From Cash Vehicle to Collateral Layer: Why Tokenised MMFs Matter Now
Published: July 20, 2026
The evolution of tokenised MMFs from yield instruments into active collateral infrastructure is gathering pace. What does this mean for corporate treasurers? Simon Keefe, Head of Digital Assets, Calastone, explores current market developments.
Institutional markets are not short of collateral. They are short of collateral that can move when it is needed.
Across the financial system, firms hold vast pools of high-quality liquid assets. Yet too much of that liquidity remains trapped by settlement cut-offs, fragmented custody networks, manual processes, and conservative buffers. The result is a familiar challenge for treasury and collateral teams: assets exist, but they are not always in the right place, in the right form, at the right time.
The scale of the inefficiency is striking. Recent industry research from Value Exchange[1] finds that 69% of firms struggle with settlement matching and delivery issues in their collateral movements, while the average firm manages collateral across 65 custody locations. To compensate, firms pre-fund around 18% of their collateral obligations and over-provision by a further 7%. In a market where up to $25tr. of cross-border collateral is outstanding, these behaviours can leave more than $6tr. unused or uncompensated overnight, contributing to an estimated $1.2bn in lost interest earnings every night.
That is the real economic problem tokenisation can help address: not simply the cost of administering an asset, but the cost of liquidity that cannot be mobilised efficiently.
The hidden cost of liquidity
Today, investors often have to treat investment liquidity and collateral liquidity as separate pools. A client may hold MMF units for yield and cash management, but still need to redeem those units to raise cash for margin or collateral purposes. That cash may then move through settlement systems and be posted to a counterparty, creating additional operational complexity and settlement risk along the way.
This redemption-and-reinvestment cycle is inefficient. It creates operational work, settlement risk and potential yield drag. It can also amplify pressure during periods of market stress, when investors most need liquidity to remain flexible.
MMFs are already trusted, regulated vehicles designed to preserve capital, provide liquidity, and generate yield. The opportunity is not to change what they are. It is to change how they can move.
From static holding to usable collateral
Recent activity in tokenised collateral markets shows why this matters.
Live tokenised repo transactions have demonstrated that high-quality collateral can move across borders, currencies, and time zones, including US Treasuries, European government bonds and UK gilts. The latest activity has spanned three jurisdictions, 10 time zones, a 19-hour intraday window and approximately $20tr. in cross-border liquidity. [2]
That is important because collateral markets are global by design. A tokenised collateral model that only works within one market, one jurisdiction or one operating window does not solve the real problem. The practical prize is the ability to mobilise eligible assets closer to the point of need, whether that is a margin call, a financing requirement or a short-term liquidity event.
This is where MMFs become strategically important.
Tokenised collateral markets need assets that are liquid, regulated, familiar, and capable of generating yield. MMFs already sit at the centre of institutional liquidity management. They are widely used by corporates, insurers, pension funds, asset owners, and FIs to manage cash efficiently.
In a tokenised environment, those same characteristics make MMFs natural collateral instruments.
The next phase of tokenised collateral may therefore not be limited to government bonds, tokenised deposits or stablecoins. It could extend into the fund units clients already use to manage liquidity – including fixed-term funds and MMFs.
The client benefit: less drag, more utility
The client-side benefits are potentially significant.
First, tokenised MMFs could reduce idle cash and collateral drag. If fund units can be pledged, transferred or mobilised directly, investors may be able to keep more liquidity invested while still meeting collateral obligations. The same asset could support yield generation and collateral readiness.
For clients, the value is not simply faster settlement. It is reducing the amount of liquidity that has to sit idle because infrastructure cannot move quickly enough.
Second, tokenised MMFs could reduce unnecessary redemption activity. In today’s model, the path from MMF holding to posted collateral often runs through cash. A tokenised model creates the possibility that the asset does not need to leave the fund ecosystem in order to perform a collateral function.
The real innovation is not that MMFs become digital. It is that they may no longer need to be liquidated to be useful.
Third, tokenisation could make liquidity productive over shorter time periods. Traditional collateral markets are shaped by settlement limitations. Overnight funding is often the default not because every client needs funding overnight, but because shorter-term mobilisation is operationally difficult. Tokenised collateral creates the possibility of financing and collateral movements measured in hours or even minutes, enabling liquidity to be mobilised for specific, time-bound needs rather than blunt overnight assumptions.
In a tokenised market, liquidity does not only have to be available. It can be continuously productive.
A better response to market stress
The value of liquidity rises sharply when markets are under pressure.
Margin calls often arrive before collateral can move. Cut-offs force firms to pre-position assets. Weekends and public holidays require firms to estimate future liquidity needs before markets reopen. These behaviours are rational responses to infrastructure constraints, but they can also trap liquidity and increase pressure when markets are already volatile.
Tokenised collateral changes that equation by enabling assets to move closer to the point of need. For an institutional investor, a fund unit that can be mobilised in real time seven days a week may be more valuable than one that offers only end-of-day liquidity.
Momentum is building around tokenised collateral
Central bank collateral frameworks are already beginning to adapt. The European Central Bank has now confirmed that the Eurosystem will accept certain DLT-based marketable assets as eligible collateral for Eurosystem credit operations. That is a significant institutional signal: tokenised assets are moving closer to core collateral frameworks in regulated markets.[3]
Market infrastructure is moving in the same direction. The Depository Trust & Clearing Corporation (DTCC) and Digital Asset have announced work to tokenise DTC-custodied US Treasuries on Canton, applying tokenisation to one of the world’s most important collateral assets.[4]
Many fund managers, banks, and market infrastructure providers are actively exploring how tokenised MMF holdings can be mobilised as collateral while remaining yield-bearing. At the infrastructure level, initiatives such as ClearToken’s Digital Securities Depository, being developed through the Bank of England’s Digital Securities Sandbox, highlight the industry's focus on creating regulated frameworks capable of supporting tokenised collateral and settlement at scale.
Early live examples are emerging where the need for 24/7 collateral mobility is most acute. Franklin Templeton and Binance have launched an institutional off-exchange collateral programme enabling eligible clients to use Benji-issued tokenised MMF shares as collateral while trading.[5]
[1] Tokenised collateral goes global, Value Exchange, 2026
[2] Tokenised collateral goes global, Value Exchange, 2026
[3]https://www.ecb.europa.eu/press/pr/date/2026/html/ecb.pr260127_1~a946167ce1.en.html
[4] https://www.dtcc.com/news/2025/december/17/dtcc-and-digital-asset-partner-to-tokenize-dtc-custodied-us-treasury-securities
[5] https://www.franklintempleton.com/press-releases/news-room/2026/franklin-templeton-and-binance-advance-strategic-collaboration-with-institutional-off-exchange-collateral-program
[6] The BENJI token is a digital asset security that represents a share of a tokenised, US-registered government MMF, known as the Franklin OnChain US Government Money Fund.