Stablecoins are starting to disrupt traditional finance, particularly putting pressure on money market funds, according to a recent report from Bank of America (BofA). The financial giant pointed to two significant trends influencing the U.S. Treasury market—growing demand for Treasury bills (T-bills) by stablecoin issuers and the wider adoption of tokenization in government debt-related assets.

Stablecoin Influence on Treasury Demand

BofA’s rates strategy team explained that while stablecoin interest in U.S. Treasuries is increasing, it’s not likely to dramatically alter the structure of the T-bill market. The bank predicts that over the next year, stablecoin-driven demand could rise between $25 billion and $75 billion. However, this level of growth is expected to remain incremental rather than transformative.

For clarity, stablecoins are cryptocurrencies pegged to assets like the U.S. dollar or gold. They are central to the crypto ecosystem, serving roles in payments and cross-border money transfers. Their stable value makes them attractive alternatives for short-term investments and liquid holdings.

Competitive Pressure on Money Market Funds

Unlike their limited impact on Treasuries, stablecoins present a more direct challenge to money market mutual funds (MMFs). Since stablecoins may offer higher yield potential—particularly once regulatory structures allow them to legally pay interest—they could lure away investors from traditional MMFs.

Some MMF clients are already taking proactive steps by exploring tokenization as a defensive strategy. Tokenization allows traditional financial instruments to exist as blockchain-based assets, offering greater transparency and potentially real-time settlement.

Blockchain Adoption by Major Institutions

BofA’s report also highlighted that in July, two influential financial firms—BNY Mellon and Goldman Sachs—introduced blockchain-based systems for tracking MMF ownership records. This technological shift, driven in part by the growth of stablecoins and the recently passed GENIUS Act, represented the rollout of tokenized MMF shares on a notable scale.

Institutional players are responding to the rise of decentralized finance by integrating blockchain tech into existing financial products. This signals a potentially broader move toward digitized versions of conventional assets in response to crypto-market pressure.

Chart showing growth in stablecoin-linked Treasury demand versus MMF blockchain adoption.

Regulatory Horizons and Strategic Windows

A pivotal point raised in the report is the current restriction on stablecoins paying interest. This situation offers MMFs a window of opportunity to adopt blockchain and stay competitive before policy changes level the playing field. According to BofA, tokenizing MMF shares could allow traditional finance to retain relevance by matching or even exceeding the yields that stablecoins may soon offer.

Eventually, as regulations evolve or new workarounds emerge, stablecoins could compete on more than just liquidity and accessibility. This scenario makes it urgent for traditional institutions to innovate before their edge is eroded.

In summary, BofA emphasizes that while stablecoins may not yet revolutionize Treasuries, their growing appeal and the push toward tokenization are real threats to conventional financial products like MMFs. Institutions are beginning to embrace blockchain not out of curiosity, but necessity—aiming to future-proof their services in a rapidly digitizing world.

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Read more: Stablecoin Supply to Grow as Much as $75B Following Passage of GENIUS Act, BofA Says