Deutsche Bank has set out a view that the move to continuous, around-the-clock digital markets is bringing tokenization into play for mainstream finance, with potentially far-reaching consequences for funding markets, reserve holdings and reference rates.
Analyst Andrew Fu framed tokenization as "simply the digital representation of assets on blockchain technology," noting the technology's capacity to allow trading to occur 24/7, enable near-instant settlement and cut administrative overhead through programmable smart contracts.
The bank said activity around tokenization picked up speed over the past year, pointing to regulatory and operational developments including progress by the SEC on tokenized stocks, speeches by Federal Reserve governors and continuing work by the DTCC on tokenized collateral infrastructure.
A focal point of Deutsche Bank's note is the emergence of tokenized money market funds, or TMMFs. The bank reported that TMMFs have expanded at an average pace of more than 250% year-over-year in assets under management over the past two years - a growth rate that, the bank said, has outstripped even that of stablecoins.
Fu argued that TMMFs may be more suitable than stablecoins or tokenized bank deposits to act as the settlement currency within tokenized markets, because they combine yield-bearing characteristics with transferability that resembles money-like behaviour.
Looking at the repo market, Deutsche Bank said tokenization could allow execution in real time, automate many manual processes and support an intraday repo segment in which borrowing durations would be measured in minutes or hours rather than overnight. Such an evolution, the bank suggested, could materially change how participants manage liquidity intraday.
The bank quantified one potential effect, estimating that an intraday repo market of sufficient scale could trim precautionary reserve balances by roughly $250 billion. Deutsche Bank noted that such a reduction could, in turn, give the Federal Reserve room to pare its balance sheet further.
Deutsche Bank also flagged implications for benchmark reference rates. If intraday repo volumes expanded significantly, the fed funds market might diminish over time, a shift that would feed into discussion of alternative policy-rate anchors. The note drew attention to Dallas Fed President Logan's proposal to re-center the policy-rate target from fed funds toward Treasury repo, as a relevant policy idea in this context.
Implications
The bank's analysis places tokenized money market funds and tokenized collateral as central plumbing elements for a digital market model that operates continuously, settles quickly and relies less on traditional overnight funding structures.
While Deutsche Bank highlights rapid growth and possible efficiency gains, the note stops short of forecasting precise timelines, instead outlining structural changes that could follow if tokenized instruments and intraday repo achieve scale.