Sachs recently deployed blockchain technology to record ownership of tokenized MMF shares—a defensive MOVE against stablecoin encroachment and a direct response to the GENIUS Act. This marks the financial sector's first major foray into tokenized fund shares.