Both products do roughly the same thing under the hood: park dollars in short-term Treasuries, repos, and bank paper, then pass the interest back to holders. The wrapper is what differs. A traditional money market fund sits inside the 1940 Act with SEC Rule 2a-7 governing what it can hold. A yield-bearing stablecoin is a token on a public blockchain. The economic substance overlaps; the legal substance, the redemption mechanics, and the way the dollar can move once you hold it do not.
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This article compares three flavors of the same trade, a traditional money market fund (MMF) such as Vanguard's VMFXX, a tokenized MMF like Franklin Templeton's BENJI or WisdomTree's offerings, and a yield-bearing stablecoin such as Ondo's USDY or Figure's YLDS. We focus on what each is, who it's regulated by, what you can do with it, and where each fits.
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A money market fund is an SEC-registered open-end mutual fund that invests in short-duration, high-quality debt and is governed by Rule 2a-7. A yield-bearing stablecoin is a tokenized claim on a similar pool of assets, issued onchain. Both pay interest. Only one is freely transferable across DeFi.
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The MMF was designed in the 1970s as a higher-yield alternative to a checking account. It holds Treasury bills, commercial paper, and repo, marks itself near a $1.00 net asset value, and sweeps a daily dividend. The SEC tightened the rulebook after 2008 and again in 2023, adding redemption gates and liquidity floors after the Reserve Primary Fund broke the buck.
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Yield-bearing stablecoins came later and were built for the opposite environment: not the brokerage account, but the wallet. Some are securities (YLDS is registered with the SEC as a face-amount certificate); some are issued offshore (USDY uses a BVI SPV, Ondo USDY LLC); some are technically tokenized fund shares (BENJI is the onchain transfer agent record of Franklin's FOBXX fund). The legal envelope varies, but the user experience is similar: hold a token, watch the balance accrue.
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The three categories share a yield source but split on regulator, liquidity profile, and what you can do with the asset once you own it. The table below pulls the load-bearing differences. Treat tokenized MMFs as a hybrid: they wear the 2a-7 wrapper but live on a blockchain, which inherits some of the smart-contract surface area without the full DeFi reach.

Read the row on composability twice. It is the only feature a stablecoin gives you that a fund share cannot, and it is the entire reason the category exists.
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Yields across all three categories track short-term Treasury rates, since that's where the underlying paper sits. The spread between them is the fee stack: fund expense ratios for MMFs, plus issuer spread for tokenized variants. Rank order is usually MMF first, tokenized MMF second, yield-bearing stablecoin third.
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Money market funds typically pay close to the federal funds rate minus the expense ratio. The Federal Reserve publishes the effective fed funds rate daily on FRED; check it before assuming a current number. A government MMF charging 11 basis points will land a hair below that rate. Tokenized MMFs pass through nearly the same yield because they hold the same pool, Franklin's BENJI is a share class of FOBXX, and the only drag is whatever onchain handling the issuer charges.
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Yield-bearing stablecoins generally pay slightly less than the underlying. Ondo's USDY is backed by short-duration Treasuries and bank deposits, with the spread between Treasury yield and the published rate going to the issuer. Figure's YLDS pays a disclosed rate of SOFR minus 0.50%, accrued daily and paid monthly, per Figure Markets' launch documentation. Net to a holder, expect a yield-bearing stablecoin to land 30 to 80 basis points below a comparable MMF, depending on issuer fee structure.
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One subtle point: MMF yields are quoted as a 7-day SEC yield, which is annualized. Stablecoin issuers quote APY or APR. Compare like to like before drawing conclusions.
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All three rest on US Treasury credit, the deepest dollar-asset market available. The differences are not in the underlying paper but in the wrappers around it. MMFs have decades of regulatory history and known failure modes. Tokenized variants stack smart-contract and custodian risk on top. Yield-bearing stablecoins add issuer credit risk and, in some cases, an offshore legal venue.
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For a traditional MMF, the risks are: a sponsor failing to support the NAV in a stress, redemption gates triggering during a run, and the rare event of breaking the buck (Reserve Primary, 2008). The SEC's 2023 amendments added mandatory liquidity fees for institutional prime funds and tightened daily and weekly liquid asset thresholds. Read the final rule if you care about the specifics.
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For a tokenized MMF, the underlying MMF risks apply plus three additional categories: the smart contract holding the share record could have a bug, the custodian holding the underlying could fail, and the transfer-agent process could mishandle a wallet whitelist. The fund itself remains 2a-7. The token layer adds new surface area.
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For a yield-bearing stablecoin, issuer credit risk sits on top of Treasury credit risk. If Figure or Ondo became a counterparty problem, the redemption process under their respective legal frameworks is slower and less tested than a fund's. YLDS sits inside an SEC-registered face-amount certificate company, which gives holders a defined statutory claim. Offshore SPVs operate under a different legal framework; the venue matters in a stress scenario.
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A money market fund share sits in a brokerage account and earns yield. That is the full feature set. A yield-bearing stablecoin is a transferable token, which means the same dollar can pay yield in a wallet and simultaneously serve as collateral, settle a payment, or move across borders. The transferability has no analog in the registered-fund world.
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Concretely: a treasurer holding USDY can post it as collateral on a lending market, swap into another stablecoin for a vendor payment, or send it onchain to a counterparty in another country. Yield accrues throughout. A treasurer holding VMFXX earns the yield, but moving the dollars elsewhere requires a redeem, settle, and re-enter cycle.
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This is why the yield-bearing stablecoin category exists despite paying less than the equivalent MMF. The 30-to-80 basis-point spread prices portability. For a corporate treasury whose dollars do not need to move, the spread is a cost without a corresponding feature. For a remittance flow, a DeFi protocol holding reserves, or a crossborder business that wants idle balances earning, the spread pays for the optionality.
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The wrapper choice tracks what the dollars actually need to do. Dollars that sit in a brokerage account and never move favor an MMF on yield and the 2a-7 regulatory framework. Dollars that need to move onchain favor a stablecoin on optionality. The middle case is the tokenized MMF: onchain rails inside the 2a-7 wrapper.

Tax treatment differs by wrapper. MMFs send a 1099-DIV. Tokenized MMFs do the same since they're still fund shares. Yield-bearing stablecoins are murkier and depend on the issuer's structure: a face-amount certificate generates interest income reportable on a 1099-INT, while an offshore SPV may produce no US tax form at all and put the burden on the holder.
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For US holders: registered products generate year-end tax documents. YLDS, as an SEC-registered face-amount certificate, issues a US tax form. USDY, as an offshore product, generally does not. IRS guidance for tokenized yield products is still developing; a tax advisor is the right next step.
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This comparison draws on SEC Rule 2a-7 (the legal definition of a money market fund), the SEC's 2023 final rule amending money market fund reform, Franklin Templeton's published BENJI documentation, Ondo Finance's USDY product page, and the Figure × Stellar press release announcing YLDS. Yield references point to the Federal Reserve Bank of St. Louis FRED data series for the effective federal funds rate. We did not invent specific yield numbers; current rates change daily and should be checked before any decision.
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