How will tokenized MMFs scale to trillions AUM? pt.2

We have looked at in detail the three use cases for tokenized MMFs that will help it scale in traditional markets. But what exactly are the opportunity sizes for MMF in corporate treasury and derivatives trading market segments? We will quantify that in this article. 

Since the publication of our last post, another interesting data point came up. Fidelity International tokenized its own MMF on JPMorgan’s Onyx blockchain and used JPMorgan’s Tokenized Collateral Network as the technology solution to enable posting its MMF shares as collateral.

Looks like the institutional adoption of MMF tokenization is picking up steam.

In this week’s newsletter, we will look at 

• US corporates cash holdings and composition 
• Global derivatives trading volume and initial margin requirement

…to gauge the relevant market opportunity size for tokenized MMF as

• a better cash management tool
• a more powerful derivatives collateral management tool

For those of you who want a short cut answer, here are high-level conservative estimates.

If you want to know how to arrive at these estimates, let’s dive in.

A Superior Cash Management Tool

We have identified in our previous post tokenized MMFs superior capability as a cash management tool for corporations due to its faster settlement and always-on infrastructure. 

But how much cash do the US corporates hold? And how are they managing them?

By Jun 2023, the US Corporate Cash holdings reached an all-time-high of $4.15 trillion, according to The Carfang Group, a corporate treasury advisory firm.

Money Market Funds were the star asset class of the first half, increasing by $104 billion as treasurers moved uninsured deposits out of the banking system and into MMFs. Assets notched up to 20.3% of corporate cash. Perhaps the banking crisis of early 2023, rang an alarm bell in these corporate treasurers’ minds?

Despite this uptick, allocation towards MMFs remains close to the lower end of the historical range of MMF allocation % of US corporate cash. 

Now if an increase in MMF allocation were to happen to 30% of total cash, meaning a 10% allocation to tokenized MMF, where would all the money go? Below is a chart showing the market share split between the biggest asset managers in the US using April 2024 data.

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