State Street is entering the race to manage the cash piles behind stablecoins. The Boston-based custodian bank said Tuesday it will launch a money market fund designed specifically for stablecoin issuers, joining a field that already includes BlackRock and Franklin Templeton.
The target market
Stablecoins — digital tokens meant to hold a fixed value, usually $1 — are backed by reserves of cash, Treasuries, and other short-term assets. Those reserves need to be invested somewhere. Until recently, most issuers parked the money in bank accounts or bought Treasuries directly. But as the stablecoin market has ballooned, so has demand for institutional-grade funds that can handle the volume while meeting strict regulatory requirements.
State Street’s new product is a government money market fund. It will invest in U.S. government securities and repurchase agreements, keeping the holdings short-term and liquid. That’s important: stablecoin issuers need to be able to redeem tokens on demand, so the underlying reserves have to be easily convertible to cash.
Why now
Competition for stablecoin reserve management has heated up over the past year. BlackRock launched a tokenized fund, BUIDL, in March 2024, and Franklin Templeton followed with its own on-chain money market fund. Both have attracted billions from issuers like Circle and Paxos. State Street is betting it can carve out a piece of that business by offering a traditional fund structure backed by its custody and servicing infrastructure.
The stablecoin market now tops $160 billion in total supply, according to data from CoinGecko. The biggest, Tether’s USDT and Circle’s USDC, together account for roughly 90% of that. Each of them holds tens of billions in reserves. Even a fraction of that under management would make a fund significant.
What’s in the fund
The fund will be registered under the Investment Company Act of 1940, meaning it will be subject to Securities and Exchange Commission oversight. That’s a key selling point for issuers facing pressure from regulators to provide transparency and ensure reserves are safe.
State Street hasn’t disclosed the fund’s expense ratio or the minimum investment required. The bank said it expects to open the fund to investors in the coming weeks.
The move also deepens State Street’s push into digital assets. The bank already offers crypto custody and has a partnership with Galaxy Digital to create digital asset ETFs.
Who else is in the race
BlackRock’s BUIDL fund has pulled in more than $500 million since its debut. Franklin Templeton’s Benji Investments claims over $400 million in its on-chain fund. Both are tokenized, meaning shares trade on a blockchain. State Street’s fund is not tokenized — at least not yet. The bank said it may consider adding a blockchain layer later, but for now it’s focused on the traditional wrapper.
Other players include JPMorgan, which runs a tokenized repo platform, and Goldman Sachs, which has said it’s exploring similar products.
State Street’s entry could pressure fees across the board. Money market funds earn thin margins, and stablecoin issuers are known for negotiating aggressively. The bank will need to find a way to compete on cost while still turning a profit.
The fund’s launch is expected by the end of the first quarter. Until then, issuers will be watching to see whether State Street can match the convenience and reach of the tokenized rivals already on the market.
